Glossary

The percent of a mutual fund's assets used to defray marketing and distribution expenses. The amount of the fee is stated in the fund's prospectus. A proper no-load fund has neither a sales charge nor a 12b-1 fee.

An employer-sponsored defined contribution retirement plan where employees can make contributions from their paycheck. In some plans, the employer also makes contributions.

An individual limit on the number of elective deferrals, including pretax and Roth contributions that an individual may contribute to all 401(k) and 403(b) plans each calendar year.

An employer-sponsored defined contribution retirement plan designed for public school employees, 501(c)(3) tax-exempt organizations, employees of churches, and certain ministers. An employee can make contributions from their paycheck, and, in some plans, the employer also makes contributions.

The minimum coverage test, found in Section 410(b) of the Tax Code, ensures that a plan provides benefits to an adequate number of non-highly compensated employees (NHCEs) and doesn't favor highly compensated employees (HCEs). There are two parts to the minimum coverage test: the ratio percentage test and the average benefits test.

The maximum amount that may be added to a defined contribution plan on behalf of a participant for any plan year. Annual additions include all employee and employer contributions and any forfeiture amounts reallocated to a participant's account. Annual additions exclude catch-up or rollover contributions transferred from another qualified plan.

An employer-sponsored deferred compensation plan offered by state and local governments and non-governmental entities tax-exempt under IRC Section 501(c).

An annual report filed with the U.S. Department of Labor (DOL) which contains information about a retirement plan's financial condition, investments, and operation.

A specific nondiscrimination test for 401(k) and 403(b) plans that compares the average contribution rates of the highly compensated employees (HCEs) to the average contribution rates of the non-highly compensated employees (NHCEs). The plan passes the test if the HCEs' average contribution percentage is within a specified amount of the NHCEs' average contribution percentage. The ACP test includes the employer match contributions, employee voluntary after-tax contributions, and specific forfeitures based on deferrals or matching contributions.

A specific nondiscrimination test for 401(k) plans that apply to employee salary deferral contributions. The ADP test compares the average deferral rates of the highly compensated employees (HCEs) to the average deferral rates of the non-highly compensated employees (NHCEs). The plan passes the ADP test if the HCEs' average contribution percentage is within a specified amount of the NHCEs' average deferral percentage.

The amount of income for an individual or a couple filing a joint tax return subject to federal income taxes. To determine AGI subtract certain qualified deductions, such as unreimbursed business expenses or contributions to a traditional Individual Retirement Account (IRA), from gross income, which generally includes employment income, interest income, dividends, and capital gains.

A mutual fund with the objective to achieve the maximization of long-term capital growth, rather than dividend income, by investing in narrow market segments and small company stocks. Aggressive growth funds are designed for maximum capital appreciation, and generally invest funds in companies with high growth rates, and usually are accompanied by a higher degree of risk. (Note: Mutual funds are sold by prospectus; a prospectus contains complete information on risks, fees, and expenses and should be read carefully before investing.)

A receipt from a United States bank for shares of stock of a foreign company. ADRs, traded in U.S. dollars on U.S. markets, carry the same risks as the underlying foreign share.

Located in downtown Manhattan, AMEX has the third-highest trading volume 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.

Yearly record of a publicly-held company's financial condition. It includes a description of the firm's operations and balance sheet, income statement, and cash flow statement information. Securities and Exchange Commission (SEC) rules require that it be distributed to all shareholders.

A long-term contract sold by life insurance companies that guarantee payments, fixed or variable, to the purchaser in regular intervals through annuitization. During the accumulation phase, fixed annuities offer consistent, predictable returns, whereas variable annuities provide fluctuating returns based on the performance of an investment portfolio. Payments are usually scheduled to begin at a future time, such as retirement, but in some instances may start immediately. Annuities provide tax-deferred earnings during the accumulation phase, with taxes due upon distribution. Distributions before age 59 1/2 may be subject to an additional 10% federal tax penalty.

Property with cash value includes real estate, equipment, savings, and investments.

The process of dividing investments among different asset classes, such as stocks, bonds, and cash reserves. The goal of asset allocation is to optimize the risk/reward tradeoff based on specific situations and objectives of the investor and/or the mutual fund. Many financial advisors believe that the mix of asset classes has a greater impact on long-term portfolio results than any individual investment performance.

Categories of investments. The three main asset classes are stocks, bonds, and cash reserves.

A prearranged investment plan that automatically deposits mutual funds and stock dividends back into a stock to purchase additional shares.

