Accrued interest: is the
interest that has accumulated on
a bond since the last interest payment
was made.
Active management: an investment
strategy that seeks to outperform
the average returns of the financial
markets. Active managers rely on
research, market forecasts, and
their own judgement and experience
in selecting securities to buy and
sell.
American Stock Exchange (AMEX):
the nation's second-largest stock
market in terms of volume, based
in New York.
Annuity: a contract between
an individual and an insurance company
that provides for periodic payments
to the individual or designated
beneficiary in return for an investment.
Typically, an annuity agrees to
provide payments to the annuitant
beginning at some future date. The
payments may continue for the lifetime
of the annuitant, or for an agreed-upon
term.
Asset allocation fund: a
fund portfolio that, as market conditions
change, reapportions its investments
among the major asset classes (cash
investments, bonds, and stocks).
Asset classes: major categories
of financial securities. The three
major asset classes are cash investments
(also called cash reserves or money
market instruments), bonds, and
stocks.
Average annual total return:
the average annual profit or loss
realized by an investment at the
end of a specified calendar period,
stated as the percentage gained
or lost per dollar invested.
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Back-end load: a sales fee
charged by some mutual funds when
an investor sells fund shares. Also
called a contingent deferred sales
charge.
Balanced fund: a mutual fund
that seeks to provide some combination
of growth, income, and conservation
of capital by investing in a mix
of stocks, bonds, and/or money market
instruments.
Basis point a measure that
equals one one-hundredth of one
percent. For example, 30 basis points
are equal to 0.30%.
Bear market: a market that
loses value over an extended period
of time.
Benchmark: an unmanaged group
of securities whose overall performance
is used as a standard to measure
investment performance.
Blended stock fund: a fund
that uses both Growth and Value
management techniques.
Blue chip stocks are common
stock of well-known companies with
a history of growth and dividend
payments.
Bond fund: a mutual fund
that emphasized income - consistent
with risk, rather than growth -
by investing in corporate, municipal,
or U.S. Government debt obligations,
or some combination.
Bull market: a market that
gains value over an extended period
of time.
Buy-and-hold: a strategy
in which the investor ignores short-term
market fluctuations and holds on
to his/her investments for long
periods of time.
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Capital gain/loss: the difference
between the sale price of an asset
- such as a mutual fund, stock,
or bond - and the original cost
of the asset.
Capital gains distributions:
payments to mutual fund shareholders
of gains realized during the year
on securities that the fund has
sold at a profit, minus any realized
losses.
Certificate of deposit: an
insured, interest-bearing deposit
at a bank, which requires the depositor
to keep the money invested for a
specific period of time.
Certified Financial Planner (CFP):
an investment professional that
has passed exams administered by
the CFP Board of Standards on subjects
such as taxes, securities, insurance,
and estate planning.
Certified Public Accountant (CPA):
a person who is state licensed
to practice public accounting.
Change Elections: the process
of changing how your future contributions
will be invested.
Chartered Financial Analyst (CFA):
a person who has met competency
standards in economics, securities,
portfolio management, and financial
accounting as determined by the
Institute of Chartered Financial
Analysts.
Closed-end fund: is a mutual
fund that has a fixed number of
shared, usually listed on a major
stock exchange.
Closing price: a mutual fund's
closing price, or net asset value
(NAV), calculated at the end of
each business day. Also refers to
the last trading price of a stock
when the market closes.
Common stock: a security
representing ownership rights in
a corporation.
Consumer Price Index (CPI):
is a measure of the price change
in consumer goods and services.
The CPI is used to track the pace
of inflation.
Cost basis: the original
cost of an investment. For tax purposes,
the cost basis is subtracted from
the net sales price to determine
capital gain/loss.
Current yield: the ratio
of annual interest to the current
market price of the bond.
CUSIP number: a numerical
identification supplied by the Committee
on Uniform Securities Identification
Procedures for each security approved
for trading in the United States.
Most brokers and securities firms
used this number to identify securities.
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Depreciation: a decrease in
the value of an investment.
Discount rate: the interest
rate charged by the Federal Reserve
Board to member banks for loans.
Diversification: the strategy
of investing space asset classes
and among the securities of many
issuers in an attempt to lower overall
investment risk.
Dividend: a payment of cash
or stock from a company's earnings
to each stockholder as declared
by the company's Board of Directors.
