|
Glossary
A
| B
| C
| D
| E
| F
| G
| H
| I
| J
| K
| L
| M
| N
| P
| Q
| R
| S
| T
| U
| V
| W
| Y
| Z
Adjusted Gross
Income (AGI)
An interim calculation in the
computation of income tax liability. It is
computed by subtracting certain allowable
adjustments from gross income.
Administrator
A person appointed by the court to settle an
estate when there is no will.
After-Tax Return
The return from an investment after
the effects of taxes have been taken into
account.
Aggressive Growth
Fund
Growth securities typically are sensitive to
market movements because their market prices
tend to reflect future expectations.
When it appears those expectations will not be
met, the prices of growth securities typically
fall.
Alternative Minimum
Tax
A method of calculating income tax that
disallows certain deductions, credits, and
exclusions. This was intended to ensure that
individuals, trusts, and estates that benefit
from tax preferences do not escape all federal
income tax liability. People must calculate
their taxes both ways and pay the greater of
the two.
Annuity
An insurance-based contract that
provides future payments at regular intervals
in exchange for current premiums. Annuity
contracts are usually purchased from banks,
credit unions, brokerage firms, or insurance
companies.
Asset
Anything owned that has monetary value.
Asset Allocation
The process of repositioning assets within a
portfolio to maximize return for a given level
of risk. This process is usually done using
the historical performance of the asset
classes within sophisticated mathematical
models.
Asset Class
A category of investments with similar
characteristics.
Audit
The examination of the accounting and
financial documents of a firm by an objective
professional. The audit is done to determine
the records' accuracy, consistency, and
conformity to legal and accounting principles.
Balanced
Mutual Fund
A mutual fund whose objective is a balance of
stocks and bonds. Such funds tend to be less
volatile than stock-only funds. The fund
also has risks associated with investing in
bonds (interest rate risk, etc.)
Bear Market
When the stock market appears to be declining
overall, it is said to be a bear market.
Beneficiary
A person named in a life insurance policy,
annuity, will, trust, or other agreement to
receive a financial benefit upon the death of
the owner. A beneficiary can be an individual,
company, organization, and so on.
Blue Chip Stock
The common stock of a company with a long
history of profitability and consistent
dividend payments.
Bond
A bond is evidence of a debt in which the
issuer promises to pay the bondholders a
specified amount of interest and to repay the
principal at maturity. Bonds are usually
issued in multiples of $1,000.
Book Value
The net value of a company's assets, less its
liabilities and the liquidation price of its
preferred issues. The net asset value divided
by the number of shares of common stock
outstanding equals the book value per share,
which may be higher or lower than the stock's
market value.
Bull Market
When the stock market appears to be
advancing overall, it is said to be a bull
market.
Buy-Sell Agreement
A buy-sell agreement is an arrangement between
two or more parties that obligates one party
to buy the business and another party to sell
the business upon the death, disability, or
retirement of one of the owners.
Capital
Gain or Loss
The difference between the sales price and the
purchase price of a capital asset. When that
difference is positive, the difference is
referred to as a capital gain. When the
difference is negative, it is a capital loss.
Cash Equivalents
Short-term investments, such as U.S. Treasury
securities, certificates of deposit, and money
market fund shares, that can be readily
converted into cash.
Cash Surrender Value
The amount that an insurance policyholder is
entitled to receive when he or she
discontinues coverage. Policyholders are
usually able to borrow against the surrender
value of a policy from the insurance company.
Loans that are not repaid will reduce the
policy's death benefit.
CERTIFIED FINANCIAL
PLANNERä
Practitioner
A credential granted by the Certified
Financial Planner Board of Standards, Inc.
(Denver, CO) to individuals who complete a
comprehensive curriculum in financial planning
and ethics. CFPä,
CERTIFIED FINANCIAL PLANNERä
and federally registered CFP (with flame logo)®
are certification marks owned by the Certified
Financial Planner Board of Standards. These
marks are awarded to individuals who
successfully complete the CFP Board's initial
and ongoing certification.
