Glossary of Terms


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401(k) Plan
An employer-sponsored investment plan for retirement. Employees make contributions to the plan and choose from a variety of investments. Employers may match a portion of employees’ contributions.


A


Absolute Return
Absolute return represents the simple return of an asset or portfolio over a defined period. For instance, if we have an original investment of $1000 which grew to $1500 after two years absolute return = (1500-1000) / 1000. Absolute return = $500 / $1000 = 50%


Active Management
A mutual fund management style in which the fund manager uses analytic or forecasting tools to buy and sell individual securities for the fund portfolio.


Aggressive Growth Funds
Mutual funds that invest in companies with the potential for rapid growth, such as companies in developing industries, small but fast-moving companies, or companies that have fallen on hard times but appear due for a turnaround. The increase in potential return is accompanied by increased risk.


Alpha
Alpha describes the difference between an investment’s actual return over a period of time and its expected return, given its level of risk, as measured by beta. An investment with a positive alpha has done better than expected while an investment with a negative alpha has done worse than would be expected given the level of risk of the investment. Alpha is most commonly used with stock funds and is often considered to represent the value that a portfolio manager adds to or subtracts from a fund’s return.


Annual Gift Tax Exclusion
The total amount of cash, securities, or other assets that a person is allowed to give another person without incurring federal gift tax. The current annual exclusion is $14,000 per year, per individual, or $28,000 for married couples per individual. This amount will be adjusted periodically to reflect changes in inflation.


Annual Percentage Rate (APR)
An interest rate that expresses, on an annualized basis, the charges imposed on consumer credit. Federal regulations require companies that advertise loans or credit cards to disclose the APR in bold lettering. This enables consumers to compare rates and to see the true rate of interest repayment they would incur over the full year.


Annuity
A contract between an individual and an insurance company in which the individual pays money into an account in exchange for a guaranteed payment at or during retirement. Annuities offer tax-deferred growth potential. There are two types: fixed and variable.


Applicable Exclusion Amount
The amount of an individual’s assets that can be excluded from the federal estate tax. In 2016, the applicable exclusion amount is 5,450,000 per individual.


Asset Allocation
The process of dividing investments in your portfolio among different kinds of assets, such as stocks, bonds, real estate and cash, to try to meet a specific objective.


B


Back-End Load
A sales fee charged when you sell or redeem shares of a mutual fund.


Balanced Funds
Mutual funds that combine stocks and bonds in a single portfolio.


Benchmark
A market index used by individual investors, portfolio managers, and market researchers to determine how a particular market or market sector performs.


Beneficiary
One who receives the proceeds of a trust, retirement plan, or life insurance policy.


Bequest
The legal term for any asset (excluding real estate) that is transferred to an heir through a will.

Beta
A way to measure the "risk" or price volatility of a particular stock or mutual fund as it compares to the market as a whole. A beta of 1.0 indicates that a security’s risk measurement is on par with the market. A beta of 1.20 indicates that a security is 20% more volatile than the market, while a beta of 0.80 indicates that a security is 20% less volatile than the market.


Bond
An investment vehicle representing a loan to a corporation, government, or municipality. Generally, bonds pay a fixed interest rate and return the principal investment at maturity. Bonds issued by the U.S. government are guaranteed as to the timely payment of principal and interest if held to maturity; other bonds are not guaranteed and carry varying degrees of credit risk.


Bond Funds
Mutual funds that invest in bonds issued by municipalities, corporations, and the U.S. government and its agencies. Bond mutual funds do not mature and are not guaranteed, although some of the individual bonds they invest in may be.


C


Call Risk
The risk to a bondholder that a bond issuer may redeem, or "call," a bond prior to its maturity date, often due to falling interest rates.


Callable Bond
A bond which the issuer has the right to redeem prior to its maturity date if its value falls significantly below its face value.


Capital Appreciation
The difference between what you paid for shares purchased and what you realize when you sell them.


