The LEARNING library


  • 401(k) Plan

    401(k) Plan: An employer-sponsored retirement savings plan that gives employees a choice of investment options, typically mutual funds. Employees who participate in a traditional 401(k) plan have a portion of their pre-tax salary invested directly in the option or options they choose. These contributions and any earnings from the 401(k) investments are not taxed until they are withdrawn.

  • 403(b) Plan

    A type of tax-deferred retirement savings program available to employees of public schools, certain non-profits, and some members of the clergy.

  • 529 College Savings Plan

    A tax-advantaged way to save for future college expenses, such as tuition and housing.

  • Account Fee

    A fee that some funds separately impose on investors for account maintenance. For example, individuals with accounts below a specified dollar amount may have to pay an account fee.

  • Accrued Interest

    Interest earned on a security but not yet paid to the investor.

  • Active Management

    The process of hand selecting securities with the purpose of trying to outperform a benchmark index. Active portfolio managers use economic data, investment research, market forecasts, and other indicators to help make investment decisions.

  • Adjusted Gross Income (AGI)

    Total individual income, as defined by the Internal Revenue Code, less statutory adjustments—primarily business, investment, and certain other deductions.


    The return from an investment after all income taxes have been accounted for and deducted. The SEC has adopted a number of rule and form amendments requiring mutual funds to disclose standardized after-tax returns. The amendments require a mutual fund to disclose standardized after-tax returns for 1-, 5-, and 10-year periods in the risk/return summary of the prospectus.

  • After-Hours Trading

    Stock trading outside the regular hours of major exchanges such as the New York Stock Exchange and the Nasdaq Stock Market. Regular trading hours are 9:30 a.m. to 4:00 p.m. Eastern Time.

  • Agent

    An insurance company representative licensed by the state who solicits and negotiates contracts of insurance, and provides service to the policyholder for the insurer. An agent can be independent agent who represents at least two insurance companies or a direct writer who represents and sells policies for one company only.

  • Alternative Minimum Tax (AMT)

    This tax calculation adds certain tax preference items back into adjusted gross income in order to prevent taxpayers from escaping their fair share of tax liability by taking numerous tax breaks. If AMT liability is greater than regular tax liability, the taxpayer generally needs to pay the regular tax and the amount by which AMT exceeds regular tax.

  • American Stock Exchange (AMEX)

    Located in downtown Manhattan, AMEX has the third highest volume of trading of any stock exchange in the U.S. The bulk of trading on the AMEX consists of index options and shares of small to medium-sized companies.

  • Annual Rate of Return/Annual Percentage Rate (APR)

    An annual rate of return is the profit or loss on an investment over a one-year period. There are many ways of calculating the annual rate of return. If the rate of return is calculated on a monthly basis, multiplying it by 12 expresses an annual rate of return. This is often called the annual percentage rate (A.P.R.).

  • Annual Report

    A report filed to the SEC by public companies that includes the company’s history, audited financial statements, a discussion of products and services, a review of the organization and its operations, and a discussion of the company’s major markets. The report is also known as Form 10-K, which the SEC mandates from companies surpassing certain qualifications.

  • Annuity

    An annuity is a contract between you and an insurance company, under which you make a lump-sum payment or series of payments. In return, the insurer agrees to make periodic payments to you beginning immediately or at some future date.

  • Annuity Certain

    A contract that provides an income for a specified number of years, regardless of life or death.

  • Application

    A statement of information made by a person applying for life insurance. It helps the life insurance company assess the acceptability of risk. Statements made in the application are used to decide on an applicant’s underwriting classification and premium rates.

  • Ask Price

    In the over-the-counter market, the term “ask” refers to the lowest price at which a market maker will sell a specific number of shares.

  • Asset

    Any tangible or intangible item that has value in an exchange. A bank account, a home, or shares of stock are all examples of assets.

  • Asset Allocation

    The process of apportioning investments among various asset classes, such as stocks, bonds, commodities, real estate, collectibles and cash equivalents. Asset allocation affects both the risk and return of investors, and is often used as a core strategy in basic financial planning.

  • Asset Class

    Investments that have similar characteristics. The three main asset classes are stocks, bonds, and cash.

  • Authorized Participants

    This term refers to large financial institutions, such as specialist firms and market makers, which are involved in the creation and redemption activity of ETF shares.

  • Automatic Reinvestment

    This prearranged investment plan automatically deposits mutual fund dividends or capital gains back into the fund to purchase additional shares, allowing the owner to take advantage of compounding.

  • Basis

    The original cost and any additional outlays represent the cost basis in equity investments or property. The Internal Revenue Service computes the taxable gain, profit, or appreciation on the difference between the basis and the actual amount of sale. Therefore, defining basis as original price, and not as total cost, may incorrectly result in an inflated tax liability.

  • Basis Point

    Measurement used to quote bonds. One basis point is equal to 0.01%, or one one-hundredth of one percent. 100 basis points is equal to 1%, whereas 50 basis points would equal one half percent, or 0.50%.

  • Basket

    A unit or group of securities. The grouping of securities within an ETF is sometimes referred to as a basket.

  • Bear Market

    A time when stock prices are declining and market sentiment is pessimistic. Generally, a bear market occurs when a broad market index falls by 20% or more over at least a two-month period.

  • Benchmark

    A benchmark is a yardstick or standard for measuring the performance of an investment. For example, the Barclays Capital U.S. Aggregate Bond index is a popular benchmark for judging the performance of diversified taxable bond mutual funds. The goal of most money managers and investors is to outperform their respective benchmark.

  • Beneficiary

    This person or entity named in a will, life insurance policy, a qualified retirement plan, or an annuity is eligible, by the terms of such a policy or plan, to receive benefits upon the death of the insured or the plan participant.