Certified Public
Accountant (CPA)
A professional license granted by a state
board of accountancy to an individual who has
passed the Uniform CPA Examination
(administered by the American Institute of
Certified Public Accountants) and has
fulfilled that state's educational and
professional experience requirements for
certification.
Charitable Lead
Trust
A trust established for the benefit of a
charitable organization under which the
charitable organization receives income from
an asset for a set number of years or for the
trustor's lifetime. Upon the termination of
the trust, the asset reverts to the trustor or
to his or her designated heirs. This type of
trust can reduce estate taxes and allows the
trustor's heirs to retain control of the
assets.
Charitable Remainder
Trust
A trust established for the benefit of a
charitable organization under which the
trustor received income from an asset for a
set number of years or for the trustor's
lifetime. Upon the termination of the trust,
the asset reverts to the charitable
organization. The trustor receives a
charitable contribution deduction in the year
in which the trust is established, and the
assets placed in the trust are exempt from
capital gains tax.
Chartered Financial
Consultant (ChFC)
A professional financial planning designation
granted by The American College (Bryn Mawr,
PA) to individuals who complete a
comprehensive curriculum in financial
planning. Prerequisites include passing a
series of written examinations, meeting
specified experience requirements and
maintaining ethical standards. The curriculum
encompasses wealth accumulation, risk
management, income taxation, planning for
retirement needs, investments, estate and
succession planning.
Chartered Life
Underwriter (CLU)
A professional designation granted by The
American College to individuals who complete a
comprehensive curriculum focused primarily on
risk management. Prerequisites include passing
a series of written examinations, meeting
specified experience requirements, and
maintaining ethical standards. The curriculum
encompasses insurance and financial planning,
income taxation, individual life insurance,
life insurance law, estate and succession
planning, and planning for business owners and
professionals.
COBRA
The Consolidated Omnibus Budget
Reconciliation Act is a federal law requiring
employers with more than 20 employees to offer
terminated or retired employees the
opportunity to continue their health insurance
coverage for 18 months at the employee's
expense. Coverage may be extended to the
employee's dependents for 36 months in the
case of divorce or death of the employee.
Coinsurance or
Co-Payment
The amount an insured person must pay
for a covered medical and/or dental expense if
his or her insurance doesn't provide 100
percent coverage.
Commodities
The generic term for goods such as grains,
foodstuffs, livestock, oils, and metals which
are traded on national exchanges. These
exchanges deal in both "spot"
trading (for current delivery) and
"futures" trading (for delivery in
future months).
Common Stock
A unit of ownership in a corporation. Common
stockholders participate in the corporation's
profits or losses by receiving dividends and
by capital gains or losses in the stock's
share price.
Community Property
State laws vary, but generally all
property acquired during a marriage -
excluding property one spouse receives from a
will, inheritance, or gift - is considered
community property, and each partner is
entitled to one half. This includes debt
accumulated. There are currently nine
community property states: Arizona,
California, Idaho, Louisiana, Nevada, New
Mexico, Texas, Washington, and Wisconsin.
Compound Interest
Interest that is computed on the
principal and on the accrued interest.
Compound interest may be computed
continuously, daily, monthly, quarterly,
semiannually, or annually.
Compound
Taxation
Consumer Price Index
The U.S. Department of Labor's main indicator
of inflation. The Consumer Price Index is
calculated each month from the cost of some
400 retail items in urban areas throughout the
United States.
Cost
Recovery
Deduction
An amount that can be subtracted from gross
income, from a gross estate, or from a gift,
thereby lowering the amount on which tax is
assessed.
Defined Benefit Plan
A qualified retirement plan under
which a retiring employee will receive a
guaranteed retirement fund, usually payable in
installments. Annual contributions may be made
to the plan by the employer at the level
needed to fund the benefit. The annual
contributions are limited to a specified
amount, indexed for inflation.