Capital Gain
The profit earned from the sale of a capital asset, such as real estate or stocks. A capital gain is not "realized" until the asset is sold. A realized loss on the sale of a taxpayer’s primary residence is NOT deductible.


Capital Loss
The loss incurred when a capital asset, such as real estate or stock, decreases in value from its purchase price. A capital loss is not "realized" until the asset is sold.


Chapter 7 Bankruptcy Filing
A type of bankruptcy in which an individual’s debt is eliminated, but his or her assets are liquidated to repay creditors.

Charitable Contribution
A gift of cash, securities, or property to an organization whose sole purpose is to finance or perform charitable, religious, educational, scientific, artistic, literary, humanitarian or other good works. When you make a charitable contribution to an organization that has been recognized under Section 501(c)(3) of the Internal Revenue Code, you may be able to deduct the amount of the donation or the market value of the donated property from your taxable income or taxable estate.


Charitable Remainder Trust
A trust that allows you to leave assets to a charity and receive income and tax benefits at the same time. You can receive income from the trust for a specified period of time, after which all remaining assets are transferred to the charity.


Charitable Trust
A trust that lets you donate to charity and in return provides you and your heirs a tax break.


Closed-End Lease
A contract that allows you to use an asset for a specified period of time at a cost that is calculated up front. A closed-end lease generally requires the user to pay for any unusual wear and tear or damage. Closed-end leases are commonly used for automobile financing because they prescribe what the trade-in value of the car will be at the end of the lease period.


Commercial Paper
The term used for the short-term IOUs (generally three to nine months in duration) of large, creditworthy corporations.


Compounding
Earnings on an investment’s earnings. Over time, compounding can produce significant growth in the value of an investment.


Consumer Price Index
The most commonly used measure of inflation, the CPI tracks the average change in the prices of a fixed "market basket" of goods and services, including energy, food, health care, clothing, and entertainment. It is published by the U.S. Bureau of Labor Statistics.

Correlation
The degree to which the movements of two or more variables are related.


Coverdell Education Savings Account
Formerly known as the Education IRA. An account created to pay the higher education expenses of its beneficiary. Contributions, which are currently limited to $2,000 a year, are not tax deductible but any accumulated earnings are tax free if used to pay eligible bills. Contributions are not allowed after the child reaches age 18.


Credit Quality
The measure of a bond issuer’s ability to make regular interest payments and pay the face value of the bond at maturity.


Credit Report
A detailed summary of your financial affairs prepared by a third party, and usually reviewed by lenders when you are applying for a loan. The report typically lists your outstanding loans and credit cards, your employment history, your former addresses and any lawsuits in which you may have been involved. It will also indicate whether you pay your bills on time.


Credit Risk
1. A measure of a bond issuer’s ability to repay its principal and interest as promised.

2. An individual consumer’s creditworthiness, as reported on a credit rating.


Currency Risk
A factor in international investments, this is the possibility that changing currency rates will affect the dollar value of overseas investments.


D


Death put
An optional redemption feature on a debt instrument allowing the beneficiary of the estate of the deceased to PUT ( sell ) the bond ( back to the issuer ) in the event of the beneficiary’s death or legal incapacitation. Also known as a "survivor’s option".


Defined Benefit Plan
An employer-sponsored retirement program that is funded by the employer and in which the participant receives a fixed amount of money each year in retirement. The precise amount of this pension is based on salary and length of time on the job. This contrasts with a defined contribution plan, in which the level of income available in retirement will depend on employee contributions and investment performance.


Defined Contribution Plan
An employer-sponsored retirement program in which the participant sets aside a portion of his or her salary each year in an investment account on a tax-deferred basis. Contributions to DC plans may be deductible from current income, and employers may augment savings with matching contributions. The actual value of assets available to fund retirement will depend on investment performance. Profit-sharing, employee stock ownership, 401(k), 403(b), and 457 programs are all defined contribution plans.


Derivatives
Securities whose value is based on, or "derived," from an underlying financial asset. Types of derivatives include futures, options, and collateralized mortgage obligations.