A mutual fund invests in both stocks and bonds in which the main objective is to preserve capital with moderate income growth, and a secondary consideration is capital gains. Balanced funds are among the most conservative mutual funds investing in common stock. (Note: Mutual funds are sold by prospectus; a prospectus contains complete information on risks, fees, and expenses and should be read carefully before investing.)

Measures the variation in yields, which often fluctuate in very small increments. One basis point is equal to .01%; therefore, 100 basis points are equal to 1%. For example, a yield that has increased from 5.46% to 5.58% has increased 12 basis points.

An extended period of declining prices, usually by 20%, in the financial markets. A prolonged downturn of general economic activity is often the catalyst for a bear market in stocks, whereas rising interest rates are typically responsible for a bear market in bonds.

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

A measure of a security's price fluctuations (volatility) relative to an appropriate market index. For example, the Standard & Poor's 500 Stock Index (S&P 500) has a beta of 1. Stocks with betas greater than 1 are subject to more rapid and extreme price fluctuations than the market. Conversely, price fluctuations for stocks with betas less than 1 are less frequent and smaller than the market. Conservative investors generally seek lower beta securities, while aggressive investors seek higher betas.

A debt security issued by a corporation, government, or government agency obligating the issuer to pay interest at pre-determined intervals and repay the principal at maturity. Every bond has a set face value, also known as a par value, which names the amount of money the bondholder will receive when the bond reaches the date of maturity. The face value will never change, but the market value of a bond may fluctuate. If a bondholder sells a bond before its maturity date, they may receive more or less than the face value.

A mutual fund investing in bonds issued by the U.S. government, municipalities, or corporations. Bond funds usually emphasize interest income rather than growth. Unlike bonds purchased by an individual investor, bond funds do not guarantee an interest rate, a maturity date, or a return of principal. (Note: Mutual funds are sold by prospectus; a prospectus contains complete information on risks, fees, and expenses and should be read carefully before investing.)

A professional who mediates between the buyer and seller while trading services or property, such as securities, real estate, or commodities. In return for assistance, the broker generally receives a commission.

An extended period of rising prices, usually by 20% in financial markets. Opposite of a bear market. A high trading volume often occurs in a bull market, which generally lasts over an extended period.

An investment strategy that advocates holding securities long-term while ignoring short-term price fluctuations. Unlike market timing investors, who actively buy and sell securities, hoping to turn quick profits on short-term price fluctuations, investors who buy and hold securities hope for substantial gains over time and may take years to accumulate shares in a company, or they may wait years for a bond to reach maturity.

The increase in value of a security. For example, a stock purchased at $20 per share but now worth $25 has appreciated by $5 per share, which equals a 25% return on capital.

The amount by which an asset's selling price exceeds its initial purchase price. A realized capital gain is an investment that has been sold at a profit. An unrealized capital gain is an investment that hasn't been sold yet but would result in a profit if sold. Capital gain is often used to mean realized capital gain.

A payment to investment company shareholders of profits realized on the sale of its securities. Equity funds usually pay out these amounts once a year, typically in December, while bond funds often include capital gains in their monthly distributions.

Tax on profits from the sale of securities, or fixed assets, such as land, buildings, equipment, and furniture.

Also called a growth fund—a mutual fund with the objective of providing long-term capital gains and high potential future income rather than current income. Capital growth funds are more aggressive than common stock funds, generally investing in more speculative issues.

A decrease in the value of an investment or an asset from its purchase price.

An agreement with a bank promises a fixed interest rate on funds deposited for a specified period. CDs typically earn compound interest and are issued in denominations ranging from $100 to $100,000, with maturities ranging from a few weeks to several years. There may be a penalty if funds are withdrawn before maturity. The Federal Deposit Insurance Corporation (FDIC) ensures each depositor up to $100,000.

A fee charged by a broker for facilitating a transaction, such as buying or selling securities or real estate, based on the dollar amount of the trade, the transaction, or the number of shares traded.

A security representing partial ownership, also called equity, in a corporation, entitles shareholders to participate in stockholder meetings and to vote for the board of directors.

The process of applying investment growth not only to the original investment, but also to income and gains reinvested in prior periods. For example, if you earn compound interest on savings, you earn interest on the accumulated interest. If you earn simple interest on savings, you earn interest based only on the principal amount. Suppose you earn simple interest at 4.5% on $10,000 for 25 years. The interest earned over 25 years would be $11,257.40—the future value of your savings would be $21,257.40. However, if you earn compound daily interest at 4.5% on $10,000 for 25 years, the interest earned would be $20,822.82—the future value would be $30,822.82.