Dividend reinvestment plan:
the automatic reinvestment of shareholder
dividends in more shares of the
company’s stock.
Dividend yield: the annual
rate of return on a share of stock,
determined by dividing the annual
dividend by its current share price.
In a stock mutual fund, this figure
represents the average dividend
yield of the stocks held by the
fund.
Dow Jones Industrial Average
(DJIA): the oldest and most
widely quoted of all market indicators,
the "Dow" represents the
average of 30 actively traded blue
chip stocks on the New York Stock
Exchange (NYSE).
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EAFE Index: the Morgan Stanley
Capital International Europe, Australia/Asia,
Far East Index; a widely recognized
benchmark of the world’s stock markets
(excluding the United States).
Early withdrawal penalty:
a penalty on money withdrawn early
from a fixed-term investment. For
example, withdrawing from a tax-advantaged
retirement plan before age 59 ½
or cashing in a certificate of deposit
(CD) before its maturity.
Earnings per share: a company's
earnings divided by the number of
common shares outstanding.
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Federal Reserve: the central
bank that regulates the supply of
money and credit throughout the
United States. The Fed's seven-member
board of governors, appointed by
the President, has significant influence
on U.S. monetary and economic policy.
Fixed annuity a contract
between an individual and an insurance
company that guarantees periodic
payments to the individual or designated
beneficiary in return for an investment.
In a fixed annuity, payment amounts
do not change or they change at
stated intervals.
Fixed-income fund: a fund
that seeks current income by investing
in fixed-income securities such
as bonds.
Front-end load: a sales commission
charged at the time of purchase
by some mutual funds and other investment
vehicles.
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Gross Domestic Product: the
value of all goods and services
provided by U.S. labor in a given
year. One of the primary measures
of the U.S. economy, the GDP is
issued quarterly by the Department
of Commerce. Formerly known as the
Gross National Product (GNP).
Growth stock fund: a fund
that emphasizes stocks of companies
believed to offer above-average
prospects for capital growth due
to their strong earnings and revenue
potential. Growth stocks tend to
offer relatively low dividend yields,
because these companies prefer to
re-invest earnings in research and
development.
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High-yield fund: a fund that
invests primarily in bonds with
a credit rating of BB or lower.
Because of the speculative nature
of high-yield bonds, high-yield
funds are subject to greater share
price volatility and greater credit
risk than other types of bond funds.
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Income fund: a fund that
seeks current income rather than
growth of capital. Income funds
typically invest in bonds and/or
high yielding stocks.
Index: an unmanaged group
of securities whose overall performance
is used as a standard to measure
investment performance.
Index fund: a passively managed
fund that seeks to parallel the
performance of a particular market
index.
International fund: a fund
that invests in securities traded
in markets outside of the United
States. Foreign markets present
additional risks, including currency
fluctuation and political instability.
In the past, these risks have made
prices of foreign stocks more volatile
than those of U.S. stocks.
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Junk bond: a bond with a
credit rating of BB or lower. Also
known as high-yield bonds because
of the rewards offered to those
who are willing to take on the additional
risks of a lower-quality bond.
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Large-capitalization ("large
cap") stocks: stock from
a company whose market value, according
to Vanguard, is more than $12 billion.
Large-capitalization stocks tend
to be issued by well-established
corporations with a long track record
of steady earnings growth and reliable
dividend payments.
Load: a sales fee or commission
charged for the purchase or sale
of some mutual fund shares.
Load fund: a mutual fund
that levies a sales charge, either
when shares are bought (a front-end
load) or sold (a back-end load).
Low-load fund a fund that
charges a sales commission of 3.5%
or less for the purchase of its
shares.
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Management fee: the amount
a mutual fund pays to its investment
adviser for the work of overseeing
the fund’s holdings. Also called
an advisory fee.
Market capitalization: a
determination of a company's value,
calculated by multiplying the total
number of company stock shares outstanding
by the price per share. Also called
capitalization.
Market correction: a relatively
short-term drop in stock market
prices, generally viewed as bringing
overpriced stocks back to a level
closer to the companies’ actual
value.
Market timing: an investment
strategy based on predicting market
trends. The goal is to anticipate
trends, buying before the market
goes up and selling before the market
goes down.
Mid-capitalization ("mid
cap") stocks: a stock from
a company whose market value, according
to Vanguard, is between $1 billion
and $12 billion.