Disability Income Insurance
A form of insurance coverage that replaces a portion of income lost when the insured is unable to work due to illness or injury.


Diversification
The process of helping reduce risk by investing in several different types of individual funds or securities.


Dividends
A percentage of a company’s profits paid to its shareholders.


Donor
One who gives property or assets through a trust or as an outright gift.

Dow Jones Industrial Average
An index that follows the returns of 30 well-established American companies, the Dow is the most often quoted measure of U.S. stock market performance.


Duration
A measurement of the price volatility of a bond, representing the approximate change in price per 1% change in yield. Thus a bond with a duration of 4 would change in price by 4% for each 1% change in yield. A higher duration indicates a higher risk of price fluctuations. Long-term bonds tend to have the greatest durations.


E



Emerging Markets
Lesser-developed countries that may be experiencing rapid economic growth and liberalization of government restrictions on free commerce. Examples of emerging market countries include Argentina, Malaysia, and Thailand.


Equities
Shareholders’ ownership interests in corporations – also known as stocks.


Estate Planning
Preparing for the orderly administration, management and distribution of a person’s assets and liabilities during one’s lifetime and upon death. In addition to a will, estate planning may include trusts, insurance, and other elements intended to carry out the wishes of the estate owner and improve the estate’s value.


Estate Taxes
Taxes levied by the federal and state governments on the transfer of property at death. "Property" includes tangible personal property, real estate, jointly owned property, life insurance, employee benefits, certain gifts, and other assets.


Executor
The person named in a will to handle the settlement of an estate. (Also "executrix," a woman who is executor.)

F


Fannie Mae
The acronym for the Federal National Mortgage Association, a government-sponsored enterprise that buys mortgages from financial institutions and packages them as investment securities. Its activities help to improve liquidity in the mortgage market.


First-to-Die Life Insurance
An insurance plan that insures two lives and pays proceeds at the time of the first death.


Flexible Spending Account (FSA)
An account provided by an employer that lets you set aside a certain amount of pretax dollars for medical care and other special circumstances.


Flood Insurance
Insurance covering loss or damage to property resulting from a flood, flood tide, or the like.


Foundations
Nongovernmental, nonprofit organizations established to maintain or aid educational, social, charitable, religious, or other beneficial activities.


Front-End Load
A sales fee paid when you purchase shares of a mutual fund.


Fundamental Analysis
Basic research to determine if an equity is overvalued or undervalued at its current price. The analysis often includes evaluating the company’s financial statements and the capability of its management, as well as researching how economic factors may influence the industry.


G


Gift Tax
Graduated federal tax imposed upon a person who gives assets of more than $14,000 on an annual basis to a recipient. This amount may be indexed for inflation in future years. Each individual also has a $5,450,000 lifetime gift tax exclusion.


Ginnie Mae
Nickname for the Government National Mortgage Association and the investment securities it backs. This government organization buys and then resells mortgage-backed securities to investors with a full government-supported guarantee.


Global Funds
Mutual funds that invest in securities issued in the United States and foreign nations. Global funds may be susceptible to risks such as currency fluctuation and political or economic changes.


Grantor
The owner of an estate who sets up a trust.

Gross Domestic Product (GDP)
The total value of a country’s goods and services within a specific timeframe, generally one year. This economic indicator is one measure of a nation’s growth.


Growth Funds
Mutual funds that strive for capital appreciation by investing in companies that are positioned for strong earnings growth.


Growth and Income Funds
Mutual funds that strive for both dividend income and capital appreciation by investing in companies with solid records of dividend payments and capital gains. Most growth and income funds strive for yields equal to or better than the money market average and to provide capital appreciation that at least beats inflation.


Guardian
A person given legal responsibility for the rights and affairs of a minor or mentally incapacitated person.


H


Health Care Proxy
A legal document that grants authority to make medical decisions for another person if that person is incapacitated.


