Annuity: A form of insurance contract that allows for an accumulation of assets and guarantees a stream of income at some future date, generally retirement.
Asset: Any property that has monetary value. Asset Allocation: The process of dividing your money between different types of investments- such as stocks, bonds, cash, and real estate - in combination intended to generate the overall return you need, while at the same time minimizing your overall risk.
Average Maturity: A bond matures when it stops
paying interest and repays investors' principal. The average maturity
of a mutual fund's bond portfolio is the average length of time it takes
those bonds to mature.
Aggressive Investments: Generally stocks of
small companies, growth stocks, and stocks of foreign companies. These
investments can change in value very quickly over short time periods.
Balanced fund: A mutual fund that seeks the highest return possible, consistent with a low risk strategy, by investing in common and preferred stocks and bonds. This type of fund is seeking to find a balance between the lower returns of more conservative, less risky investments and the higher returns of more aggressive, riskier options.
Basis Point: A unit of measurement that makes it easy to measure dollar amounts smaller than one percent. Bear market: A bear market is one that loses value for an extended period of time, typically a year or more.
Blue-Chip Stock: Blue chips stocks are shares in the nation's biggest and most consistently profitable companies.
Bond: An IOU issued by a corporation or by a government. When interest rates go up, bond values decline, and vice versa.
Bond Fund: A mutual fund specializing in the purchase of bonds. By diversifying, the fund spreads risk. Bond funds pay regular distributions and may therefore be appro- priate for the investor who desires a stream of income.
Bond Rating: A way of measuring the bond issuer's ability to make good on its IOUs. Buy-and-hold: A long-term investing strategy.
Bull Market: A bull market is one that gains
value for an extended period, often several years.
Capital Appreciation: The growth of your principal.
Capital Gain: The profit from a sold investment.
Cash Investment: A very short-term loan to a borrower with a very high credit rating.
Certificates of Deposit (CDs): Investment vehicles usually issued by banks and other financial institutions that pay a fixed rate of interest for a specific period of time.
Commercial Paper: Very short-term IOUs of highly rated corporate borrowers. Commodities: Raw materials like wheat, gold, silver, oil.
Common Stock: An ownership share in a corporation.
Compounding: Compounding happens when you earn interest not just on your original investment, but also on the interest it has already earned.
Conservative Investments: Investments that, historically, have had lower earnings over longer periods of time and don't change much in value over short periods of time. Examples are money market funds, and GICs.
Contribution: A payroll deduction to a retirement savings plan.
Corporate Bond: A bond issued by a corporation as opposed to one issued by the federal or local governments. The sale or redemption of any fixed income security prior to maturity may result in a substantial gain or loss.
Correction: A relatively short-lived drop in market prices.
Cost of Living Adjustment (COLA): The change
(usually an increase) in wages or pension benefits to keep pace with the
change in the cost of living due to inflation.
Debt: Investments in which you lend your money for a specific term and rate of interest.
Deferred Annuities: A deferred annuity is an insurance contract that allows you to accumulate money on a tax-deferred basis for long-term goals, such as retirement. You may have a variety of withdrawal options available, including those guaranteed by the issuing insurance company to provide you and your spouse income for the rest of your lives. (The guarantee is subject to the claims-paying ability of the issuing company).
Default: The bond issuer's failure to pay the interest or principal that has come due on its bonds.
Disbursement: When withdrawals are made from your retirement plan, this term covers any payment made to you out of your account, whether for part of the account or your total balance.
Distribution: A mutual fund's payment to shareholders of the profits, interest, or dividends it has earned on its investments.
Diversification: Spreading your money among several different investments. Dividend: Income paid by your investments.
Dollar Cost Averaging: An investment technique in which you invest a fixed amount at regular intervals.
Dow Jones Industrial Average: The stock price
average of 30 blue-chip stocks that represent about 15% to 20% of the
market value of the stocks traded on the New York Stock Exchange.
Earnings: Also known as return. The money you make with the money you invest.
Emergency Fund: Money invested that provides security for an unforeseen emergency. It is generally recommended that an emergency fund have enough money in it to cover six months of household expenses.
Employer Match: Many corporations offer to match employee contributions to certain retirement plans. Taking advantage of such an offer is the easiest and quickest way to see a return on your investment. For instance: if your company offers to match 50% of your contributions, then you will make an immediate 50% return on your investment.