A measure of inflation calculated monthly by the U.S. Bureau of Labor Statistics. The CPI tracks price changes in basic goods and services, such as housing, health care, food, transportation, and electricity.

A debt security issued by a corporation obligating the issuer to pay interest periodically and repay the principal at maturity. Corporate bonds generally feature higher interest rates because of the possible default risk, and the interest earned is often taxable.

Reverse movement, usually downward, in the price of an individual stock, bond, commodity, or index, bringing them more in line with their underlying fundamental values. If prices have been rising on the market and then fall dramatically, this is known as a correction with an upward trend.

Formal evaluation of a company's ability to pay interest and repay principal on borrowed money, as published by a credit rating agency or service. Also, from a personal investor perspective, a published ranking, based on a detailed financial analysis by a credit bureau, of one's financial history, specifically related to one's ability to meet debt obligations. The highest rating is usually AAA, and the lowest is D. Lenders use this information to decide whether to approve a loan.

An individual who buys and sells investments in the same day, generally trying to capitalize on and profit from quick price changes in the short term.

A portfolio strategy for managing the risk of investing in a single industry/market sector or a small number of companies by spreading the risk over several industries/market sectors or a larger number of companies that are unlikely to all move in the same direction.

A taxable payment declared by a company's board of directors and given to its shareholders out of the company's current or retained earnings. Usually quarterly and generally given as cash (cash dividend), but it can also take the form of stock (stock dividend) or other property.

A company arrangement that automatically reinvests a shareholder's dividends into more shares of the company's stock. Because investors may buy shares directly from the company, brokerage fees are limited. In addition, DRIPs provide shareholders with the opportunity to regularly purchase shares and take advantage of dollar-cost averaging.

The annual percentage return of a dividend-paying stock. To calculate the current yield, divide the dividend received on each share by the share's current market price. For example, a stock with a share price of $40 that pays a dividend of $1 per share will have a dividend yield of 2.5%. The dividend yield does not reflect a return based on an original investment.

A method of investing a fixed dollar amount in securities at set intervals, regardless of market prices. With this approach, an investor buys more shares when prices are low and fewer shares when prices are high. This generally results in a lower average cost per share than if the investor had purchased a constant number of shares at the same periodic intervals. Using dollar-cost averaging does not assure a profit and does not protect against a loss in a declining market.

The price-weighted average of 30 actively traded blue-chip stocks. Commonly referred to as "the Dow," this average is widely used to measure the performance of U.S. financial markets.

A mutual fund investing primarily in developing countries that are becoming industrialized. Emerging market funds tend to be highly volatile. (Notes: Mutual funds are sold by prospectus; a prospectus contains complete information on risks, fees, and expenses and should be read carefully before investing. (F) International investing involves special risks not found in domestic investing, including increased political, social, and economic instability. Investing in emerging markets can be riskier than investing in well-established foreign markets.)

An employer-sponsored program that encourages employees to purchase shares of their company. An ESOP may be part of a bonus or retirement package, and it may allow employee-shareholders to participate in the management of the company.

Ownership, such as stock in a company. Equity also generally refers to the difference between an asset's market value and the debt against it. For example, if you own a car valued at $15,000 but owe $10,000 on a car loan, your equity in the car is $5,000.

A conservative mutual fund with the objective of attaining income and growth from blue-chip stocks and utilities that pay high dividends. Equity income funds favor long-term growth with a limited risk to principal. (Note: Mutual funds are sold by prospectus; a prospectus contains complete information on risks, fees, and expenses and should be read carefully before investing.)

A federal law enacted in 1974 that sets minimum standards for most voluntarily established retirement and health plans in private industry to provide protection for individuals in these plans.

The ability of mutual fund shareholders to transfer assets between funds within a fund family, often at no additional charge. For example, suppose you have money invested in a growth fund, which has an objective of providing high potential future income, but you would like a fund that provides more immediate income. Exchange privilege may allow you to shift your investment to an income fund, which generally seeks to maximize current income.

The percent of a mutual fund shareholder's total investment paid as operating expenses and management fees. For example, if a fund has an expense ratio of 1%, an investor will be charged $1 for every $100 invested. Mutual funds with lower expense ratios are able to distribute a higher percentage of their total returns to their shareholders.

The value of a bond at maturity as noted by the issuer on the face of the bond also known as the par value. Interest payments are based on the face value, which is not an indicator of market value.