High-Yield Bonds
High-yield bonds are issued by organizations that do not qualify for "investment-grade" ratings by one of the leading credit rating agencies. for this reason, issuers of high-yield bonds must pay a higher interest rate to attract and to compensate investors for the increased risk of default — not paying interest or principal in a timely manner — associated with investing in organizations of lower credit quality.


Home Equity Loan
A loan secured by a property based on the price for which the home could reasonably be expected to sell minus the balance of the original mortgage.


I


Incentive Stock Option
A type of stock option that allows an employee to buy shares of an employer’s stock at a preestablished price. If the shares are held for a longer period of time, the sales price will reflect a favorable tax treatment.


Index Funds
Mutual funds that attempt to mirror the composition and performance of a specific market index.


Individual Retirement Account (IRA)
A retirement account to which you may be able to contribute up to a specific annual amount (the maximum amount is determined by Congress). Individuals aged 50 and older may also make additional annual catch-up contributions (up to a specified amount as set by Congress). IRAs give your money the potential to grow tax-deferred and, depending on your personal circumstances, contributions may be tax deductible (withdrawals prior to age 59 ½ may be assessed a 10% IRS penalty). Withdrawals from Traditional IRAs are taxed at then-current rates. There are two types of IRAs: Traditional and Roth.


Inflation Risk
The risk that the purchasing power of savings will decrease due to rising prices.


Inflation-Indexed Bond
Promissory note that guarantees it will outpace with inflation if it is held to maturity. "I-bonds" are backed by the United States government and are indexed semiannually to the Consumer Price Index (CPI), a major inflation indicator.


Installment Debt
A regular payment of financial debt to a lender. Payment is comprised of both principal and interest. Additional payment will result in an increasing amount of principal paid and a decreasing amount of interest paid, potentially paying off the debt more quickly.


Interest Rate Risk
Most often associated with fixed-income investments, this is the risk that a security’s price will fall when interest rates rise.


International Funds
Mutual funds that invest exclusively in securities issued outside the United States. International funds may be susceptible to risks such as currency fluctuation and political or economic changes.


Intestate
Without a will. If you die intestate, the courts will decide how your estate is divided (according to laws that vary from state to state) and appoint guardians for any minor children.


Investment Risk
The potential for an investment to decline in value or produce a lower-than-expected return.


Irrevocable Life Insurance Trust
An irrevocable life insurance trust is created for the primary purpose of holding a life insurance policy. If the trust is properly structured, the death benefits paid to the trust will be free from inclusion in the gross estate of the insured. In addition, the trust can be structured so that it will provide benefits to the insured’s surviving spouse without inclusion in the surviving spouse’s gross estate.


Irrevocable Trust
A legal arrangement that gives a trustee control over select assets and cannot be modified once it is established.


J


Junk Bond
Also called a high-yield bond, a junk bond is one with a low credit rating – BB or lower, according to Standard & Poors. Junk bonds are often issued by companies that do not have strong track records of sales and earnings, and therefore have questionable credit strength. Junk bonds are generally more risky than investment-grade bonds; to compensate, they offer higher yield.


L


Large-Cap Stock
Shares issued by large companies, typically those with market capitalizations of $10 billion or more.


Level Load
An annual sales charge applied to mutual fund shares that does not vary based on how long the investor holds the shares.


Leverage
Leverage refers to the use of borrowed funds or debt in an attempt to enhance portfolio performance. For example, if a company borrows 75% of the money it invests in a $10,000 investment, and the investment returns 5% over a year, the fund has actually earned 20% (excluding interest paid to lenders) since it has only put up $2,500 of its own money, but has earned $500. However, leverage also works in reverse. In this same example, if the investment were to lose 5% instead, the company would have lost 20% of its investment.


Liability Insurance
Insurance coverage that protects against claims of negligence or inappropriate action that allegedly resulted in bodily injury or property damage.


Liquidity
The ability to have ready access to invested money.


Living Trust
A trust that allows you to remain both the trustee and the beneficiary of the trust while you’re alive. You maintain control of the assets and receive all income and benefits. Upon your death, a designated executor distributes the remaining assets according to the terms set in the trust.