  • Beta

    Beta is a volatility measurement of a stock mutual fund or ETF versus a comparable benchmark like the S&P 500 stock index. A stock fund or ETF with a higher beta than the S&P 500 will rise or fall to a greater degree. In contrast, a stock fund or ETF with a low beta will rise or fall less.

  • Blue Chips

    Blue Chip stocks are regarded as leading companies with world class products and services, universally recognizable brands and run by top-notch management teams.

  • Bond

    A debt instrument issued by corporations and governments to raise capital. Interest on the outstanding debt is paid to bondholders at specific intervals, with the principal amount of the loan paid on the bond maturity date.

  • Broker

    An individual who acts as an intermediary between a buyer and seller, usually charging a commission to execute trades. Brokers are required to seek the best execution of trades they make for clients, and if they recommend investments to clients, those investments must be suitable for the client.

  • Bull Market

    A time when stock prices are rising and market sentiment is optimistic. Generally, a bull market occurs when there is a rise of 20% or more in a broad market index over at least a two-month period.

  • Buying Long

    Purchasing or owning shares of stock, with the expectation that the stock will rise in value.

  • Cash Basis Accounting

    A method of accounting that reports income when it is actually received and expenses when they are actually paid. This is in contrast to accrual basis accounting, which reports income when it is earned (although not necessarily yet received) and expenses when incurred (even if bills are paid later).

  • Cash Flow

    A measure of the inflows and outflows of cash experienced by a company. You can find this information in the company’s Statement of Cash Flows.

  • Cash Surrender Value

    The amount available in cash upon voluntary termination of a policy by its owner before it becomes payable by death or maturity. The amount is the cash value stated in the policy minus a surrender charge and any outstanding loans and any interest thereon.

  • Classes

    Different types of shares issued by a single fund, often referred to as Class A shares, Class B shares, and so on. Each class of a fund holds identical investments and shares the same investment objectives and policies. But each class has different shareholder services with different fees and expenses, and therefore, each class will have different performance results.

  • Closed-End Fund

    A type of investment company that does not continuously offer its shares for sale but instead sells a fixed number of shares at one time. After its initial public offering, the fund typically trades on a market, such as the New York Stock Exchange or the NASDAQ Stock Market. Legally, they are known as a “closed-end company.”

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  • Commission

    Transaction fee paid to a broker for executing a securities trade. Commission amounts vary and are often dependent on the size of trade, the frequency of trades, and sometimes the size of the brokerage account. Discount brokers tend to charge lower commissions for trades versus full service brokers.

  • Commodity Indexes

    Indexes that measure either the price or performance of physical commodities, or the price of commodities as represented by the price of futures contracts listed on commodity exchanges.

  • Common Stock

    Securities representing ownership in a corporation, which provide voting rights and entitle the holder to a share of the company’s success through dividends or capital appreciation.

  • Compound Interest

    Interest paid on principal and on accumulated interest.

  • Contingent Beneficiary

    On most insurance applications, owners have the option to name a primary beneficiary and a contingent, or secondary, beneficiary. At the death of the insured, a death benefit may be payable to a beneficiary. If the primary beneficiary revokes, is ineligible, or is deceased, the contingent beneficiary receives the proceeds. When no individual is named, proceeds are usually payable to the deceased’s estate.

  • Contingent Deferred Sales Load

    A type of back-end load, the amount of which depends on the length of time the investor holds his or her shares. For example, a contingent deferred sales load might be 5% if an investor holds his or her shares for one year, 4% after two years, and so on until the load disappears completely.

  • Conversion

    A feature some funds offer that allows investors to automatically switch from one fund class to another, typically one with lower annual expenses, after a set period of time. The fund’s prospectus or profile will state whether the fund has a conversion feature.

  • Convertible Bond

    A corporate bond that can be exchanged for a specific number of shares of the company’s stock, usually common stock. In most cases, the holder of the convertible bond determines whether and when a conversion occurs.

  • Coupon

    A feature of a bond that denotes the amount of interest due and the date that the payment will be made.

  • Creation Unit

    The smallest block of shares in an exchange-traded fund that can be purchased or redeemed directly from the fund company at net asset value. Creation units are usually transacted in 50,000 share increments, making them large dollar transactions limited to large institutions and other authorized participants. Instead of receiving cash, the seller of a creation unit would receive a basket of securities that corresponds to the portfolio holdings in a particular ETF. This “in-kind” transfer process is unique to ETF’s and does not create tax consequences for the seller.

  • Current Yield

    The ratio of the interest rate payable on a bond to the actual market price of the bond, stated as a percentage. For example, a bond with a current market price of $1,000 that pays $80 per year would have a current yield of 8%.

  • Debt

    Debt is the legal obligation, written or oral, to deliver a product, service, or cash.

  • Debt-to-Equity Ratio

    A ratio calculated by dividing a company’s long-term debt by its stockholders’ equity. Because long-term debt reflects obligations that a company must eventually repay, a high ratio may indicate high risk.

  • Default

    A failure by an issuer to pay principal or interest when due, or to fulfill other obligations, such as reporting requirements.

  • Deferred Annuity

    With a deferred annuity, you make payments to an insurance company, which will be free from taxes until you reach a particular age or a date specified in your contact.

  • Deferred Sales Charge

    A sales charge deducted from an investment for exiting early, or before the sales charge ceases to exist. Mutual fund class B and C shares often carry a deferred sales charge. Also called back end load, CDSC or contingent deferred sales charge.

  • Defined Benefit Plan

    Defined benefit plans also are known as pension plans. Employers sponsor defined benefit plans and promise the plan’s investments will provide you with a specified monthly benefit at retirement. The employer bears the investment risks.

  • Defined Contribution Plan

    A retirement savings plan, such as a 401(k) plan, that does not promise a specific payment upon retirement. In these plans, the employee or the employer (or both) contribute to the employee’s individual account. The employee bears the investment risks.