A group of mutual funds operated by the same company. Each fund generally has a different objective. For example, one may be a growth fund, another may be a growth and income fund, while still another may be a money market fund. Shareholders are often allowed to transfer their assets between funds at no additional cost.

A government agency that guarantees deposits in the event a member bank fails. Coverage is generally restricted to $100,000 per account.

The seven-member Board of Governors that oversees Federal Reserve Banks establishes monetary policy (interest rates, credit, etc.), and monitors the country's economic health. Its members are appointed by the President, subject to Senate confirmation, and serve 14-year terms.

An insurance policy that provides a retirement plan with protection from losses caused by any fraudulent behavior such as embezzlement, theft, larceny, and misappropriation by those who access the plan's funds. Retirement plans that are subject to ERISA are required to be covered by a fidelity bond equal to at least $1,000 or 10% of plan assets, determined as of the beginning of the plan year, up to a maximum of $500,000. The maximum amount is $1,000,000 for plans that hold employer securities.

An individual who provides investment advice for a fee or exercises discretionary authority or control in managing assets. Also, an individual, company, or association is responsible for holding assets in trust and investing them wisely for the benefit of a trust's beneficiary. Examples of fiduciaries include trustees, bankruptcy receivers, and executors of wills and estates.

An investment contract sold by a life insurance company that guarantees regular payments to the purchaser for a specified period of time or life through annuitization. The purchaser generally pays a premium either in a lump sum or in installments. During the accumulation phase, a fixed annuity will earn a fixed rate of interest, as stated in the contract. This interest will accumulate on a deferred tax basis, with taxes due upon distribution. Distributions prior to age 59 1/2 may be subject to an additional 10% federal tax penalty.

A mutual fund with the objective of providing current income by investing in fixed income securities, such as government bonds, corporate bonds, municipal bonds, or preferred stock. (Note: Mutual funds are sold by prospectus; a prospectus contains complete information on risks, fees, and expenses and should be read carefully before investing.)

A security that pays a fixed rate of return on a regular schedule, such as a bond or a certificate of deposit (CD). Fixed-income investments are generally considered less volatile than other investment vehicles, such as common stock, and, as a result, they tend to provide lower rates of return and less protection against rising inflation.

A sales fee (load) investors pay up-front at the time they purchase an investment. For example, suppose a company charges a 5% front-end load, and you would like to invest $5,000. The sales fee due at the time of purchase would be $250.

Agreements to buy or sell a specific amount of a commodity or financial instrument at a set price on a specific future date.

Also called an international fund—a mutual fund investing in securities worldwide. In addition to managing trends in particular securities markets, global funds must also manage foreign currency movements. (Notes: Mutual funds are sold by prospectus; a prospectus contains complete information on risks, fees, and expenses and should be read carefully before investing. The risks associated with investing on a worldwide basis include differences in regulation of financial data and reporting, currency exchange differences, as well as economic and political systems that may be different from those in the United States.)

When a company makes an initial public offering (IPO) and sells shares of its stock to the public for the first time.

A debt security issued by the U.S. 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.

A mutual fund with the objective of providing long-term principal and income growth, as well as current dividend income. For example, a growth and income fund may invest in high-yield bonds, as well as in blue chip companies expected to return regular dividends while their shares grow more valuable over time. (Note: Mutual funds are sold by prospectus; a prospectus contains complete information on risks, fees, and expenses, and should be read carefully before investing.)

Also called a capital growth fund. A mutual fund with the objective of providing long-term capital gains and high potential future income rather than current income. Growth funds are more aggressive than common stock funds, generally investing in more speculative issues. (Note: Mutual funds are sold by prospectus; a prospectus contains complete information on risks, fees and expenses, and should be read carefully before investing.)

An investment strategy designed to reduce the risk of loss. Hedging strategies may include buying put options, selling call options, selling short, or purchasing assets to outpace inflation.

An employee who is a greater than 5% owner in the current plan year or preceding 12-month period or who earned more than the HCE dollar threshold during the preceding 12-month period.

A mutual fund with the objective of paying a higher-than-average rate of return by concentrating in securities not generally favored by other investors. Income funds generally invest a high percent of their assets in bonds. (Note: Mutual funds are sold by prospectus; a prospectus contains complete information on risks, fees and expenses, and should be read carefully before investing.)

An indicator of the market prices of securities issued by companies included in the index. An index is used to measure the movements of securities of similar companies. Some well-known indexes are the New York Stock Exchange Index (NYSE), the American Stock Exchange Index (AMEX), the Standard & Poor's 500 Index (S&P 500), the Russell 2000 Index, and the Value Line Index.