Defined Contribution
Plan
A retirement plan under which the
annual contributions made by the employer or
employee are generally stated as a fixed
percentage of the employee's compensation or
company profits. The amount of retirement
benefits is not guaranteed; rather, it depends
upon the investment performance of the
employee's account.
Diversification
Investing in different companies,
industries, or asset classes. Diversification
may also mean the participation of a large
corporation in a wide range of business
activities.
Dividend
A pro rata portion of earnings
distributed in cash by a corporation to its
stockholders. In preferred stock, dividends
are usually fixed; with common shares,
dividends may vary with the fortunes of the
company.
Dollar Cost
Averaging
A system of investing in which the investor
buys a fixed dollar amount of securities at
regular intervals. The investor thus buys more
shares when the price is low and fewer shares
when it rises, and the average cost per share
is lower than the average price per share.
This strategy does not protect against loss in
declining markets and involves continuous
investments, regardless of fluctuating price
levels.
Efficient
Frontier
A statistical result from the analysis of the
risk and return for a given set of assets that
indicates the balance of assets that may,
under certain assumptions, achieve the best
return for a given level of risk.
Employer-Sponsored Retirement Plan
A tax-favored retirement plan that is
sponsored by an employer. Among the more
common employer-sponsored retirement plans are
401(k) plans, 403(b) plans, simplified
employee pension plans, and profit-sharing
plans.
Equity
The value of a person's ownership in real
property or securities; the market value of a
property or business, less all claims and
liens upon it.
ERISA
The Employee Retirement Income
Security Act is a federal law covering all
aspects of employee retirement plans. If
employers provide plans, they must be
adequately funded and provide for vesting,
survivor's rights, and disclosures.
ESOP (employee stock ownership plan)
A defined contribution retirement plan in
which company contributions must be invested
primarily in qualifying employer securities.
Estate Conservation
Activities coordinated to provide for
the orderly and cost-effective distribution of
an individual's assets at the time of his or
her death. Estate conservation often includes
wills and trusts.
Estate Tax
Upon the death of a decedent, federal and
state governments impose taxes on the value of
the estate left to others (with limitations).
Executive Bonus Plan
The employer pays for a benefit that is owned
by the executive. The bonus could take the
form of cash, automobiles, life insurance, or
other items of value to the executive.
Executor
A person named by the probate courts or the
will to carry out the directions and requests
of the decedent.
Fixed
Income
Income from investments such as CDs, Social
Security benefits, pension benefits, some
annuities, or most bonds that is the same
every month.
401(k) Plan
A defined contribution plan that may be
established by a company for retirement.
Employees may allocate a portion of their
salaries into this plan, and contributions are
excluded from their income for tax purposes
(with limitations). Contributions and earnings
will compound tax deferred. Withdrawals from a
401(k) plan are taxed as ordinary income, and
may be subject to an additional 10 percent
federal tax penalty if withdrawn prior to age
59 ½.
403(b) Plan
A defined contribution plan that may be
established by a nonprofit organization or
school for retirement. Employees may allocate
a portion of their salaries into this plan,
and contributions are excluded from their
income for tax purposes (with limitations).
Contributions and earnings will compound tax
deferred. Withdrawals from a 403(b) plan are
taxed as ordinary income, and may be subject
to an additional 10 percent federal tax
penalty if withdrawn prior to age 59 ½.
Fundamental Analysis
An approach to the stock market in which
specific factors - such as the
price-to-earnings ratio, yield, or return on
equity - are used to determine what stock may
be favorable for investment.
Gift
Taxes
A federal tax levied on the transfer
of property as a gift. This tax is paid by the
donor. The first $11,000 (in 2002) a year
from a donor to each recipient is exempt from
tax. Most states also impose a gift tax. The
gift tax exemption is indexed annually for
inflation.
Holographic
Will
A will entirely in the handwriting of the
testator. Without witnesses, holographic wills
are valid and enforceable only in some states.