  • Depreciation

    Depreciation is the decrease in value of a fixed asset during its projected life expectancy. The Internal Revenue Service permits several processes to calculate annual depreciation amounts over asset life expectancy, resulting in certain tax consequences. Depreciation can also refer to the decrease in value of one currency in relation to another.

  • Derivative

    Financial instruments whose performance is derived, at least in part, from the performance of an underlying asset, security or index. For example, a stock option is a derivative because its value changes in relation to the price movement of the underlying stock.

  • Disclosure

    Information about a company’s financial condition and business that it makes public. Investors can use this information to make informed investment decisions about the company’s securities.

  • Distribution Fees

    Fees paid out of fund assets to cover marketing and selling fund shares. These fees may cover advertising costs, compensating brokers and others who sell fund shares, payments for printing and mailing prospectuses to new investors, and providing sales literature to prospective investors. Distribution fees sometimes are referred to as “12b-1 fees.”

  • Diversification

    Diversification is a strategy that can be neatly summed up as “Don’t put all your eggs in one basket.” The strategy involves spreading your money among various investments in the hope that if one loses money, the others will make up for those losses.

  • Dividend

    Distribution of earnings paid out to shareholders. With mutual funds and ETFs, dividends can be a result of capital gains, interest income, or dividends paid to the fund itself by securities within the portfolio. Dividends are often paid quarterly, but the frequency can be less and is determined by fund management.

  • Dividend Yield

    The distribution rate of a fund calculated by dividing the amount of the dividends per share by the per share market price of the fund. For example, a fund price of $20 that pays a $2 dividend per year has a 10% dividend yield.

  • Dow Jones Industrial Average (DJIA)

    The DJIA is a widely followed index that is used as a barometer of stock market performance. This stock index is based upon 30 major companies, or components in diversified industries, such as banking, consumer staples, retail, healthcare, and technology.

  • Dynamically

    adjective, Also, dynamical
    pertaining to or characterized by energy or effective action; vigorously active or forceful; energetic:
    the dynamic president of the firm.
    of or pertaining to force or power.
    of or pertaining to force related to motion.
    pertaining to the science of dynamics.
    of or pertaining to the range of volume of musical sound.
    Computers. (of data storage, processing, or programming) affected by the passage of time or the presence or absence of power: Dynamic memory must be constantly refreshed to avoid losing data.
    Dynamic websites contain Web pages that are generated in real time.
    Grammar, nonstative.

  • Early Withdrawal

    If a CD is redeemed before it matures, you may have to pay a penalty or forgo a portion of the interest.

  • Earnings Per Share

    A public company’s net profit divided by the number of its common shares.

  • Electronic Funds Transfer System (EFTS)

    Funds may be electronically transferred between accounts of buyers, sellers, and other individuals. This service allows for direct deposits or withdrawals without processing written checks.

  • Emerging Market

    Refers to the economy or capital markets of developing nations, which are often new, un-established or have a limited history.

  • Employee Retirement Income Security Act (ERISA)

    The Employee Retirement Income Security Act of 1974, which is administered by the U.S. Department of Labor. ERISA does not require employers to offer a pension plan. But it does require employers who do offer them to meet certain minimum standards.

  • Enrollment Fee

    Fees that direct-sold college savings plans may charge to join in the program.

  • Estate Tax

    Tax on the right to transfer property at the owner’s death.

  • Evidence of Insurability

    A statement or proof of your health, finances or job, which helps the insurer decide if you are an acceptable risk for life insurance.

  • Exchange-Traded Fund (ETF)

    ETFs or exchange-traded funds are low cost index funds that trade like stocks. ETFs offer intraday liquidity meaning they can be bought or sold when the stock market is open for trading. Generally, ETFs are very tax-efficient and have lower annual expenses compared to closed end funds and mutual funds. ETFs cover a broad spectrum of assets including stocks, bonds, currencies, real estate and commodities. ETFs can be sold short, leveraged with margin, hedged with call/put options or bought and held.

  • Exchange-Traded Note (ETNs)

    ETNs or exchange-traded notes are unsecured debt securities that pay a return linked to the performance of a single security or index. ETNs don’t usually pay a dividend or annual coupon and they have maturity dates that can range up to 30 years. ETNs held to maturity pay the return of the note’s underlying index minus its annual expense ratio. ETNs are subject to counterparty risk, meaning, the creditworthiness of the financial issuer can impact the note’s final return and value.

  • Expense

    A company’s incurring of liabilities, or outflow or depletion of assets, through carrying out the activities that constitute their central operation.

  • Expense Ratio

    The expense ratio of a mutual fund or ETF covers the cost of investment management, legal and administrative expenses, 12b-1 marketing fees and other associated expenses. The expense ratio does not include the cost of acquiring a fund, such as commissions or sales loads, and it’s expressed as a percentage of the fund’s average daily net assets.

  • Face Amount

    The amount stated on the face of the policy that will be paid in case of death or at the maturity of the policy. It does not include additional amounts payable under accidental death or other special provisions, or acquired through the application of policy dividends.

  • Financial Statement

    Reports of a company’s past financial performance and current financial position. The four primary financial statements are the balance sheet, income statement, statement of shareholder’s equity, and the statement of cash flows.


    The Financial Industry Regulatory Authority (FINRA) is a self-regulatory organization that oversees the market regulation of all securities firms doing business in the United States. FINRA was created in 2007 through the consolidation of the National Association of Securities Dealers (NASD) with the member regulation, enforcement and arbitration divisions of the New York Stock Exchange.

  • Fund Overlap

    Fund overlap refers to the duplication in owning two or more ETFs or mutual funds that have the same identical securities and/or underlying investment strategy. Investors are effectively paying twice for double work. They pay one fund company to execute an investment strategy and then they pay again to a competing fund to do the exact same work.