A mutual fund that attempts to match the performance of a market index by patterning the portfolio on the index. Index funds assume that it is impossible to consistently outperform the market. (Note: Mutual funds are sold by prospectus; a prospectus contains complete information on risks, fees and expenses, and should be read carefully before investing.)

A tax-deferred retirement savings account that allows individuals to deposit a limited amount per year ($6,000 for individuals in 2022). A traditional IRA may allow individuals, depending on their income and participation in employer-sponsored retirement plans, to deduct part or all of their contributions on their tax returns. Withdrawals made after age 59 1/2 are taxed at the current tax rate. In contrast, Roth IRAs allow individuals to withdraw earnings tax-free anytime after the age of 59 1/2 after certain requirements are met, but the initial contributions are made with after-tax dollars.

A general rise in the prices of goods and services that occurs when demand increases relative to supply. They are usually measured by the Consumer Price Index (CPI) and the Producer Price Index. The purchasing power of the dollar decreases. For example, if inflation occurs at 3% annually, in one year, $100 would be worth only $97.

An investment, such as a bond or Treasury note that promises a return greater than inflation if held until maturity. Inflation-indexed funds are mutual funds that invest in inflation-indexed securities.

A company's first stock issue offered to the public. Often, companies go public when their need for cash, perhaps to finance growth, exceeds the amount private investors, such as venture capitalists, are willing or able to provide. Investment banks buy shares and then offer them to the public at an offering price. As the stock is traded, the market price may be more or less than the offering price.

The buying or selling of company shares by management, the board, or anyone with a 10% interest in the company. Insider trading based on information available to the public is legal. Illegal insider trading takes advantage of corporate information not available to the public.

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, the term interest can refer to a right or share in an asset or property.

The cost of borrowed money expressed as a percentage for a given period, usually one year. Interest rates are considered by many to be key economic indicators. The Federal Reserve (The Fed), a government agency that oversees the national economy and sets monetary policies, regulates interest rates. The Fed may lower interest rates, making borrowing money less expensive, in an effort to stimulate growth in the economy, or may raise them, making borrowing money more expensive, in an effort to slow economic growth.

Also called a global fund—it is a mutual fund investing in securities worldwide. International funds, which may be invested in the emerging markets of developing countries, more established economies, or a combination, must manage foreign currency trends, as well as trends in the securities markets. (Notes: Mutual funds are sold by prospectus; a prospectus contains complete information on risks, fees and expenses, and should be read carefully before investing. The risks associated with investing on a worldwide basis include differences in regulation of financial data and reporting, currency exchange differences, as well as economic and political systems that may be different from those in the United States.)

A bond rating evaluating the likelihood that the bond issuer will meet their payment responsibilities in full and on time. Bonds rated BBB and higher by an independent agency are considered investment grade.

A financial goal. Different investment vehicles have different objectives. For example, a fixed-income fund may have outlined in its prospectus an objective of providing current income by investing in fixed income securities, whereas a capital growth fund looks to provide long-term capital gains and high potential future income. Individual investors also have personal investment objectives based on their own time horizon and tolerance for risk.

A debt security with a credit rating below investment grade. Junk bonds, which are often issued by companies with questionable credit, generally pay higher yields than investment-grade bonds, but carry a greater risk of default.

A method of maintaining a series of fixed-interest investments, such as bonds or certificates of deposit (CDs), with staggered maturities. Laddering may offer a fixed-income investor liquidity options, as well as a hedge against inflation and fluctuating interest rates.

Life insurance is a contract wherein a premium is paid to an insurance company in return for the insurance company's promise to pay the beneficiary a defined amount upon the death of the insured. There are various types of life insurance available, including term life, whole life, and universal life.

A financial affiliation consisting of a general partner and limited partners that invests in projects such as real estate, oil, and gas, equipment, movies, etc. The general partner, in return for fees and a percentage of ownership, manages operations and is ultimately liable for any debt. Limited partners, who may receive income, capital gains, and tax benefits in return for their investment, have little involvement in management. They also have limited liability, which limits their maximum loss to the amount they invested.

The ability to quickly and easily convert assets into cash without incurring a significant loss.

A mutual fund that assesses a sales charge for a broker's services. A fund may be front-end loaded (fee owed when shares are bought) or back-end loaded (fee owed when shares are sold). Fund representatives will often offer advice on buying and selling. Complete details on the expenses associated with the fund can be found in the fund's prospectus.