Index
A calculation that uses a selection of stocks
or bonds to gauge a certain market. The Dow
Jones Industrial Average, for example, is an
index of 30 large industrial companies on the
New York Stock Exchange.
Individual
Retirement Account (IRA)
Contributions to a traditional IRA -
up to $3,000 (in 2002) per year - are
deductible from earned income in the
calculation of federal and state income taxes
if the taxpayer meets certain requirements.
The earnings accumulate tax deferred until
withdrawn, and then they are taxed as ordinary
income. Individuals not eligible to make
deductible contributions may make
nondeductible contributions, the earnings on
which would be tax deferred.
Inflation
An increase in the price of products and
services over time. The government's main
measure of inflation is the Consumer Price
Index.
Intestate
The condition of an estate left by a
decedent without a valid will. State law then
determines who inherits the property or serves
as guardian for any minor children.
Investment Category
A broad class of assets with similar
characteristics. The five investment
categories include cash equivalents, fixed
principal, equity, debt, and tangibles.
Irrevocable Trust
A trust that may not be modified or terminated
by the trustor after its creation.
Joint
and Survivor Annuity
Most pension plans must offer this form of
pension plan payout that pays over the life of
the retiree and his or her spouse after the
retiree dies. The retiree and his or her
spouse must specifically choose not to accept
this payment form.
Joint Tenancy
Co-ownership of property by two or more people
in which the survivor(s) automatically assumes
ownership of a decedent's interest.
Jointly Held Property
Property owned by two or more persons
under joint tenancy, tenancy in common, or, in
some states, community property.
Keogh
Plan
This retirement plan, named for
Eugene Keogh, is designed for self-employed
individuals. Up to $40,000 or 25 percent of
self-employed income (whichever is less) may
be deducted from compensation and set aside
into the plan.
Liability
Any claim against the assets of a
person or corporation: accounts payable,
wages, and salaries payable, dividends
declared payable, accrued taxes payable, and
fixed or long-term obligations such as
mortgages, debentures, and bank loans.
Limited Partnership
Limited partnerships pool the money of
investors to develop or purchase
income-producing properties. When the
partnership subsequently receives income from
these properties, it distributes the income to
its investors as dividend payments.
Liquidity
The ease with which an asset or security can
be converted into cash without loss of
principal.
Living Trust
A trust created by a person during his or her
lifetime.
LOC
- Lost Opportunity Cost
Lump-Sum Distribution
The disbursement of the entire value of a
profit-sharing plan, pension plan, annuity, or
similar account to the account owner or
beneficiary. Lump-sum distributions may be
rolled over into another tax-deferred account.
Marginal Tax Bracket
The range of taxable income that is taxable at
a certain rate. In 2002, there are six
marginal tax brackets: 10 percent, 15 percent,
27 percent, 30 percent, 35 percent, and 38.6
percent.
Marital Deduction
A provision of the tax codes that allows all
assets of a deceased spouse to pass to the
surviving spouse free of estate taxes. This
provision is also referred to as the unlimited
marital deduction.
Money Market Fund
A mutual fund that specializes in investing in
short-term securities and that tries to
maintain a constant net asset value of $1.
An investment in the money market fund is not
guaranteed by the Federal Deposit Insurance
Corporation or any other government agency.
It is possible to lose money by investing in
the Fund.
Municipal Bond
A debt security issued by municipalities. The
income from municipal bonds is usually exempt
from federal income taxes. In many states, it
is also exempt from state income taxes in the
state in which the municipal bond is issued.
Municipal Bond Fund
A mutual fund that specializes in investing in
municipal bonds. It is possible that
some of the fund's income distributions
may be, and distributions of the funds
realized capital gains will be, subject to
federal taxation.
Mutual Fund
A collection of stocks, bonds, or other
securities purchased and managed by an
investment company with funds from a group of
investors.
Net
Asset Value
The price at which a mutual fund sells or
redeems its shares. The net asset value is
calculated by dividing the net market value of
the fund's assets by the number of outstanding
shares.