  • Fundamental Analysis

    A form of investment analysis that focuses on a company’s financial statements, earnings, sales, and quality of management. Compare to Technical Analysis.

  • Global Fund

    A type of mutual fund, closed end fund, or ETF designed to give exposure to international or emerging market securities, including the United States.

  • Gold Fund

    A type of mutual fund or ETF designed to give exposure to gold related securities or to physical gold itself. Gold securities can include stocks in companies engaged in the production, processing, or mining of gold. Funds that track the price of gold itself will generally acquire and store physical gold or gold derivatives. Gold funds are often used to hedge against inflation and currency risks.

  • Government Bond

    A government bond is a debt security issued by the US government. Two common types are savings bonds and marketable securities; both tend to have low default risk. Government savings bonds are not traded on any exchange; therefore, they are immune to market fluctuation. In contrast, “marketable” U.S. government securities, such as U.S. Treasury bills, Treasury notes, Treasury bonds, and Treasury Inflation-Protection Securities (TIPS), are commonly traded.

  • Government Securities

    Securities issued by U.S. government agencies and international governments. U.S. Treasuries are generally considered the safest, because they are backed by the full faith and credit of the government.

  • Grace Period

    The grace period is the period of time after the due date of a payment during which the overdue payment may be made without penalty or lapse in contractual obligations.

  • Grantor List

    This type of fund structure distributes dividends directly to shareholders and allows investors to retain their voting rights on the underlying securities within the fund. The original fund components of the index remain fixed and this ETF structure is not registered under the SEC Investment Company Act of 1940. Merrill Lynch’s HOLDRs follow this format.

  • Growth and Income Fund

    A mutual fund, closed end fund, or ETF with both the growth of capital and income as the primary investment objective.

  • Growth Fund

    A mutual fund, closed end fund, or ETF with the growth of capital as the primary investment objective.

  • Growth Stocks

    Stocks of companies that have exhibited faster than average earnings gains and are expected to continue its record of high performance. Such stocks generally have higher price/earnings ratios and do not pay dividends.

  • Hedge

    A strategy used to reduce financial risk or the possibility of loss. For example, an investor owning 100 shares of an S&P 500 stock fund could hedge that long position by owning a short position or put options on the S&P 500 index.

  • Immediate Annuity

    This annuity has no accumulation phase. Instead, you start receiving annuity payments right after you purchase the annuity.

  • Income Fund

    A mutual fund, closed end fund, or ETF that has generating income, as the primary investment objective. Income can be derived from various sources, including interest payments, dividends, and capital gains.

  • Index

    A statistical measure used to track the aggregate performance of stock, bond and commodities markets. Widely followed indexes include those developed and managed by Standard & Poor’s, Russell, MSCI and Dow Jones.

  • Index Fund

    A type of mutual fund or ETF that attempts to match the performance of a stock, bond or commodity index. Index funds are sometimes referred to as passive funds and are notorious for their tax efficiency and low fees. Some index funds follow traditional market cap indexes whereas others follow an equal weight or fundamental indexing approach.

  • Inflation

    A continuous increase over time in the overall costs of goods and services.

  • Initial Public Offering (IPO)

    An initial public offering occurs when a company first sells its shares to the public.

  • Insurability

    Insurability is defined as the ability of an insurance applicant to be accepted by an insurer, based on health, occupation, lifestyle, and finances.

  • Insurable Interest

    Insurable interest refers to a potential beneficiary who has a vested financial interest in the life of another person and who might suffer loss upon their disability or death.

  • Intangible Asset

    A non-physical asset that represents a competitive advantage to a company, such as brand name, a trademark, patents or other intellectual property, and goodwill.

  • Interest

    Interest is the cost of borrowed money. It may be the payment you receive from an investment, such as a bond, or the amount you pay for a loan, which is generally a percentage of the total amount borrowed. For example, if you take out a $5,000 loan for a year at 9% interest, the cost of taking the loan would be 9% of the total amount borrowed—$450. Also, interest can refer to a right or share in an asset or property.

  • Inventory

    Goods that a company has produced or purchased, but not yet sold. Inventory is considered an asset. If inventory is growing faster than sales, this can be a warning sign that business growth is slowing.

  • Investment Advisor

    An investment adviser is a firm or an individual that, for compensation, engages in the business of advising others as to the value of securities or as to the advisability of investing in, purchasing, or selling securities. An investment adviser can also be a firm or individual that, for compensation and as part of a regular business, issues analyses or reports concerning securities.

  • Investment-Grade Bond (or High Grade Bond)

    Bonds that are believed to have a lower risk of default and receive higher ratings by the credit rating agencies, namely bonds rated Baa (by Moody’s) or BBB (by S&P and Fitch) or above. These bonds tend to be issued at lower yields than less creditworthy bonds.

  • Issuer

    The entity obligated to pay principal and interest on a bond.

  • Keogh Plan

    A Keogh plan is a tax-deferred defined benefit or defined contribution plan that is established by a self-employed individual for him/herself and his/her employees.

  • Lapse Rate

    The rate at which life insurance policies terminate because of failure to pay the premiums. When policies are lapsed before enough premium payments are made to cover early policy expenses, the company must make up this loss from remaining policyholders. Therefore, the lapse rate will affect the cost of the policy.

  • Large Cap

    A large company or large cap stock generally refers to companies with a market capitalization or size over $5 billion.

  • Level Premium Term Insurance

    Level premium term insurance refers to a life insurance policy for which premiums remain the same from year to year for a specified period.

  • Leverage

    Margin and use of option contracts are forms of leverage which allow investors to enhance their returns without adding to their investments.