Living Will
A legal document that outlines what life-prolonging measures an individual wants taken if he or she is terminally ill or incapacitated. Rules governing living wills vary from state to state.


Long-Term Capital Gains
Net gains on assets sold 12 months or more after purchase; taxed at 3 different tax brackets. Maximum rate as follows:
10% -15% Tax Brackets 0%
25% - 35% Tax Brackets 15%
39.6% - Tax Brackets 20%
This tax rate is in effect through December 31, 2016.


Long-Term Care Insurance
An insurance policy that provides long-term benefits, including a broad range of health services for the chronically ill or disabled. Services may be provided on an inpatient, outpatient, or at-home basis.


M


Market Capitalization
A measure of a company’s value calculated by multiplying the number of shares outstanding by the current price per share.


Market Risk
The likelihood that the value of a security will move in tandem with its overall market.


Market Timing
An investment strategy in which the investor tries to be in the market when prices are rising and out of the market when prices are falling in an attempt to boost returns.


Maturity
The date by which an issuer promises to repay a bond’s face value.


Medicare
A federal program that assists people age 65 and older by helping to pay for health care expenses. The program has two parts — Hospital Insurance (Part A) and Supplementary Medical Insurance (Part B) provided under the Social Security Act.


Medigap
An individual insurance policy for retirees that can help pay medical expenses not covered by the Medicare system.


Money Market Funds
Mutual funds that invest in short-term money market instruments, such as U.S. Treasury bills, commercial paper, certificates of deposit, and repurchase agreements. An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although a money market 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.

Mortgage
A loan used to finance the purchase of a home or other property. The borrower gives the lender a lien on property as security for the repayment of the loan. The borrower has full use of the property and the lien is removed when the obligation is paid in full. Mortgage repayment periods generally run between 10 and 30 years.


Mortgage-Backed Securities
Fixed-income securities backed by pools of mortgage loans.


Municipal Bonds
Bonds issued by state or local government to raise money to pay for special projects, such as building schools, highways, and sewers. The interest that investors receive is often exempt from federal income taxes and, in some cases, state and local taxes too. Interest may be subject to the Alternative Minimum Tax (AMT).


Mutual Fund
A collection of securities – stocks, for example – owned by a group of shareholders and managed by an investment company. Mutual funds pursue a variety of goals, depending on their investment charter. Some funds work to generate income on a regular basis, while others seek to provide capital appreciation.


N


Nasdaq Composite Index
An index of over 3,200 issues that was created in 1971 to measure all domestic common stocks that are traded "over the counter" in the Nasdaq market; that is, they are not listed on the major stock exchanges.


National Flood Insurance Program
Federal coverage against loss resulting from flooding; widely available at low cost under a program developed by private industry and the federal government.


No-Load Fund
A mutual fund that does not charge a sales fee. Such funds may charge a 12b-1 fee to cover marketing expenses. See the applicable prospectus for more information.


Nonqualified Stock Option
A right issued by a corporation to an individual to buy a certain amount of shares of the corporation at a stated price within a specified period of time. Nonqualified stock options do not offer employees the potential tax benefits provided by incentive stock options.


Normal Retirement Age
The age at which an individual is eligible to receive full Social Security benefits. Individuals can retire earlier, but benefits may be reduced.


O


Open-End Lease
A lease that involves an additional payment that may be charged at the end of the lease period, depending on the value of the property when it is returned.


P


Passive Management
A mutual fund management style in which the fund manager simply buys whatever stocks are represented by a well-known market index, and trades only when the composition of the index changes.


Premium
A payment that a policyowner makes when purchasing an insurance policy or an annuity. Premium also can refer to an amount by which the sale price of a bond or stock exceeds the par, or face, value.


Probate
A court-supervised process that determines whether a person’s will is authentic. Probate typically encompasses a probate judge’s review of a will and an executor’s efforts to distribute property as specified by the decedent.


