Financial Glossary

A mutual fund in which individual stocks, bonds and/or cash investments are bought and sold based on research or other criteria used by fund managers. Actively managed funds generally try to outperform the market.

A tax system devised to ensure that at least a minimum amount of tax is paid by high-income individuals and corporations.

The yearly rate of return on an interest-paying account.

A financial statement issued each year by a corporation or mutual fund. It lists assets, liabilities and earnings, as well as some historical information. Each of the company’s shareholders receives a copy of the annual report.

A property that has monetary value, including personal possessions (e.g., houses, cars, jewelry) and financial assets (e.g., savings and investments).

The process of deciding how to divide investments among the three types of asset classes: stocks, bonds and cash equivalents. This decision is based on tolerance for risk and preferred time horizon. Also known as asset mix.

One of the three major types of investments: stocks, bonds and cash equivalents.

See definition of asset allocation.

A sales charge on a mutual fund that is applied when shares of the fund are sold (see also front-end load)

A mutual fund that attempts to produce the highest return, consistent with a low-risk investment strategy; it employs a mix of stocks, bonds and cash equivalents. Also known as a blended fund.

A declining market in which prices fall for a sustained period of time.

The person or organization designated to receive the funds or other property from a trust, insurance policy or retirement account.

See definition of balanced fund.

Generally speaking, the stock of a large, well-established company. Blue-chip stocks typically offer lower-than-average risk because of their solid track records.

A type of investment that is similar to an IOU from a corporation or a municipal or federal government. Money is loaned, with interest, for repayment in full on a specific date.

The lifetime of a bond, concluding when the final payment of that obligation is due.

A mutual fund that includes only bonds—typically corporate, municipal or U.S. government bonds.

A person who acts as an intermediary between a buyer and seller of securities, usually charging a commission.

A rising market in which prices go up for a sustained period of time.

The profit one receives when one sells an investment for more than one paid for it. Capital gains are taxable income and must be reported to the IRS on your tax return.

A payment an investor receives when a mutual fund makes a profit by selling some of the securities in his or her portfolio. Capital gains distributions are usually made annually, often at the end of the calendar year.

The total stock market value of all shares of a company’s stock (the stock price multiplied by the number of shares outstanding).

An investment that can easily be converted into cash, such as a money market fund or Treasury bill.

An investment made with a financial institution in which a specified amount is deposited for a specific period of time, at a preset, fixed interest rate.

A professional planner who has met the Certified Financial Planner Board of Standards’ requirements in education, experience and ethical conduct; passed a 10-hour comprehensive examination in investment, tax, estate, retirement and insurance planning; and agreed to follow a code of ethics.

A licensed accountant who may also have earned a Personal Financial Specialist (PFS) designation from the American Institute of Certified Public Accountants.

Securities that represent an ownership interest in a company (as opposed to preferred stock, in which stockholders usually receive preferential treatment).

The growth that results from investment income being reinvested. Compound growth has a snowball effect because both the original investment and the income from that investment are invested. Also known as compound growth.

A large amount of one company's stock held in a given portfolio. A concentrated equity position is often due to company stock options, but it can also be the result of inherited stock or holding too much company stock in a 401(k) plan.

What was initially paid for an investment, as opposed to its current market value.

A bank or brokerage account set up under the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA). Although the custodian has sole responsibility to manage the assets until the custodianship ends (usually when the minor reaches the age of 18 or 21, depending on the state), all money and assets deposited into a custodial account are the irrevocable property of the minor and must be used for the benefit of the minor.

A bank card used to make electronic withdrawals from funds on deposit.

Insurance that replaces a percentage of income in the event that an illness or injury prevents an insured individual from working.

Lowering risk potential by spreading money across and within different asset classes such as stocks, bonds and cash equivalents.

The part of a company’s net profits that is distributed to shareholders. A shareholder can specify that his or her dividends be reinvested to buy more shares, or that they be paid in cash.

Investing the same dollar amount in the same securities, at regularly scheduled intervals over the long term, with the aim of stabilizing returns.

A mutual fund that invests primarily in stocks issued by U.S. companies. These funds are classified according to size (large-cap, mid-cap and small-cap) and style (growth and value).

A measure of the performance of a collection of 30 blue-chip stocks—primarily industrial stocks considered leaders in the market.

Salaries, wages, tips, professional fees and other amounts received as pay for work performed.

A company's net income or profit, usually quoted in millions of dollars.

A company's total earnings for a period (its net income minus preferred dividends) divided by the number of common shares outstanding.

A tax-deferred account established to help pay the higher education expenses of a child, grandchild or other designated beneficiary who is a minor. Also known as a Coverdell.

Another name for stock, representing ownership of a corporation.

A document that establishes who will receive a person’s property and possessions after his or her death. Its most common tools are wills and trusts.

A transfer tax imposed on the value of property left at death. Also known as an inheritance tax or "death tax."

The person or institution named in a will that is responsible for the management of the assets and the ultimate transfer of the property; also referred to as a personal representative.

The amount of assets that can be transferred free of tax, either during one’s lifetime or at death.

For mutual funds, the percentage of a fund’s average net assets that are used to pay fund expenses. This percentage accounts for management fees, administrative fees and any 12b-1 fees.