  • Leveraged Employee Stock Ownership Retirement Plan

    A defined contribution retirement plan in which a company leverages its credit to borrow money to fund the retirement plan. The company uses the borrowed funds to purchase shares from the company’s treasury for the retirement plan and makes annual contributions to repay the original loan.

  • Leveraged ETFs

    The main objective of leveraged ETFs is to deliver magnified performance of a particular stock, bond or commodity index. Most leveraged ETFs attempt to duplicate daily index returns by two or three times. Short leveraged ETFs aim for daily index returns that move in the opposite direction, but with magnified performance of two or three times.

  • Liability

    An amount owed to a person or organization for borrowed funds. Loans, notes, bonds, and mortgages are forms of debt. These different forms all call for borrowers to pay back the amount they owe, typically with interest, by a specific date, which is set forth in the repayment terms.

  • Life Cycle Funds

    A diversified mutual fund that automatically shifts towards a more conservative mix of investments as it approaches a particular year in the future, known as its “target date.” A lifecycle fund investor picks a fund with the right target date based on his or her particular investment goal. The managers of the fund then make all decisions about asset allocation, diversification, and rebalancing. Lifecycle funds also are known as target date funds.

  • Life Expectancy

    The probability of an individual living to a certain age according to a particular mortality table. This is the beginning point in calculating the pure cost of life insurance and annuities and is reflected in the basic premium.

  • Liquidity

    Liquidity refers to the ability to convert an asset to cash without substantially affecting its price. Assets that are quickly converted to cash have good liquidity whereas those that take time are less liquid. The liquidity of an ETF is best determined by the liquidity of the securities in its underlying stock, bond or commodity index along with the trading volume of the ETF itself. General market conditions are another secondary factor which can influence an ETF’s liquidity.

  • Load

    The amount that investors pay when they buy (front-end load) or redeem (back-end load) shares in a mutual fund, similar to a commission. The SEC’s rules do not limit sales loads a fund may charge, but FINRA’s rules cap mutual fund sales loads at 8.5% of the purchase or sale, or at lower levels, depending on other fees and charges.

  • Long-Term Assets

    Assets that will be expended or consumed over multiple years. Examples include land, buildings, equipment, and intangible assets, such as goodwill, and accrued organizational expenses. Long-term assets appear on a company’s balance sheet.

  • Long-Term Debt

    Loans and other debt obligations with maturities of longer than one year. Long-term debt appears on a company’s balance sheet.

  • Lump Sum Payment

    A payment of a sum of money at one time, such as an inheritance.

  • Management Fee

    A fee paid out of fund assets to the fund’s investment adviser for investment portfolio management. A fund’s management fees appear under Annual Fund Operating Expenses in the fee table in the fund’s prospectus.

  • Market Capitalization (“Market Cap”)

    Total market value of a company’s stock. You get this figure by multiplying the market price of a single share by the total shares outstanding.

  • Market Index

    A measurement of the performance of a specific “basket” of stocks considered to represent a particular market or sector of the U. S. economy. For example, the Dow Jones Industrial Average (DJIA) is an index of 30 “blue chip” stocks of U.S. companies.

  • Market Order

    A market order is an order to buy or sell a stock at the current market price. Unless you specify otherwise, your broker will enter your order as a market order. The advantage of a market order is that as long as there are willing buyers and sellers, you are almost always guaranteed your order will be executed. The disadvantage is the price you pay when your order is executed may not be the price you expected.

  • Market Price

    Most recent recorded price at which a stock traded.

  • Mid Cap

    A mid-sized company or mid cap stock generally refers to companies with a market capitalization or size between $1 billion and $5 billion.

  • Money Markets

    A market that provides trading in short-term debt.

  • Money Purchase Retirement Plan

    A defined contribution retirement plan under which employer contributions are based on a fixed percentage of compensation. Contributions are required every year, regardless of earnings and profits.

  • Mortality Table

    A mortality table is a statistical table showing the death rate of people at each age, usually expressed as the number of deaths per thousand.

  • Mortgage Backed Securities

    Mortgage-backed securities, or MBS, are bonds or notes backed by a pool of mortgages on residential or commercial properties. As the mortgage borrowers pay the principal and interest on their loans, the investors in MBS receive payments of interest and principal.

  • Municipal Bond

    Municipal bonds or “munis” are debt issued by city, state and local governments to finance various projects. Bond proceeds are typically used by local governments to construct or maintain highways, hospitals and schools. The interest income paid by municipal bonds is free from federal income tax and in many cases, exempt from state and local taxes as well.

  • Mutual Fund

    The common name for an open-end investment company. Like other types of investment companies, mutual funds pool money from many investors and invest the money in stocks, bonds, short-term money-market instruments, or other securities. Mutual funds issue redeemable shares that investors buy directly from the fund or through a broker for the fund instead of from other investors.


    National Association of Securities Dealers Automated Quotations is a computerized system that quotes securities traded over the counter and on other exchanges.

  • Net Asset Value (NAV)

    Represents the per share price of a mutual fund. With closed end funds and ETFs, the true NAV is not always reflected in the share price of the security because it may trade at a premium or discount to the NAV. The calculation of NAV is the fund’s total net assets divided by the number of shares outstanding, minus fees and expenses.

  • Net Income

    Income after taxes, interest, depreciation, and other expenses have been deducted.

  • New York Stock Exchange (NYSE)

    Located on Wall Street in New York, this is the oldest and largest stock exchange in the U.S. Also known as the “Big Board”, or “Exchange”.

  • Non-Forfeiture

    One of the choices available if the policy owner discontinues premium payments on a policy with a cash value. Options available are to take the cash value in cash or to use it to purchase extended term insurance or reduced paid-up insurance.

  • Non-Participating

    A life insurance policy in which the company does not distribute to policyowners any part of its surplus.