Money market fund: a fund
that seeks income, liquidity, and
a stable share price by investing
in very short-term investments.
Municipal bond: a debt obligation
issued by a state or local government.
Interest income from municipal bonds
is generally free from federal (and
sometimes state and local) income
taxes.
Municipal bond fund: a fund
that invests in tax-exempt bonds
issued by state, city, and/or local
governments. The interest obtained
from these bonds is passed through
to shareholders and is generally
free of federal (and sometimes state
and local) income taxes.
Mutual fund: an investment
company that pools the money of
many shareholders and invests it
in a variety of securities in an
effort to achieve a specific objective
over time.
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NASDAQ (National Association
of Securities Dealers Automated
Quotations): a computerized
system that provides up-to-the-minute
price quotations for securities
traded over-the-counter as well
as for many securities listed on
the New York Stock Exchange.
New York Stock Exchange (NYSE):
the oldest and largest stock
exchange in the United States.
Nikkei Index: an index of
more than 200 leading stocks traded
on the Tokyo Stock Exchange. Like
the Dow Jones Industrial Average,
it is made up of representative
blue chip stocks.
No-load fund: a mutual fund
that charges no sales commission
or load.
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Objective: the financial
goal pursued by an investor or a
mutual fund.
Open-end fund: a mutual fund
that has an unlimited number of
shares available for purchase.
Over the counter (OTC): a
geographically decentralized market
in which securities transactions
are conducted through a telephone
and computer network regulated by
the National Association of Securities
Dealers (NASD).
Overvalued: the perception
that a security's price is too high,
given the company's current value.
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Par value (bond): a bond’s
face amount ($1,000 for a typical
corporate bond; government bonds
are often higher) or the amount
the issuer must repay when the bond
reached maturity. A par bond is
one selling at its face value.
Par value (stock): the dollar
value assigned to a common stock
when it is issued. This figure is
mainly for bookkeeping purposes
and has little, if any, relationship
to the market value of the stock.
Portfolio diversification:
the strategy of investing in different
asset classes and among the securities
of many issuers in an attempt to
lower overall investment risk and
to avoid the chance that a portfolio’s
performance would be hurt by the
poor performance of a single security,
industry, or country.
Preferred stock: a class
of stock given preference over common
stock for payment of dividends and
any assets in the event of liquidation.
Price/earnings (P/E) ratio:
the share price of a stock divided
by its per-share earnings over the
past year. For a portfolio, the
weighted average P/E ratio of the
stocks in the portfolio. P/E is
a good indicator of market expectations
about a company's prospects; the
higher the P/E, the greater the
expectations for a company's future
growth in earnings.
Prime rate: the interest
rate that lenders charge their most
creditworthy, or prime, customers.
In the banking industry, this also
refers to a rate set by major banks
that usually becomes a national
standard.
Realign Balances: the process
of changing how your existing balances
will be invested.
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Reinvestment: use of investment
income to buy additional securities.
Many mutual fund companies and investment
services offer the automatic reinvestment
of dividends and capital gains distributions
as an option to investors.
Return of capital: a distribution
that is not paid out of earnings
and profits. It is a return of the
investor's principal.
Return on equity: an amount,
expressed as a percentage, earned
on a company's common stock investment
for a specific time frame. This
figure tells shareholders how effectively
their money is being utilized.
Risk-return trade-off: the
tendency of potential risk to vary
directly with potential return,
so that the more risk that is involved,
the more potential return is available,
and vice versa.
Risk tolerance: an investor's
ability or willingness to endure
declines in the prices of investments
throughout an investment cycle.
Russell 1000: a market-capitalization-weighted
benchmark index made up of the 1,000
highest-ranking U.S. stocks in the
Russell 3000.
Russell 2000: a market-capitalization-weighted
benchmark index made up of the 2,000
smallest U.S. companies in the Russell
3000.
Russell 3000: a market-capitalization-weighted
benchmark index made up of the 3,000
largest U.S. stocks, which represent
about 98% of the U.S. equity market.
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S&P 500 Index (Standard &
Poor's 500 Index): an index
of the 500 largest capitalized stocks
in the United States that is widely
recognized as a guide to the overall
health of the U.S. equity market.