Prospectus
The official document that describes a mutual fund to prospective investors. A prospectus contains information required by the SEC, such as investment objectives and policies, risks, services, and fees.


Q


Q-TIP trust
A trust that enables a family to delay paying estate taxes on assets that are bequeathed to a spouse. A Q-TIP trust permits a widow or widower to receive income and some principal from the trust, but not to will its assets to another spouse in the event of a remarriage. The assets are considered part of the widow’s or widower’s estate and may be taxed accordingly upon the person’s death.


R


Repurchase Agreement
A contract that requires a seller of securities to buy the investment back in the future at a designated time and price. Repurchase agreements also are known as repos or buybacks.


Revenue Bond
Bonds issued by government entities to finance specific public projects. Revenue from a given project is used to repay investors.


Revolving Credit
A lending agreement between a bank and a borrower. Typically, a bank lends a borrower a specific amount with the understanding that, once it has been repaid, the bank will lend the same amount to the borrower again.


Roth 401(k) Plan
An employer-sponsored investment plan for retirement. Employees make after-tax contributions to the plan, any earnings grow tax deferred and qualified withdrawals are tax free. Withdrawals prior to age 59 ? may be subject to a 10% penalty tax. Employers may match a portion of employees’ contributions.


Roth IRA
A retirement account to which you may be able to contribute up to a specific maximum amount each year (the maximum amount is determined by Congress). Individuals aged 50 and older may also make additional annual catch-up contributions (up to a specified amount as determined by Congress). Contributions are not tax deductible, but any growth is tax free and qualified withdrawals may be tax free. Certain holding periods and income restrictions apply.


Rule of 72
A formula that helps answer the question, "How many years will it take my money to double?" based on a hypothetical constant rate of return. Use the following formula: 72 / Annual Rate of Return = Approximate Number of Years It Will Take for Your Money to Double.


S


Savings Bond
Bonds issued by the U.S. Treasury. Savings bonds are noncallable – which means the government cannot retire them before the maturity date. Because savings bonds are backed by the full faith and credit of the federal government, many investors consider them to have relatively low investment risk.


Section 529 Plans
State-sponsored, tax advantaged plans that encourage individuals to invest in a pool of stocks and bonds for college savings. Contribution limits for Section 529 Plans vary from state to state. Generally, the asset allocation formula may be determined by a child’s age (generally more aggressive for younger children and more conservative as children approach college age) or may be selected by the investor based on his or her risk tolerance. Distributions made to pay qualified education expenses are tax free.


Sector Funds
Funds that invest in specific industries and economic niches to seek above-average returns. Their narrow focus may make them more volatile than broadly diversified funds and more vulnerable to single economic, political, or regulatory developments.


Securities and Exchange Commission (SEC)
The principal federal agency created by Congress to regulate the U.S. securities markets, promote investment disclosure, and protect investors from fraud. Composed of five commissioners appointed by the president of the United States, the SEC enforces the Securities Exchange Act of 1934, the Trust Indenture Act of 1939, the Investment Company Act of 1940, and the Investment Advisers Act of 1940, among other acts.


Series E Savings Bonds
Bonds that were issued by the U.S. government between 1941 and 1979 that were purchased for 75% of the bond’s stated denomination. These bonds were the precursor to Series EE and Series HH bonds. Outstanding Series E bonds may be exchanged for its successor varieties. Interest is exempt from state and local taxes, though subject to estate, inheritance, gift tax, and federal income tax.


Series EE Savings Bonds
Bonds issued by the U.S. government at a 50% discount from par. Also known as Energy Savings Bonds, nonmarketable Series EE bonds come in denominations of $25, $50, $75, $100, $200, $500, $1,000, $5,000 and $10,000. Series EE Bonds replaced Series E Bonds and are subject to the same taxes.

Share Classes
Class A mutual fund shares impose a sales fee that is deducted from the initial investment. Class B shares impose a fee when investors sell shares within a specific length of time. Class C shares impose an annual fee based on the net asset value of the investment.


