Glossary of Terms
Browse our list of definitions to get a better understanding of terms you may encounter as you work your way through the investment process.
A tax-deferred defined contribution employer sponsored investment plan that allows an employee to put aside a percentage of their earned wages into an investment account which is intended to be used as retirement income. In some cases employers will match the contribution made by their employees dollar for dollar - or offer a percentage. The name 401(k) comes from the IRS section which describes the program.
Similar to a 401(k), a 403(b) is a tax-deferred retirement investment plan that allows employees of non-profit organizations to put a percentage of their earned wages into an investment account. Some key advantages to a 403(b) plan include lower taxable income contributions, larger contributions can be made to the account and the possibility of taking out loans. Also contributions can grow tax-deferred until withdrawal, during which time the money is taxed as ordinary income.
529 College Savings Plans
An education savings plan operated by a state or educational institution where families are able set aside funds for a child’s future college costs. However, the proceeds can only be used for education withdrawals. If used for non-educational purposed a 10% penalty will incur. In most case, the money is invested in a portfolio of stocks, bonds or mutual funds. Key benefits include, withdrawals from the account are taxed at the child's tax rate and anyone can contribute to a Section 529 plan regardless of income level.
Annuities allow you to accumulate tax-deferred funds for retirement. There are two basic types: Fixed rate and Variable rate annuities. Fixed rate annuities offer you a fixed interest rate enabling your money to grow tax-deferred and allows you the ability to shelter your assets from the volatility of the stock or bond market, and provide guaranteed income for your spouse or heirs, Variable rate annuities offer a wide range of investment options, tax-deferred growth for investors who seek long-term growth, but are generally geared for investors who have a higher risk tolerance or who may have already fully contributed to their other tax-deferred accounts. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. Withdrawals made prior to age 59 are subject to a 10% IRS penalty tax and surrender charges may apply. Guarantees are based on the claims paying ability of the issuing company. Variable annuities are subject to market risk and may lose value.
The strategy of diversifying a percentage of your money among various assets such as stocks, bonds, and cash. The value of allocating among different asset classes is that each class tends to react differently to the economy. Asset Allocation is determined by your comfort with Market Risk (Risk Tolerance) and the amount of time before you need access to your savings (Time Horizon).
A debt instrument sold by the government, states, cities, corporations or other institutions issued for more than one year with the goal of raising capital by borrowing. By issuing a bond (debt) , an institution promises to repay the principal donation along with interest (coupons) on a specified date (maturity date).
The amount by which an assets sales price exceeds the original cost, or purchase price.
The most common type of trusts for minors, family members and guardians can transfer a child’s assets to a custodial account, which is covered by the UGMA (Uniform Gift to Minors Act) and the UTMA (Uniform Transfer to Minors Act).
An insurance policy which is designed to protect your finances, family, lifestyle and health should you become sick or injured and are unable to work.
A share of profits given, usually every quarter, by a board of directors to its shareholders out of the company’s retained earnings. General a dividend is a taxable payment given as cash, but they can also take the form of stock or other property.
The strategy of spreading your investments between different types of securities, markets and industries ensuring that at least some of your investments will be in the market's winning sectors–and never fully invested in the losing sectors.
Dollar Cost Averaging
A type of investing strategy that enables you to invest a fixed amount of money on a regular basis in which securities. Typically, mutual funds are purchased regardless of market conditions. When the price of a fund rises, then fewer shares are purchased and when the price of a fund falls, more shares are purchased.
A person, corporation or association that is legally appointed and is authorized to hold and manage the assets for another party.
A qualified investment professional that assists and advises individuals and corporations to help meet their long-term financial and investment objectives.
A tax-deferred retirement account that permits an individual to set aside money each year for the sole purpose of using after they retire.
A type of insurance that helps replace some of the income you would have earned to your beneficiaries upon your death, and can also be used to help pay off debts, funeral expenses and taxes.
Long Term Care Insurance
A type of insurance designed to protect and support you and your family in the event of an illness, injury or disability.
Through a mutual fund investment, your money is pooled with money from other investors who share common financial goals. In return for the money invested, you receive an equity position, or partial ownership, in the fund and all its securities.
The National Association of Securities Dealers Automated Quotation System, is an automated quotation system that reports on the trading of domestic securities not listed on the regular stock exchanges.
A collection of investments owned by the same individual or organization.
A fund into which a sum of money is added during an employee's employment years, and from which payments are drawn to support the person's retirement from work in the form of periodic payments.
The threat of incurring loss or misfortune on an investment.
An individual retirement account that allows for tax-free withdrawals after age 59½ and after the account has been open for 5 years. While you cannot deduct contributions, qualified distributions are tax free if you satisfy certain requirements. Otherwise, taxes and a potential 10% penalty may apply to earnings withdrawn.
Founded in 1933, after the passing of the Securities Act of 1933, the U.S. Securities and Exchange Commission was designed to oversee the key participants in the securities world, including securities exchanges, securities brokers and dealers, investment advisors, and mutual funds; and to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.
An instrument used to signify an ownership position, or equity, in a corporation including a share of its assets and profits.
Also known as T-Bonds, a government debt security that pays a fixed rate of interest every six months until they mature – in more than 10 years. May be appropriate for diversifying your investment portfolio, financing an education or supplementing retirement income.
The Uniformed Gift to Minors Act allows you to give unlimited gifts to a minor child including cash, mutual funds, life insurance, annuities or other forms of property given to the account with no limitations. While there are no limits for contributions, the federal gift tax could be incurred above certain limits. Please consult your tax advisor.
A Unit Investment Trust is a fixed portfolio of professionally selected and diversified stocks, bonds and other securities. UITs have fixed terms that expire between 1 and 30 years. Plus, they’re also specific to a particular industry or sector, which is a big contrast to the diversification demands of a mutual fund.
An extension of the UGMA, the Uniform Transfers to Minors Act allows minors to own other types of property, such as real estate, fine art, patent and royalties, and for the transfers to be made through an inheritance.
The annual rate of return on an investment, often expressed as a percentage.