  • Nonleveraged employee stock ownership retirement plan

    A defined contribution retirement plan in which a company contributes either cash to purchase outstanding shares of company stock or contributes a certain amount of shares from the company’s treasury to employee accounts.

  • Open End Index Fund

    This type of fund structure reinvests dividends the date of receipt and pays them out via a quarterly cash distribution. This ETF structure is also permitted to use derivatives, loan securities and it’s registered under the SEC Investment Company Act of 1940. ETFs that utilize this legal structure include iShares and the Select Sector SPDRs.

  • Over the Counter (OTC)

    Over the counter trading is conducted by market makers in OTCBB and Pink Sheets securities using inter-dealer quote services like the Pink Quote and the OTC Bulletin Board (OTCBB). OTC stocks are not usually listed or traded on a stock exchange, although exchange listed stocks can be traded in the OTC market.

  • Overvalued Stock

    Stock that trades at a higher price than the issuing company’s reputation, earnings outlook, or financial situation would seem to merit. For example, one sign of potential overvaluation is a price/earnings ratio (P/E Ratio) significantly higher than average for the market as a whole and for the industry to which the corporation belongs.

  • Participating Policy

    A life insurance policy under which the company agrees to distribute to policyowners the part of its surplus that its Board of Directors determines is not needed at the end of the business year. The distribution serves to reduce the premium the policyowners had paid.

  • Policy

    The printed legal document stating the terms of insurance contract that is issued to the policyowner by the company.

  • Policy Proceeds

    The amount actually paid on a life insurance policy at death or when the policyowner receives payment at surrender or maturity.

  • Policyowner

    The person who owns a life insurance policy. This is usually the insured person, but it may also be a relative of the insured, a partnership or a corporation.

  • Portfolio

    The combined holdings of stock, bond, commodity, real estate and other investments by an individual or institutional investor.

  • Portfolio Turnover

    Portfolio turnover measures the frequency by which securities within a mutual fund or ETF are bought and sold. Turnover is determined by the dollar value of buys or sells (whichever is less) during a year divided by the total assets in the fund. For example, a mutual fund with $200 million in assets that has $100 million of sales and $100 million worth of purchases (using the same proceeds) during the year would have a 50% turnover rate, indicating an average holding period of two-years. A churn rate of 100% signifies that a fund manager has sold the fund’s entire portfolio and bought new holdings during the course of a year. High portfolio turnover translates into higher investment costs whereas low portfolio turnover is better because it lessens the impact of trading and tax related expenses.

  • Preferred Stock

    Capital stock with a claim on company earnings and assets that takes precedence over the claims of common stock in the event of the company’s liquidation. Preferred stock often pays a regular dividend, which is also paid prior to any dividend payments to common stockholders. Preferred stock usually does not carry voting rights.

  • Premium

    (1) The payment, or one of the periodic payments, a policyowner agrees to make for an insurance policy. Depending on the terms of the policy, the premium may be paid in one payment or a series of regular payments, e.g., annually, semi-annually, quarterly or monthly. The premium charged reflects the expectation of loss, expenses and profit contingencies. (2) The amount by which the price of a bond exceeds its principal (par) amount.

  • Premium to Nav

    A mutual fund, closed end fund or ETF whose share price is higher than fund’s net asset value (NAV). The occurrence of significant premiums or discounts with ETFs is rare, whereas with closed end funds it’s common.

  • Prepaid Tuition Plans

    A type of 529 plan that allows you to pay for future college tuition now, at or near the current tuition rate. Some pre-paid tuition plans also allow you to pre-pay for room and board.

  • Prepayment

    The unscheduled partial or complete payment of the principal amount outstanding on a loan, such as a mortgage, before it is due.

  • Price/Earnings Ratio (P/E)

    A common measure for identifying undervalued and overvalued stock. It uses the relationship between a company’s earnings and share price to value a company’s stock. The P/E ratio is calculated by dividing the current market price per share by the earnings per share. A stock’s P/E ratio gives you a sense of what you are paying for a stock in relation to its earning power (e.g., a stock with a P/E of 20 is trading at 20 times its earnings). If a company’s market price is $40 and the earnings per share is $4, the P/E ratio for the company is 10.

  • Prime Rate

    In theory, the interest rate banks charge their best and biggest customers for short-term loans. In practice, banks sometimes vary the rate they offer, depending on other factors such as the customer’s creditworthiness.

  • Principal

    The total amount of money being borrowed or lent; the initial amount of money invested.

  • Profit-Sharing Retirement Plan

    A defined contribution retirement plan that gives employees a share in the profits of the company. Contributions to employee retirement accounts are determined as a percentage of annual company profits.

  • Promissory Notes

    Promissory notes are a form of debt that companies sometimes use to raise money. They typically involve investors loaning money to a company in exchange for a fixed amount of periodic income. Although promissory notes can be appropriate investments for many individuals, some fraudsters use promissory notes to defraud investors, especially the elderly.

  • Prospectus

    Required by securities laws and issued by mutual fund companies and ETFs, the prospectus is a legal document that discloses the investment objectives of the fund, operating history, fund management, management fees, portfolio holdings, and other related financial data. Brokers are required to give a prospectus to investors before they invest.

  • Proxy Statement

    :  A document sent to shareholders letting them know when and where a shareholders’ meeting is taking place and detailing the matters to be voted upon at the meeting.  You can attend the meeting and vote in person or cast a proxy vote.

  • Proxy Voting

    A way for shareholders to vote for corporate directors and on other matters affecting the company without having to personally attend the meeting.

  • Publicly Traded Company

    A company whose securities can be bought and sold by the general public.

  • Purchase Fee

    A shareholder fee that some funds charge when investors buy mutual fund shares. This is not the same as, and may be in addition to, a front-end load.