Pooled
Income Fund
A trust created by a charitable
organization that combines the contributions
of several donors and distributes income to
those donors based on the earnings of the
trust. The trust is managed by the charitable
organization, and contributions are partially
deductible for income tax purposes.
Portfolio
All the investments held by an individual or a
mutual fund.
Preferred Stock
A class of stock with claim to a
company's earnings, before payment can be made
on the common stock, and that is usually
entitled to priority over common stock if the
company liquidates. Generally, preferred
stocks pay dividends at a fixed rate.
Prenuptial Agreement
A legal agreement arranged before marriage
stating who owns property acquired before
marriage and during marriage and how property
will be divided in the event of divorce. ERISA
benefits are not affected by prenuptial
agreements.
Price/Earnings Ratio (P/E Ratio)
The market price of a stock divided by the
company's annual earnings per share. Because
the P/E ratio is a widely regarded yardstick
for investors, it often appears with stock
price quotations.
Principal
In a security, the principal is the amount of
money that is invested, excluding earnings. In
a debt instrument such as a bond, it is the
face amount.
Probate
The court-supervised process in which a
decedent's estate is settled and distributed.
Profit-Sharing Plan
An agreement under which employees share in
the profits of their employer. The company
makes annual contributions to the employees'
accounts. These funds usually accumulate tax
deferred until the employee retires or leaves
the company.
Prospectus
A document provided by mutual fund companies
to prospective investors. The prospectus gives
information needed by investors to make
informed decisions prior to investing in a
specific mutual fund. The prospectus includes
information on the minimum investment amount,
the fund's objectives, past performance, risk
level, sales charges, management fees, and any
other expense information about the fund, as
well as a description of the services provided
to investors in the fund.
Qualified
Domestic Relations Order (QDRO)
At the time of divorce, this order would be
issued by a state domestic relations court and
would require that an employee's ERISA
retirement plan accrued benefits be divided
between the employee and the spouse.
Qualified Retirement Plan
A pension, profit-sharing, or qualified
savings plan that is established by an
employer for the benefit of the employees.
These plans must be established in conformity
with IRS rules. Contributions accumulate tax
deferred until withdrawn and are deductible to
the employer as a current business expense.
Revocable
Trust
A trust in which the creator reserves the
right to modify or terminate the trust.
Risk
The chance that an investor will lose
all or part of an investment.
Risk-Averse
Refers to the assumption that
rational investors will choose the security
with the least risk if they can maintain the
same return. As the level of risk goes up, so
must the expected return on the investment.
Rollover
A method by which an individual can
transfer the assets from one retirement
program to another without the recognition of
income for tax purposes. The requirements for
a rollover depend on the type of program from
which the distribution is made and the type of
program receiving the distribution.
Roth IRA
A nondeductible IRA that allows tax-free
withdrawals when certain conditions are met.
Income and contribution limits apply.
Security
Evidence of an investment, either in
direct ownership (as with stocks),
creditorship (as with bonds), or indirect
ownership (as with options).
Simplified Employee Pension Plan (SEP)
A type of plan under which the employer
contributes to an employee's IRA.
Contributions may be made up to a certain
limit and are immediately vested.
Single-Life Annuity
An insurance-based contract that provides
future payments at regular intervals in
exchange for current premiums. Generally used
as a supplement to retirement income and pays
over the life of one individual, usually the
retiree, with no rights of payment to any
survivor.
Split-Dollar Plan
An arrangement under which two
parties (usually a corporation and employee)
share the cost of a life insurance policy and
split the proceeds.
Spousal IRA
In 2002 an IRA designed for a couple
when one spouse has no earned income. The
maximum combined contribution that can be made
each year to an IRA and a spousal IRA is
$6,000 or 100 percent of earned income,
whichever is less. This total may be split
between the two IRAs as the couple wishes,
provided the contribution to either IRA does
not exceed $3,000.
Tax
Bracket
The range of taxable income that is taxed at a
certain rate. Brackets are expressed by their
marginal rate.
