Glossary of Investment Terms


Click on one of these investment terms for a "plain English" explanation:

A contract that provides for periodic payments for a lifetime, or for a defined period of time, or both. Back to Top
A measure of risk-adjusted performance. It represents the difference between a fund's actual performance and its expected performance given its level of risk as measured by beta. Back to Top
The increase in value of an asset. Back to Top
Balanced Fund
A type of fund which creates a balance among its assets by including stocks, bonds and money market instruments. Back to Top
This means market risk of the securities in a portfolio. This measure reflects the responsiveness of the portfolio to the S&P 500. By definition the market beta of the S&P 500 index is 1.0. If the beta of a fund is 1.05, it is expected to perform 5% better than the S&P 500 in an up market, and 5% worse in a down market. Back to Top
A class of assets representing a loan to the government or a corporation. These securities pay a specific interest rate over a given period of time after which the owner receives back his or her initial investment. Back to Top
Capital Appreciation
An increase in an investment's value. Back to Top
The periodic process by which interest or return is applied not only to one's savings or investment, but also to previous interest or return amounts. Back to Top
Direct Rollover
A distribution from a qualified plan or a 403(b) plan that is sent directly to the trustee, custodian, or issuer of the receiving IRA or other qualified plan. Back to Top
Direct Transfer
The movement of money from one tax-deferred retirement savings plan to another plan or custodian. A transfer does not constitute a withdrawal and does not incur any taxes. Back to Top
Investing in a variety of asset classes (for example, stocks, bonds and money markets) in order to reduce risk and increase return. Back to Top
A portion of net profits declared by a company's board of directors for distribution to stockholders. Back to Top
Dividend Yield
The average of all stocks in a portfolio's trailing 12-month dividend income (cash distribution of earnings to shareholders) dividend by its market price on the valuation date. Back to Top
Dollar-Cost Averaging
The practice of investing equal amounts, commonly in stocks, at regular intervals regardless of price, usually resulting in a lower share/unit cost over time. Back to Top
Early Withdrawal Penalty
A 10% penalty, in addition to ordinary income taxes, on money that is withdrawn from a tax-deferred retirement savings plan prior to age 59 1/2. The penalty does not apply in certain circumstances Back to Top
Employer Matching Contribution
The amount, if any, that your employer contributes on your behalf (usually expressed as a formula based on your contributions) to your retirement plan. Back to Top
Fixed-Income Account
A security which pays a fixed rate of return, often for a fixed period of time. Back to Top
Individual Retirement Account (IRA)
An account that allows you to invest on a tax-deferred basis. Depending on the level and nature of your income, you may be able to make regular contributions to an IRA. Back to Top
An economic condition causing consumers to pay more in the future for goods or services than they would today for an equal amount of the same goods or services. Back to Top
In-Service Withdrawal
A withdrawal from a retirement savings plan by a participant who remains employed. Back to Top
Joint and Survivor Annuity
An annuity that covers two people and pays benefits until the last survivor dies. Back to Top
The ease with which an investment may be converted to cash. Back to Top
Lump Sum Distributions
A single payment representing an employee's interest in a retirement savings plan. The payment must be the result of termination of service, death, disability, or the attainment of age 59 1/2, and must be made in a single tax year, and may be eligible for forward tax averaging or rollover. Back to Top
Market Value
The sum of the market price of the securities in a portfolio as of the valuation date, rounded to millions of dollars. The fund's total net assets. Back to Top
Market Risk
Risk of day-to-day changes in prices at which a security can be bought or sold. Back to Top
Market Price
The price of a bond or share of common stock at any given time. Back to Top
Date on which the principal amount of a note, draft, acceptance, bond or other debt instrument becomes due and payable. Also, termination or due date on which an installment loan must be paid in full. Back to Top
Mutual Fund
A fund which pools the investments of individual investors in other companies, providing the benefits of economics of scales as well as access to investments which may otherwise be available. Back to Top
A varied group of securities owned by an individual or institution. Back to Top
Pre-Tax Contributions
A portion of an employee's salary contributed to a retirement saving plan that would not be included in the employee's gross income for tax purposes. Back to Top
A formal document describing an investment opportunity and offering it for sale. Back to Top
Price/Earning Ratio
The mean ratio of the price of each stock divided by its earnings per share in a portfolio. It reflects the amount an investor is willing to pay per dollar of a company's earnings. Back to Top
Using dividends and gains to purchase additional shares in an investment rather than taking a distribution in cash. Back to Top
The amount earned, or lost, on the original worth of the investment. Back to Top
A measure of the chance of loss or not gaining value. Each investment has individual risk characteristics. Back to Top
Rollover IRA
An Individual Retirement Account that is established for the purpose of receiving a distribution from a qualified plan. Back to Top
Small Capitalization Company Stocks
Stocks of smaller companies, which are generally more volatile than larger capitalization stocks. These often offer higher potential returns than stocks of large companies over the long run. Back to Top
Standard Deviation
A measure of dispersion around the mean or average return. The higher the standard deviation, the greater the dispersion of returns and the higher the risk (volatility) associated with investment. Back to Top
Standard & Poor's 500
A composite stock index based on stock prices comprising of 425 industrial, 50 utility, and 25 railroad companies. Back to Top
A share of ownership in a corporation. Back to Top
An IRS-approved delay in the payment of taxes on income. For example, taxes on annual contributions to a retirement program may be deferred until the money is withdrawn. Back to Top
Treasury Bills (T-Bills)
A U.S. Government short-term security sold to the public. T-Bills mature in periods of 30 days, or 13, 26, or 52 weeks. Because T-Bills are sold at a discount, the interest earned is the difference between the discounted purchase price and the amount the government pays at maturity. Back to Top
Unit (or Share) Value
The price of an interest in any investment option. The value of a unit typically varies on a daily basis. Back to Top
Variable Annuity
The establishment of fixed-dollar annuity guarantees whose underlying reserves are invested in one or more of the insurer's market valued separate accounts. Back to Top
Represents the percent of ownership of employer contributions to a participant's account in a retirement savings plan. This is based on various eligibility factors. Back to Top
Used interchangeable with "risk." Gauge of an investment's tendency to move up and down in price. Back to Top
Percentage of return on an investment. Back to Top
Yield to Maturity
The single discount rate that sets the present value of all cash flows from a fixed interest security equal to the current prices. Back to Top

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