A charge against an investor's assets for the fund manager's services in overseeing the portfolio. The charge is calculated as a fixed percentage of the fund's asset value, usually 1% or less, and should be disclosed in the fund's prospectus.

The most recent price of a security traded on an exchange.

Also called systematic risk. The portion of a security's risk common to all securities in the same asset class, and that cannot be eliminated through diversification. For example, a market risk associated with investment in stocks is the general tendency of share prices to decrease during an economic downturn.

Making buy-sell decisions by attempting to predict market trends, such as the direction of stock prices, the direction of interest rates, or the condition of the economy. Unlike investors who buy and hold securities with the hope of substantial gains over an extended period of time, market timing investors actively buy and sell securities, hoping to turn quick profits on short-term price fluctuations.

The price at which securities are being traded. Estimated market value refers to the highest potential price a buyer might pay and a seller would accept.

The date on which a debt becomes due for payment. For example, if a bond has a face value of $1,000 and a 30-year term of maturity, the bondholder should receive $1,000 in 30 years.

A government-sponsored insurance program for individuals and families whose income is insufficient to cover health-related services.

Federal health insurance for people 65 or older, some younger people with disabilities, and individuals with certain diseases.

A mutual fund, usually no-load, investing in highly liquid short-term securities, such as certificates of deposit (CDs), U.S. Treasury bills, commercial paper, bankers' acceptances, and repurchase agreements. Most money market funds are not federally insured, although some carry private insurance. Many are part of fund families that allow investors to transfer money between accounts at no charge. (Note: An investment in a money market fund is not insured or guaranteed by the FDIC or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.)

A tax-exempt bond that may be issued by a state government or agency or by a town, county, or other political subdivision or district. Interest payments are generally not subject to federal taxes, and may be exempt from state and local taxes if the bondholder is a resident of the state where the bond was issued, although income may be subject to the alternative minimum tax.

A fund managed by an investment company that raises money from shareholders and invests it in stocks, bonds, real estate, money market securities, commodities, or options. Mutual funds offer investors the benefits of professional management and diversification, for which they charge a management fee. Some mutual funds charge a sales fee (load). Mutual funds are sold by prospectus, which contains complete information on the fund's investment objectives, the risks involved, and any fees and expenses associated with the fund. The prospectus should always be read carefully before investing.

A system quoting current prices for securities traded over the counter (OTC), as well as many listed on the New York Stock Exchange (NYSE).

Also called the bid price. The market price an investor pays for a mutual fund share. The NAV is computed at the end of each business day by adding the closing market value of the fund's securities to the value of its other assets, subtracting liabilities, and then dividing the sum by the total number of shares outstanding.

Also called The Big Board and The Exchange. The oldest and largest stock exchange in the U.S., listing the country's largest corporations. Memberships are sold to brokers, who buy and sell stocks on the floor of the exchange.

A mutual fund that does not charge a sales fee (load). Investors in no-load funds purchase shares directly from the fund company rather than through a broker. Because no-load funds do not charge commissions, a salesperson may not be available to offer advice on buying and selling. Some companies selling no-load funds may charge an annual fee for marketing, commonly called a 12b-1 fee. Mutual funds are sold by prospectus, which contains complete information on the fund's investment objectives, the risks involved, and any fees and expenses associated with the fund. The prospectus should always be read carefully before investing.

Non-ERISA refers to retirement plans that are exempt from ERISA and generally include governmental plans, church plans, and private sector 403(b) plans to which the employer does not contribute.

Individuals who own less than 5% of the company in the current plan year or preceding 12-month period or who earned less than the HCE dollar threshold during the preceding 12-month period.

Annual tests required to ensure that retirement plans benefit all the employees.

The per-share price at which a stock or mutual fund is offered to the public. Companies going public for the first time will issue shares of stock at an offering price, as will companies who are issuing new shares. The market price may be more or less than the offering price. With no-load funds (mutual funds that do not charge sales commissions), the offering price is the same as the market price. With load funds, mutual funds that charge sales commissions, a sales charge is added to the market price to reach the offering price.

The face value of a stock or bond when issued. The par value may bear little relationship to a security's current market value.

The combined security holdings of an individual investor or mutual fund. A portfolio can consist of any combination of stocks, bonds, derivatives, and such. A typical objective of holding investments in a portfolio is to provide diversification.