Employer-Sponsored Retirement Savings Plan:
Any of several plans set up by employers so that their employees may take
advantage of tax-deferral on retirement savings. Addition- ally, some
employers match employee savings or make other contributions to the plan.
Types of plans include: 401(k)s, 403 (b)s, and 457 plans.
401(k): A defined contribution plan that allows employees to contribute
pretax dollars through salary deferral. Taxes on any income earned in
the plan are deferred. Both contributions and accumulated earnings (e.g.,
realized capital gains, interest, and dividends) are fully taxable when
withdrawals are made.
403(b): A type of tax-sheltered annuity account available to employees
of public educational systems and certain nonprofit organizations such
as charita- ble or religious organization. Taxes on any income earned
in the plan are de- ferred. Both contributions and accumulated earnings
are fully taxable when withdrawals are made.
457: A 457 plan gives employees of state and local government organizations
the opportunity to contribute a certain portion of wages to a tax-deferred
retirement account. Taxes on any income earned in the plan are deferred.
Both contributions and accumulated earnings are fully taxable when withdrawals
are made.
Enrollment Period: Time period when you can sign up for or change the percentage of your income You invest in the plan.
Equity: Equity is an ownership interest.
Equity Investment: Another name for stocks and owned real estate.
Exchange: The process of transferring funds between investment options offered under your employer's retirement plan.
Expense Ratio: The percentage of a mutual fund's
net assets that is used to pay its expenses.
Fixed-income Investment: Bonds, which promise
a fixed rate of interest until they mature.
Global Fund: A mutual fund that invest in stocks and bonds all over the world, including the United States.
Government National Mortgage Association (GNMA): A federal agency of the Department of Housing and Urban Development more commonly known by its nickname, Ginnie Mae. The GNMA guarantees the full and timely payment of all interest and principal on mortgage-backed bonds sold to mutual funds and their investors.
Growth Fund: A mutual fund whose primary objective is long-term growth of capital. It invests mainly in common stocks with growth potential.
Growth Investment: An investment whose main objective is to grow your principal rather than to generate income.
Guaranteed Investment Contract (GIC): A contract
between an insurance company and an investor like your 401(k) plan.
Income Investment: An investment whose main objective is to generate income in the form of interest or dividend payments, rather thank to grow your principal.
Income Fund: A fund whose goal is income through investments in high yielding stocks and in bonds that produce steady income.
Individual Retirement Account (IRA): A personal tax-deferred retirement account.
Index: A statistical model that serves as a handy reference for judging how well an investment is performing.
Index Fund: A mutual fund that invests in stocks, bonds, or a combination, that seeks to match the performance of a broad-based index, such as the S&P, therefore mirroring the performance of the market as a whole.
International Fund: A mutual fund that invests in foreign stocks and bonds. Often specialized in specific regions, such as the Far East, to capitalize on foreign growth opportunities.
Inflation: An increase in the cost of goods and services, most often measured by the Consumer Price Index.
Inflation Risk: The chance that, over time, your money will lose buying power because of an increase in the cost of goods and services.
Investment Objective/Strategy: Each fund has a specific goal (objective) and policy (strategy) that determines how it seeks to reach that goal.
Investment Risk: The chance you take on how
much an investment will go up or down in value, especially over shorter
periods of time. It's the chance you may lose part of your investment.
Large Cap Stocks: The stocks of companies whose market value - the total number of shares outstanding multiplied by their price - is more than $10 billion.
Liquidity: The measure of how quickly an investment can be turned into cash.
Lump Sum Distribution: A single payment representing the entire amount due to you from your 401(k) plan.
Management Fee: The fee a mutual fund pays to its investment advisors.
Market Risk: The chance of your investments losing value due to a market decline.
Market Timing: An investment strategy based n predicting market trends.
Maturity: A bond's maturity is the length of time it takes to repay investors' principal.
Moderate Investments: Investments, including government securities, corporate bonds, and mortgages that change in value as interest rate change. They are less volatile than stocks.
Money Market Fund: A mutual fund that invests in the very short-term IOUs of the government and highly rated corporations.
Mutual Fund: An investment company that pools
the money of many individual investors and uses it to buy stocks, bonds,
money market instruments and other assets.