  • Put Option

    A put option gives its owner the right (not obligation) to sell a predetermined quantity of stock or commodities at a specified price (strike price) within a certain time frame (expiration date).

  • Qualified Plan

    A qualified plan is a retirement plan that meets the requirements of Section 401(a) of the Internal Revenue Code, one that is, therefore, eligible for tax-favored treatment.

  • Quarterly Reports (10Q)

    Each quarter, public companies file reports to the SEC containing unaudited financial statements and information about the company’s operations in the previous three months.

  • Quick Ratio

    A ratio calculated by dividing cash plus accounts receivable by current liabilities. It measures a company’s ability to quickly convert assets to cash to meet operating needs.

  • Rate of Return

    The rate of return is the gain or loss of an investment over a specified period of time, expressed as a percentage increase over the original investment cost. For stocks, the rate of return is the dividend and capital appreciation. The yield is the rate of return on fixed-income securities. Analysts use the return on equity to compare the rates of return on differing investment vehicles. Accountants use internal rates of return when reviewing investment contracts, budgets, or investment opportunities.

  • Rating

    The basis for an additional charge to the standard premium because the person insured is classified as a greater than normal risk usually resulting from impaired health or a hazardous occupation.

  • Real Estate Investment Trusts (REITs)

    Publicly traded companies involved in property development, management or sales. REITs cover various segments of the real estate market including apartments, hotels, industrial properties, medical facilities, shopping malls and offices.

  • Redemption

    Redemption is the repayment of a debt security or preferred stock, either for par value at maturity or for a premium before maturity.  Redemption fees, which must be paid to the fund, are not the same as and may be in addition to a back-end load, which is typically paid to a broker. The SEC generally limits redemption fees to 2% of the sales amount.

  • Reduced Paid-up Insurance

    A form of insurance available as a non-forfeiture option. It provides for continuation of the original insurance plan, but for a reduced amount, without further premiums.

  • Reinstatement

    Restoring a lapsed policy to its original premium paying status, upon payment by the policy owner, with interest, of all unpaid premiums and policy loans, and presentation of satisfactory evidence of insurability by the insured.

  • Retained Earnings

    Earnings a company reinvests in its core business or to retire debt, after it pays dividends.

  • Return on Assets

    A ratio calculated by dividing the company’s EBIT (net income) by total assets. The ROA is one of the most commonly used profitability ratios.

  • Revenue

    Money collected for providing a product or service. Companies that provide services, such as telecommunications, generally use the term revenue; whereas companies that manufacture products, such as automobiles, often use the term sales.

  • Rider

    An endorsement to an insurance policy that modifies clauses and provisions of the policy, including or excluding coverage.

  • Risk

    In finance, risk refers to the degree of uncertainty about the rate of return on an asset and the potential harm that could arise when financial returns are not what the investor expected. In general, as investment risks rise, investors seek higher returns to compensate them for taking on such risks.

  • Risk Classification

    The process by which a company decides how its premium rates for life insurance should differ according to the risk characteristics of individuals insured (e.g., age, occupation, sex, state of health) and then applies the resulting rules to individual applications.

  • Risk Tolerance

    An investor’s ability and willingness to lose some or all of an investment in exchange for greater potential returns.

  • Roth 401(k)

    An employer-sponsored Roth 401(k) plan is similar to a traditional plan with one major exception. Contributions by employees are not tax deferred but are made with after-tax dollars. Income earned on the account from interest, dividends, or capital gains, is tax-free.

  • Securities and Exchange Commission (SEC)

    Federal agency created by the Securities Exchange Act of 1934 with the primary mission of protecting investors and maintaining the integrity of the securities markets. The SEC has five Commissioners who are appointed by the President of the United States with the advice and consent of the Senate. Their terms last five years and are staggered so that one Commissioner’s term ends on June 5 of each year.

  • Security

    An investment instrument such as a stock or bond.

  • Settlement Options

    The several ways, other than immediate payment in cash, in which a policyholder or beneficiary may choose to have policy benefits paid. These options typically include the following:

    • Interest Option – death benefit left on deposit at interest with the insurance company with earnings paid to the beneficiary annually.
    • Fixed Amount Option – death benefit paid in a series of fixed amount installments until the proceeds and interest earned terminate.
    • Fixed Period Option – death benefit left on deposit with the insurance company with the death benefit plus interest paid out in equal payments for the period of time selected.
    • Life Income Option – death benefit plus interest paid through a life annuity. Income continues under a straight life income option for as long as the beneficiary lives or whether or not the beneficiary lives, under a life income with period certain option.
  • Share

    A share is a certificate representing one unit of ownership in a corporation, mutual fund, or limited partnership.

  • Share Classes

    Some mutual funds use multiple share classes for the same underlying portfolio. For example, investors that buy A shares pay an upfront sales charge to enter a fund, whereas a class B share would defer the sales charge. Some mutual fund families like Vanguard offer their ETFs as an additional share class of existing index mutual funds.

  • Shareholder

    An individual or entity that owns stock in a company.

  • Short Sale

    A short sale occurs when you sell stock you do not own. Investors who sell short believe the price of the stock will fall. If the price drops, you can buy the stock at the lower price and make a profit. If the price of the stock rises and you buy it back later at the higher price, you will incur a loss.

  • SIMPLE (Savings Incentive Match Plan for Employees)

    A SIMPLE Plan is a retirement plan, which can be set up as a 401(k) or IRA, that allows employee pre-tax contributions and mandatory employer matching contributions. All contributions are immediately vested in a SIMPLE plan.

  • Small Cap

    A small company or small cap stock generally refers to companies with a market capitalization between $1 billion and $250 million.

  • Standard & Poor’s 500 Index (S&P 500)

    A market-value weighted index that tracks the performance of 500 widely held large-cap stocks in the industrial, transportation, utility, and financial sectors. It is often looked to by experienced investors as a measure of changes in the broad market.