Tax Credit
Tax credits, the most appealing type of tax
deductions, are subtracted directly, dollar
for dollar, from your income tax bill.
Tax Deferred
Interest, dividends, or capital gains that
grow untaxed in certain accounts or plans
until they are withdrawn.
Tax-Exempt Bonds
Under certain conditions, the interest from
bonds issued by states, cities, and certain
other government agencies is exempt from
federal income taxes. In many states, the
interest from tax-exempt bonds will also be
exempt from state and local income taxes.
Taxable Income
The amount of income used to compute tax
liability. It is determined by subtracting
adjustments, itemized deductions or the
standard deduction, and personal exemptions
from gross income.
Technical Analysis
An approach to investing in stocks in which a
stock's past performance is mapped onto
charts. These charts are examined to find
familiar patterns to use an an indicator of
the stock's future performance.
Tenancy in Common
A form of co-ownership. Upon the death of a
co-owner, his or her interest passes to his or
her chosen beneficiaries and not to the
surviving owner or owners.
Term Insurance
Term life insurance provides a death benefit
if the insured dies. Term insurance does not
accumulate cash value and ends after a certain
number of years or at a certain age.
Testamentary Trust
A trust established by a will that
takes effect upon death.
Testator
One who has made a will or who dies having
left a will.
Total Return
The total of all earnings from a given
investment, including dividends, interest, and
any capital gain.
Trust
A legal entity created by an
individual in which one person or institution
holds the right to manage property or assets
for the benefit of someone else. Types of
trusts include: Testamentary Trust - A trust
established by a will that takes effect upon
death; Living Trust - A trust created by a
person during his or her lifetime; Revocable
Trust - A trust in which the creator reserves
the right to modify or terminate the trust;
Irrevocable Trust - A trust that may not be
modified or terminated by the trustor after
its creation
Trustee
An individual or institution appointed to
administer a trust for its beneficiaries.
Trustee-to-Trustee Transfer
A method of transferring retirement plan
assets from one employer's plan to another
employer plan or to an IRA. One benefit of
this method is that no federal income tax will
be withheld by the trustee of the first plan.
UGMA
- Uniform Gift to Minors Account
Universal
Life Insurance
A type of life insurance that combines a death
benefit with a savings element which
accumulates tax deferred at current interest
rates. Under a universal life insurance
policy, the policyholder can increase or
decrease his or her coverage, with
limitations, without purchasing a new policy.
Variable
Universal Life Insurance
A type of life insurance that
combines a death benefit with a savings
element that accumulates tax deferred at
current interest rates. Under a variable
universal life insurance policy, the cash
value in the policy can be placed in a variety
of subaccounts with different investment
objectives. The policyholder can transfer
funds among the subaccounts as he or she
wishes. Fees are charged after a certain
number of transfers.
Volatility
The range of price swings of a
security or market over time.
Welfare
Benefit Plan
An employee benefit plan that
provides such benefits as medical, sickness,
accident, disability, death, or unemployment
benefits.
Whole Life Insurance
A type of life insurance that offers a death
benefit and also accumulates cash value, tax
deferred at fixed interest rates. Whole life
insurance policies generally have a fixed
annual premium that does not rise over the
duration of the policy. Whole life insurance
is also referred to as "ordinary" or
"straight" life insurance.
Will
A legal document that declares a person's
wishes concerning the disposition of property,
the guardianship of his or her children, and
the administration of the estate after his or
her death.
Yield
In general, the yield is the amount
of current income provided by an investment.
For stocks, the yield is calculated by
dividing the total of the annual dividends by
the current price. For bonds, the yield is
calculated by dividing the annual interest by
the current price. The yield is distinguished
from the return, which includes price
appreciation or depreciation.
Zero-Coupon
Bond
This type of bond makes no periodic interest
payments but instead is sold at a steep
discount from its face value. Bondholders
receive the face value of their bonds when
they mature.
|
