Financial Investing - Glossary of Terms

byAtl-Dealer

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10 years ago

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 thier per-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 These contributions and any earnings from the 401 (k) investments are not taxed until they are withdrawn.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.

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

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.

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.

Bull 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.

Capital Gain
The profit that comes when an investment is sold for more than the price the investor paid for it.

College Savings Plan
A type of 529 plan that offers a choice of investment options, such as mutual funds, to save for future college costs. Many of these investments automatically shift to more conservative assets as the student gets closer to college age.

Commission
The fee paid to a broker to execute a trade, based on the size of the order and/or its dollar value. Discount and online brokerage firms may charge the same flat fee to execute trades regardless of how large or small the order.

Compound Interest
Interest paid on principal and on accumulated interest.

Day Trading
Day traders rapidly buy, sell and short-sell stocks throughout the day in the hope that the stocks continue climbing or falling in value for the seconds or minutes they hold the shares, allowing them to lock in quick profits. Day trading is extremely risky and can result in substantial financial losses in a very short period of time.

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.

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.

Discount
A bond sold before it matures might not sell at full par value. If it sells below par, it is selling at discount.

Dividend
A portion of a company's profit paid to shareholders. Public companies that pay dividends usually do so on a fixed schedule although they can issue them at any time. Unscheduled dividend payments are known as special dividends or extra dividends.

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

Financial Planner
An investment professional who typically prepares financial plans for clients. The services financial planners offer can vary widely. Some financial planners assess every aspect of a client's financial life and help the client develop a detailed strategy or financial plan. Others may only be able to recommend investments in a narrow range of products that may or may not include securities.

Financial Product
Examples of financial products include but are not limited to the following: stocks, bonds, derivatives, and currencies.

Front-end Load
An upfront sales charge investors pay when they buy fund shares. It generally is used by the fund to compensate brokers. A front-end load is deducted from the purchase and reduces the amount available to buy fund shares.

Index Fund
A type of mutual fund whose investment objective typically is to achieve approximately the same return as a particular market index, such as the Standard & Poor's 500 Index, the Russell 2000 Index, or the Wilshire 5000 Total Market Index.

Initial Public Offering (IPO)
An initial public offering occurs when a company first sells its shares to the public.

Interest
The price paid for borrowing money. It is expressed as a percentage rate over a period of time.Interest rates may be fixed, meaning the rate is set and will not change, or may be variable or "floating," meaning the rate may move higher or lower over time.

Invest
To engage in any activity in which money is put at risk for the purpose of making a profit.

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

Liability/Debt
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.

Lifecycle 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.

Limit Orders
A limit order is an order to buy or sell a security at a specific price. A buy limit order can only be executed at the limit price or lower, and a sell limit order can only be executed at the limit price or higher.

Margin Account
In a margin account, your brokerage firm can lend you money to buy securities, with the securities in your portfolio serving as collateral for the loan. As with any other loan, you will incur interest costs when you buy securities on margin. There are risks from purchasing securities on margin that do not come with most other types of loans. For example, if the value of your securities declines significantly, you may be subject to a "margin call."

Market Capitalization
A measure of the size of a corporation. For publicly traded companies, market capitalization is calculated by multiplying the number of shares outstanding by the current market price per share. Companies may be considered to be large-cap, mid-cap or small-cap firms based on their market capitalization.

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.

Net Income
The profit earned by a company after all expenses and taxes have been deducted from revenue. A simple way to think about net income is it’s the price of a widget multiplied by the number of widgets sold (this result is revenue) minus the cost to make and sell the widgets, other expenses and any interest or taxes.

Ponzi Schemes
A Ponzi scheme is an investment fraud that pays existing investors with funds collected from new investors until the scheme collapses. Ponzi schemes are named after Charles Ponzi, who ran a postage stamp speculation scheme in the 1920s and used funds from new investors to pay fake “returns” to earlier investors. Ponzi scheme organizers often promise high returns with little or no risk, but instead of investing, they use money from new investors to pay other investors or keep it for themselves.

Premium
The amount by which the price of a bond exceeds its principal (par) amount.

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

Profit
Revenue minus cost; money made on a transaction.

Public Company
A company that offers its securities through an offering and now has those securities traded on the open market.

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.

Pyramid Schemes
In the classic "pyramid" scheme, participants attempt to make money solely by recruiting new participants. The hallmark of these schemes is the promise of sky-high returns in a short period of time. A pyramid scheme is closely related to a Ponzi scheme because they both involve paying longer-standing members with money from new participants, instead of actual profits from investing or selling products. Pyramid schemes collapse when the promoter cannot raise enough money from new investors to pay earlier investors.

Revenue Bond
A municipal bond not backed by the government's taxing power but by revenues from a specific project or source, such as highway tolls or lease fees.

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) Plan
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.

Sales Charge (or 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.

Savings
Income that is not spent on consumption but is put aside.

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.

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 Market
A general term for the organized trading of stocks through exchanges, over-the-counter, and computerized trading venues.

Stock Quotes
Listings of prices to buy and sell a specific stock. During trading, quotes show bids, the prices buyers are willing to pay, and offers, the prices sellers are willing to accept. Historical data provides the opening and closing price for each day of trading, and the daily high and low price for a stock, along with trading volume.

Stock Split
An increase in the number of shares of a corporation's stock without a change in the shareholders' equity. Companies often split shares of their stock to make them more affordable to investors. Unlike issuing new shares, a stock split does not dilute the ownership interests of existing shareholders. For example, if you own 100 shares of a company that trades at $100 per share and the company declares a two-for-one stock split, you will own 200 shares at $50 per share immediately after the split. If the company pays a dividend, your dividends paid per share also will fall proportionately.

Stop Order
A stop order is an order to buy or sell a stock once the price of the stock reaches a specified price, known as the stop price. When the specified price is reached, your stop order becomes a market order. The advantage of a stop order is you don't have to monitor how a stock is performing on a daily basis. The disadvantage is that a stop price purchase or sale could be activated by a short-term fluctuation in a stock's price. In addition, the price at which your trade is executed may differ from the stop price, especially in a fast-moving market where stock prices can change rapidly.

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

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.

Variable-rate CDs
These have changeable interest rates. Some variable-rate CDs feature a "multi-step" or "bonus rate" structure in which interest rates increase or decrease over time according to a pre-set schedule. Other variable-rate CDs pay interest rates that track the performance of a specified market index, such as the S&P 500 Index.

Yield
The annual percentage rate of return earned on a bond calculated by dividing the coupon interest rate by its purchase price.