  • Standard Risk

    The classification of a person applying for a life insurance policy who fits the physical, occupational and other standards on which the normal premium rates are based.

  • Stock

    An instrument that signifies an ownership position (called equity) in a corporation, and a claim on its proportional share in the corporation’s assets and profits. Most stocks also provide voting rights, which give shareholders a proportional vote in certain corporate decisions, such as the election of corporate directors.

  • Stock Bonus Retirement Plan

    A defined contribution retirement plan that is funded by an employer’s contributions of corporate stock to the retirement plan.

  • Stock Dividend

    The payment of a dividend in the form of stock. This is sometimes done to conserve a company’s cash position.

  • Style Box

    The investment style box is a visual tool that classifies mutual funds and ETFs by the size (large, mid or small) of stocks a fund holds along with the investment style of stocks (value, growth or blend) it holds. The style box has nine investment categories or styles and was developed by Morningstar.

  • Style Drift

    Style drift happens when a fund diverts from its prospectus defined investment strategy to pursue another course.

  • Substandard Risk

    The classification of a person applying for a life insurance policy who does not meet the requirements set for the standard risk. An additional premium is charged on substandard risks to provide for the probability that such a person will have a shorter life span than a standard risk.

  • Supplementary Contract

    An agreement between a life insurance company and a policyowner or beneficiary in which the company retains at least part of the cash sum payable under an insurance policy and makes payment in accordance with the settlement option chosen.

  • Target Benefit Retirement Plan

    A defined contribution retirement plan similar to a defined benefit plan since employer contributions, which are mandatory, are based on projected retirement benefits. However, unlike a defined benefit retirement plan, the benefits provided to participants at retirement are based on the performance of the investments, and are therefore not guaranteed.

  • Target Date Fund

    A type of mutual fund or ETF that automatically adjusts its mix of stocks, bonds and other assets based upon a specified year or target date. Typically, a target date fund will reduce its exposure to stocks as it approaches its planned target date and maintain a fixed allocation for the remainder of time.

  • Tax Loss Harvesting

    This market strategy focuses on selling a portfolio’s worst performing security to 1) offset realized capital gains of winning securities, and 2) to reinvest the sale proceeds into securities with a similar investment objective or correlation.

  • Technical Analysis

    A method of evaluating securities that focuses on the assumption that detailed market data, such as charts of price, volume, and open interest, can help predict future (usually short-term) market trends. Unlike fundamental analysis, it gives little weight to the intrinsic value of a company’s business.

  • Ticker Symbol

    The lettering system used to identify a stock, mutual fund, or ETF on an exchange. Also called trading symbols.

  • Time Horizon

    The rate of return that reflects the annual dividend paid on a stock (if any) plus any capital appreciation that has occurred during the time you have held it

  • Total Return

    The rate of return that reflects the annual dividend paid on a stock (if any) plus any capital appreciation that has occurred during the time you have held it

  • Total Shares Outstanding

    Shares of stock issued and in the hands of shareholders. Total shares outstanding can usually be found listed on company balance sheets as “Capital Stock Issued and Outstanding.”

  • Treasury Inflation Protection Securities (TIPS)

    TIPS are U.S. government debt indexed to inflation. The principal of a TIPS either increases with inflation or decreases with deflation, as measured by the Consumer Price Index. At maturity you are paid the adjusted principal or original principal, whichever is greater. TIPS pay interest twice a year, at a fixed rate. The rate is applied to the adjusted principal; so, like the principal, interest payments rise with inflation and fall with deflation.

  • Trustee

    An institution, usually a bank, designated by the issuer as the custodian of funds and official representative of bondholders.

  • Undervalued Stock

    A stock that trades at a lower price than the issuing company’s reputation, earnings outlook, or financial situation would seem to merit.

  • Underwriter

    The person who reviews the application for insurance and decides if the applicant is acceptable and at what premium rate.

  • Underwriting

    The process by which a life insurance company determines whether it can accept an application for life insurance, and if so, on what basis so that the proper premium is charged.

  • Unit Investment Trust

    This type of fund structure does not reinvest dividends in the fund and pays them out via a quarterly cash distribution. In order to comply with diversification rules, this ETF structure will sometimes deviate from the exact composition of a benchmark index. This type of fund is registered under the SEC Investment Company Act of 1940. The Dow DIAMONDS (DIA), PowerShares QQQ (QQQQ) and the S&P 500 SPDRs (SPY) follow this product format.

  • Valuation

    Process of estimating the future worth of a company’s stock. One standard method of estimating the value of a company’s stock is the P/E ratio.

  • Variable Annuity

    A variable annuity is a contract between you and an insurance company, under which the insurer agrees to make periodic payments to you, beginning either immediately or at some future date.

  • Volatility

    Volatility is determined by the price movement (rise or fall) of a security. Securities that experience sharp increases or declines within a short time frame are considered more volatile than those that don’t. (See Beta)

  • Volume

    Total number of shares or contracts traded on a security. Volume data is tracked and reported daily by major stock exchanges around the world.

  • Yield

    For stock, that portion of return that is paid in the form of dividends. See dividend yield. For fixed-income securities, such as bonds or notes, yield is the effective rate of interest paid.

  • Zero Coupon Bond

    A zero coupon bond is bought at a discounted price to its face value and the principal is repaid at the bond’s maturity date. Unlike conventional bonds which make semi-annual payments, zero coupon bonds do not make periodic interest payments. U.S. Treasury bills, U.S. savings bonds and any other bond that’s been stripped of its coupons are all examples of zero coupon bonds. Investors earn a return from zero coupon bonds after compounding interest is paid at maturity plus the difference between the discounted price of the zero bond and its par or redemption value.