A type of stock that pays a fixed dividend regardless of corporate earnings and which has priority over common stock in the payment of dividends. Should earnings rise significantly, the preferred holder is stuck with the same fixed dividend while common holders collect more. Preferred stock carries no voting rights (as does common stock) but takes precedence in claims against a company's profits and assets.

A contribution made before federal and municipal taxes are deducted. Pre-tax contributions in a retirement account grow tax-deferred until retirement withdrawals.

Also called the "multiple." The P/E ratio is calculated as a stock's price divided by its earnings per share. It gives investors an idea of how much they are paying for a company's current earnings. For example, a stock selling for $30 a share with earnings per share of $2 has a P/E ratio of 15. In other words, the investor paid $15 for each $1 of earnings. Faster growing, or higher risk companies, generally have higher P/E ratios than slower growing or less risky firms.

The official document that must be provided (according to SEC regulations) by the issuer to potential purchasers of a new securities mutual funds issue. It highlights the much longer Registration Statement filed with the SEC that gives information on the financial well being of the issuer and the specifics of the issue itself. The prospectus contains complete information on risks, fees, and expenses, and should be read carefully before any investment is made.

A trust that invests primarily in real estate and mortgages and passes income, losses, and other tax items to its investors. (Note: The Fund is subject to many of the risks associated with direct real estate ownership, such as declines in real estate values, overbuilding and extended vacancies, limitation of fluctuations in rent payments and other risks associated with general and local economic conditions. Shares, when redeemed, may be worth more or less than the original amount invested.)

The repayment of a debt security or preferred stock, either for par value at maturity or for a premium before maturity.

Contributions made with after-tax dollars, so you do not receive a tax deduction in the year you contribute. Instead, the investment earnings can grow tax-free, and the withdrawals during retirement can also be tax-free.

An employer-sponsored defined contribution retirement plan in which a business with 100 or fewer employees can offer retirement benefits through employee salary reductions and employer non-elective or matching contributions. It can be either a SIMPLE IRA or SIMPLE 401(k). Employer contributions are mandatory for both types of SIMPLE plans. SIMPLE IRAs have minimal paperwork requirements and lower startup and maintenance costs.

A specialized mutual fund investing in one industry or market sector, such as chemicals, electronics, energy, or health care. Sector funds tend to be more volatile than more diversified funds. (Notes: Mutual funds are sold by prospectus; a prospectus contains complete information on risks, fees and expenses and should be read carefully before investing. Funds that concentrate its investments in one region or industry may carry greater risk than more broadly diversified funds.)

The primary federal regulatory agency for the securities industry, whose responsibility is to promote full disclosure and to protect investors against fraudulent and manipulative practices in the securities markets. The SEC enforces, among other acts, the Securities Act of 1933, the Securities Exchange Act of 1934, the Trust Indenture Act of 1939, the Investment Company Act of 1940, and the Investment Advisers Act.

Certificate representing one unit of ownership in a corporation, mutual fund, or limited partnership.

A plan in which an employer contributes on a tax-deferred basis to IRAs owned by its employees. If the employer meets certain conditions, it isn't subject to the reporting and disclosure requirements of most retirement plans.

A federal program in the U.S. that provides retirement benefits and disability income to qualified people, as well as their spouses, children, and survivors.

A mutual fund with a particular focus, such as a single industry or sector, a group of related industries, industries within a specific region, or non-financial assets, such as real estate. (Notes: Mutual funds are sold by prospectus; a prospectus contains complete information on risks, fees and expenses, and should be read carefully before investing. (G) Funds that concentrate its investments in one region or industry may carry greater risk than more broadly diversified funds.)

An index of 500 of the most widely held common stocks on the New York Stock Exchange (NYSE). It is used as a measure to indicate the overall health of the U.S. stock market. This index is composed of industrial, transportation, utility, and financial companies with a heavy emphasis on industrial companies.

A security representing partial ownership, also called equity, in a corporation. Each stock share represents a proportionate claim against the company's profits and assets. Common stock entitles shareholders to participate in stockholder meetings and to vote for the board of directors. Preferred stock does not confer voting rights but takes precedence in claims against profits and assets.

A document indicating legal ownership of shares of stock in a corporation. Stock certificates are made out to the shareholder or the brokerage firm and identify the issuer, the number of shares, the par value, and the stock class. The shareholder must endorse a stock certificate to sell the shares.

Formal organizations, approved and regulated by the (SEC), are made up of members who use the facilities to exchange certain common stocks. The two major national stock exchanges are the New York Stock Exchange (NYSE) and the American Stock Exchange (ASE or AMEX).