Securities and Exchange Commission
(SEC): the agency of the federal
government that regulates mutual
funds, registered investment advisers,
the stock and bond markets and broker-dealers.
The SEC was established by the Securities
Exchange Act of 1934.
Share: a unit of ownership
in a mutual fund or a unit of equity
ownership in a corporation, represented
by a stock certificate naming the
company and the shareholder.
Small-capitalization ("small
cap") stocks: the stocks
from a company whose market value,
according to Vanguard, is less than
$1 billion. Small-cap companies
tend to grow faster than large-cap
companies and typically use any
profits for expansion rather than
for paying dividends. They also
are more volatile than large-cap
companies and have a higher failure
rate.
Standard & Poor's Corporation:
is one of the nation’s foremost
financial rating agencies. It rates
most of the publicly held corporate
and municipal bonds and many government
issues. The company is also known
for its S&P indexes, which are used
as a standard to measure investment
performance of various groups of
stocks.
Standard deviation: a measure
of the degree to which a fund's
return varies from its previous
returns or from the average of all
similar funds. The larger the standard
deviation, the greater the likelihood
(and risk) that a security's performance
will fluctuate from the average
return.
Stock fund: a mutual fund
having holdings consisting mainly
of stocks.
Stock split: a company-initiated
increase in the number of shares
of the company's stock, accompanied
by a decrease in share price, so
that shareholder equity remains
the same. For example, in a "2
for 1" stock split, a shareholder
who had 100 shares of the stock
when its price was $60 a share will
have 200 shares valued at $30 a
share after the split. Also called
a split.
Stockbroker: a licensed individual
who executes orders to buy or sell
a security and who usually gets
a commission for doing so.
Strategy: the general or
specific approach to investing that
an individual, institution or fund
manager employs.
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Target investment mix: the
percentage mix of stocks, bonds
and short-tem reserves that an investor
considers appropriate based on his/her
personal objectives, time horizon,
risk tolerance and financial resources.
Tax-deferred income: dividends,
interest, and unrealized capital
gains on investments in an account
such as a qualified retirement plan,
where income is not subject to taxation
until a withdrawal is made.
Tax-exempt bond: a bond,
usually issued by municipal, county
or state governments, whose interest
payments are not subject to federal,
and in some cases, state and local
income tax.
Tax-exempt income fund: a
mutual fund that seeks income that
is exempt from federal, and in some
cases, state and local income taxes.
Tax-sheltered: an investment
exempt from federal and, in some
cases, state or local income taxes.
Tax-sheltered annuity: a
type of retirement plan under Section
403(b) of the Internal Revenue Code
that permits employees of public
educational organizations or tax-exempt
organizations to make before-tax
contributions via salary reduction
agreement to a tax-sheltered retirement
plan.
Ticker symbol: an abbreviation
assigned to a security for trading
purposes. A security's ticker symbol
is often used in newspapers and
price-quotation services. Also called
a trading symbol or stock symbol.
Total return: a percentage
change, over a specified period,
in a mutual fund's net asset value,
with the ending net asset value
adjusted to account for the reinvestment
of all distributions of dividends
and capital gains.
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Undervalued security: a security
selling below its market value or
liquidation value.
Uniform Gifts to Minors Act (UGMA)
a law adopted by many states to
provide a simple method for giving
irrevocable gifts to children via
a custodial account without having
to establish a formal trust. UGMA
accounts are managed by a custodian
who acts on behalf of a minor. UGMA
assets must be turned over to the
minor at the state-established age
of majority (also called age of
termination), which ranges from
18 to 25, depending on the state.
Unrealized capital gain/loss:
an increase (or decrease) in the
value of a security that is not
"real" because the security
has not been sold.
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Value stock fund: a mutual
fund that emphasizes stocks of companies
whose growth opportunities are generally
regarded as sub-par by the market.
Value stock companies often pay
regular dividend income to shareholders
and sell at relatively low prices
in relation to their earnings or
book value.
Variable annuity: a type
of insurance contract having a value
that changes based on an underlying
investment portfolio, which may
include mutual funds, or on another
performance index. Funds held in
the annuity accumulate on a tax-deferred
basis.
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Yield: a snapshot of interest
and dividend income from a bond
or fund. The yield, expressed as
a percentage of the bond's face
value or the fund's net asset value,
is based on income earned over the
past 30 days and is annualized,
or projected, for the coming year.
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