Financial Glossary
P
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A measurement that represents the relationship between the price of a company’s stock and its earnings for the past year. To get a company’s P/E ratio, divide its current price by its earnings per share (EPS) for the past year.
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The combined holding of stocks, bonds and cash investments held by an individual investor, a mutual fund or a financial institution.
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A class of stock that has a claim on the company’s earnings before payment is made on the common stock if the company declares a dividend.
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Funds put up by an investor to purchase a security. For bond investing, the principal is the face amount of a bond. For example, the principal amount of a $10,000 bond is $10,000.
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A legal document that describes a mutual fund and offers its shares for sale. It contains information required by the SEC and state securities regulators, including the fund’s investment objectives and policies, investment restrictions, fees and expenses, and how shares can be bought and sold. Every mutual fund is required to publish a prospectus and provide it to investors free of charge.
Q
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An employee or partner in a brokerage firm who is registered to handle customer accounts. A registered representative must pass an examination administered by the National Association of Securities Dealers (NASD). Also known as a broker.
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Using dividends from an investment to buy more shares of that investment.
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An acronym for Real Estate Investment Trust. A company that purchases and manages real estate or real estate loans, using money invested by its shareholders.
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A form of equity compensation in which the company awards units that convert to company common stock at a future date when certain conditions are met. The restrictions may be based on the passage of time and/or other criteria. When restrictions lift and the award is no longer subject to a substantial risk of forfeiture, vesting occurs and units are converted to shares. RSUs are typically granted at zero cost. The value is, therefore, equal to the current market price of the company stock. Typically, taxable compensation is earned when RSUs vest and shares are issued. Certain circumstances, such as retirement eligibility, may trigger taxation before shares are issued. When shares are subsequently sold, any gain is subject to capital gains tax.
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A transfer of assets from a qualified plan to an Individual Retirement Account without tax. If an investor changes jobs, retires, or receives a divorce settlement that includes a distribution from a company retirement plan, it can be "rolled over" into an IRA to preserve capital and maintain its tax-deferred status.
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A tax-deferred retirement plan. Although contributions are not deductible, if certain qualifications are met, withdrawals—including interest—are "not taxed."
S
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Stocks that signify ownership interest in a company, or bonds that indicate a credit relationship with a borrower. Some other types of securities are options, warrants and mutual funds.
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The Securities and Exchange Commission.
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An acronym meaning Simplified Employee Pension—Individual Retirement Account. A SEP-IRA is used by those who are self-employed or who own a small business with employees.
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A unit of ownership in company stock or in a mutual fund investment.
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The stock of a company with a relatively small total market value, meaning a median market capitalization in the lower 80% of the largest domestic companies.
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A well-known capitalization-weighted index consisting of 500 of the country’s most widely traded companies that are listed on the New York Stock Exchange (NYSE) or the American Stock Exchange (AMEX).
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An investment that represents a share of equity ownership in a company. Also known as equity.
T
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A balanced mutual fund designed to become more conservative as the investor approaches retirement (by moving from equity to fixed income mutual funds). These “life-cycle funds” are typically offered by larger fund companies and are funds of funds. Many life-cycle funds have a “target date” for a person’s retirement (like 2025), while other life-cycle funds focus more on aggressive, moderate or conservative risk tolerances. Also known as a life-cycle fund.
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A type of life insurance that is in effect for a specified period, usually a five-, 10-, 15- or 30-year term.
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T-bills are short-term obligations that mature in one year or less; Treasury notes mature in between one and 10 years; Treasury bonds are long-term obligations.
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Annual fees assessed by some mutual funds to cover the costs of marketing and distribution, charged as a percentage of the fund’s total assets. For a fund to be considered no-load, its 12b-1 fee must be 0.25% or lower.