A mutual fund that invests primarily in stocks. (Note: Mutual funds are sold by prospectus; a prospectus contains complete information on risks, fees and expenses, and should be read carefully before investing.)

A general term referring to the organized trading of securities in the various market exchanges and the over the counter (OTC) market.

A distribution of additional shares to each stockholder in proportion to the shares the individual already owns. A stock split has no immediate effect on a stockholder's equity. For example, if a stock splits 2-for-1, a shareholder who owns one share with a $100 par value before the split, would own two shares, each with a $50 par value, after the split.

The postponement of taxes on accumulated investment earnings until the investor takes possession of them. For example, an Individual Retirement Account (IRA) holder may postpone paying taxes on any earnings if he or she waits until age 59 1/2 to make withdrawals. Taxes would be due at that time.

Not subject to taxation by federal, state, and/or local authorities.

A bond, issued by a municipal, county, or state government, whose interest payments are not subject to federal income tax, and sometimes also state or local income tax.

An investment vehicle that legally avoids or limits tax liabilities. For example, an Individual Retirement Account (IRA) allows for tax-deferred capital growth on retirement savings. Other examples include municipal bonds (munis) and annuities.

Length of time for which an investor plans to hold investments.

The top-heavy test applies only to 401(a) and 401(k) plans (403(b) plans are exempt). A plan is "top-heavy" if more than 60% of total plan assets are allocated to the accounts of key employees. The determination is made at the end of a plan year and establishes whether or not a plan is considered top-heavy for the following plan year. Plans covering a few employees are more likely to be top-heavy than those covering a large number of employees.

Gross annual return on an investment, including capital appreciation or distributions, interest, dividends, and personal taxes.

Also called a T-bill. A negotiable debt obligation issued by the U.S. government and backed by its full faith and credit, having a maturity of one year or less. Exempt from state and local taxes. Treasury bills have face values ranging from $10,000 to $1 million and sell at a discount based on current interest rates.

Also called Uniform Transfer to Minors Act (UTMA) in some states. Laws adopted by most states that allow an adult to contribute to a custodial account in a minor's name without having to establish a trust or name a legal guardian.

Also called Uniform Gift to Minors Act (UGMA) in some states. Laws adopted by most states that allow an adult to contribute to a custodial account in a minor's name without having to establish a trust or name a legal guardian.

Non-marketable debt securities issued by the U.S. Treasury Department that are backed by the full faith and credit of the federal government. They are considered low risk, and the interest income is generally not subject to state or local taxes. There are currently three types of U.S. savings bonds: Series "EE"; Series "I"; and Series "HH." Series EE bonds currently have a maturity of 17 years, and are sold at 50% of their face value, which ranges from $50 to $10,000. Series I bonds are indexed for inflation, and are sold at face value in denominations of $50, $75, $100, $200, $500, $1,000, $5,000, and $10,000. Series HH bonds have maturities of 20 years, provide interest income every six months, and are issued in denominations of $500, $1,000, $5,000, and $10,000. Series HH bonds cannot be purchased with cash, but may be acquired in exchange for matured bonds of the same series or for Series EE bonds.

A long-term contract sold by life insurance companies in which premiums are invested, and future payments to the purchaser are based on the performance of the investment portfolio. If an individual dies before receiving income from his or her variable annuity, the individual's beneficiaries are entitled to the amount invested in the annuity, regardless of the portfolio's performance. Usually, Variable Annuities are sold by prospectus, which contains complete information on risks, fees and expenses, and should be read carefully.

The relative rate at which the price of a security moves up and down; found by calculating the annualized standard deviation of daily change in price. The more volatile a security or mutual fund, the more it is subject to rapid and extreme price fluctuations relative to the market.

The annual gain or loss earned on investment generally expressed as a percent. To determine the yield on a bond, divide the amount of interest received from the bond by the amount paid for the bond. For example, suppose an individual paid $5,000 for a bond. At 5% interest, he/she would earn $250 annually in interest income. The yield, $5,000 divided by $250, would be 5%. Similarly, to determine the yield on stocks, divide the dividend received per share by the amount paid per share.

The return an investor will receive if a long-term interest-bearing investment, such as a bond, is held until the date it becomes due and payable (maturity date). A calculation to determine the YTM of a bond, for example, would account for the interest rate, the payment schedule, the market value, the face value, and the length of the term.

A bond that makes no periodic interest payments but sells at a deep discount from its face value. At the maturity date, the investor will receive the face value of the bond plus the interest that has accrued over a fixed term.