Net Asset Value Per Share (NAV): The value
of a single share in a mutual fund, which is determined daily by dividing
the total assets of the fund, minus its liabilities, by the total number
of shares outstanding.
Pension Plan: A plan set up by a corporation
for paying retirement benefits to its employees. Generally, pension benefits
are payable for as long as the retiree or retiree's spouse lives. Benefits
may or may not be adjusted for the cost of living. Pay- ments into the
plan are ordinarily a tax-deductible expense for the company.
Principal: The amount you originally invest.
Portfolio: All of your investment holdings.
Portfolio Manager: The person responsible for investment decisions and implementation of strategy and objectives for a mutual fund.
Pre-Payment Risk: A risk assumed by anyone who invests in mortgage-backed bonds.
Pre-Tax: Money that can be deducted from your paycheck and invested before your taxes are calculated. Investing pre-tax income reduces your current taxes.
Prospectus: A legal document that contains
all the information the Securities and Exchange Commission says an investor
must have in order to make an informed decision about whether or not to
buy a stock or shares in a mutual fund.
Retirement Account: Any account set up by an individual or an employer for the benefit of an em- ployee wherein the funds are specifically earmarked for use in retirement. A retirement account is usually a tax-deferred account, such as a 401(k), 403(b), 457, SEP-IRA or an IRA, but individuals can also set aside money for retire- ment in a taxable savings account.
Retirement Income: All income which one receives during retirement. It can include Social Security, part-time employment, pension funds and amounts withdrawn from retirement accounts.
Return: Represents the change in value of an investment over time. It is calculate by dividing the current market by the cost of the initial investment. For example, if a $5,000 investment in 1990 is worth $8,858 in 2000, then its total return is approximately 77% over those 10 years. The calculation assumes all income (dividends or interest) and capital gains are reinvested.
Risk: The variability of returns associated with a given asset.
Rollover: Moving money from a 401(k) plan into
another tax-deferred retirement account, like an IRA, so that you can
avoid any tax liability.
Share: A unit of ownership in a corporation or a mutual fund.
Small Cap Stock: The stock whose market value- total number is shares outstanding multiplied by their price - is less than $500 million.
Social Security: A retirement plan set up by the U.S. government into which U.S. citizens and their employers pay throughout their working lives and from which they receive income in retirement.
Stable Value Fund: An interest-bearing investment in which the value of your principal stays constant.
Standard & Poor's 500 Index: A value-weighted index that offers broad coverage of the securities market. It is comprised of 400 industrial stocks, 40 public utilities, 40 financial stocks, and 20 transportation stocks.
Stocks: Shares, or certificates of ownership, in a company. Also known as equity.
Stock Fund: A mutual fund that invests primarily
in stocks.
Tax Deferred: Income that is not taxed until you withdraw it from the plan.
Tax-Deferred Retirement Plans: A retirement plan that allows you to postpone current income taxes on pre-tax money invested or any earnings in an account until you withdraw it from the plan. Such a plan may allow you to set aside part of your pay for retire- ment. Tax-deferred accounts include traditional and rollover IRAs and 401(k) among others.
Taxable Account: Any savings or investment account in which the earnings are fully taxable.
Tax-Free Bond Fund: A bond fund in which earnings are exempt from taxation by federal, state and/or local authorities ( also called a "municipal bond"). A portion of income may be subject to the federal alternative minimum tax. The sale or redemption of any fixed income security prior to maturity may result in a substantial gain or loss.
Time Horizon: The number of years from today to your intended goal(s).
Trade: To trade shares of stock (or mutual fund shares) is to buy or sell them.
Traditional Individual Retirement Account (IRA): A tax-deferred retirement savings account that allows an individual under age 70 ½ with compensation to contribute up to $2,000 or 100% of compensation, whichever is less, per tax year and let it grow tax-deferred until withdrawn.
Treasuries: The IOUs of the U.S. government.
Turnover Ratio: The percentage of a mutual
fund's holdings that was replaced during a one-year periods.
Vesting: A requirement frequently associated with employer contributions to retire- ment plans that requires participants to be employed for a certain period of time to be entitled to the full amount of employer contributions.
Volatility: The measure of an investment's
tendency to rise or drop in value over periods of time.
Yield: The annualized rate at which your investment
earns income.