Sharpe Ratio
A statistical expression calculated by dividing a fund’s excess return by the standard deviation of those returns that measures the relative reward of holding onto risky investments. The higher the ratio, the greater the potential for return for the same amount of risk. The lower the ratio, the worse the fund’s historical risk-adjusted performance.


Short Positions
A short position refers to the sale of a borrowed security in expectation that the security will decrease in value. In a typical short-sale scenario, an investor agrees to sell a stock at today’s price and deliver the shares at some specified time in the future. If the price falls by delivery time, he may record a profit (after fees); if the price rises, he may incur a loss. Short selling, or "shorting" is typically done through an options contract called a "put" option, which gives the purchaser the right to sell a security at a given price. Short positions are the opposite of "long positions" which are taken with the expectation that the price of the security will increase.


Small-Cap Stock
Shares issued by companies with capitalizations of generally $2 billion or less.


Social Security Statement
Annual document mailed to American workers age 25 and older by the Social Security Administration (SSA). Created to help U.S. taxpayers plan for their financial future, the statement provides estimates of retirement, disability, and survivor benefits.


Standard Deviation
Statistical measure that shows the likelihood of an investment to yield above- or below-average returns over a period of time. For example, if hypothetical XYZ Fund has an average annual total return of 11% and a standard deviation of 6.00, that means XYZ Fund’s performance is likely to vary from a low of 5% to a high of 17%. Calculated by the fund, standard deviation is only relative to the asset class being measured.


Stock
A share of ownership in a publicly held company. Owners of stock receive voting rights on issues affecting the company and may receive dividends.


Stretch IRA
Estate planning concept used to extend the financial life of an IRA across multiple generations. The strategy lets an IRA’s original beneficiary transfer upon death, the IRA assets to his or her own beneficiary without triggering an immediate income tax liability. Such flexibility provides an opportunity to stretch an IRA’s tax-deferred growth potential longer than initially intended.


Structured note
A structured note is a contract that blends a debt security and one or more derivatives into a single investment. Each structured note has its own unique risks and rewards, which should be spelled out in the prospectus or offering document. Some structured notes may include guarantees of principal or income. But in other arrangements, significant losses may be possible.


Successor Trustee
An individual, organization, or institution that is named to assume the management responsibilities of a trust following the death, incapacitation, or resignation of the originally named trustee.


Survivorship Life Insurance
Also known as second-to-die and last-to-die, this method of life insurance coverage pays a benefit upon the death of the last surviving insured person. Survivorship life is typically used as an estate-planning tool.


Swap
An exchange of debt payment streams or rates, for a certain period of time and under specific terms, agreed to by two parties who hope to gain some financial benefit based on anticipated market conditions. A common example is a mortgage rate swap, where Party A agrees to pay Party B’s fixed interest rate in exchange for Party B paying Party A’s adjustable rate mortgage.


T


Tax Deferral
The postponement of taxation on an investment until a later time. Tax deferral is widely viewed as a benefit to investing within a traditional IRA or 401(k) or to purchasing some life insurance products. The principle of tax deferral aids in the pursuit of long-term investment growth. Tax-deferred assets in a traditional IRA or 401(k) may be subject to a 10% IRS penalty if withdrawn prior to age 59 ½.


Taxable-Equivalent Yield
The pretax rate that a taxable bond must yield to generate the same income as a municipal bond, which is exempt from paying taxes on income on some government level. This figure, which will vary depending on the investor’s individual tax bracket, helps compare the real earnings potential of a taxable investment with a tax-free investment.


Technical Analysis
A detailed study by financial professionals of various business and market data intended to provide insight into future developments and trends.


Term Life Insurance
An insurance policy in effect for a specific period of time (the term) that pays a predetermined amount of money to a beneficiary in the event that the insured dies while the policy is inforce. There are several variations of term insurance.


Time Deposits
A type of relatively low-risk savings vehicle, such as a certificate of deposit, with maturities typically ranging from seven days to several years. Time deposits often pay a higher interest rate than traditional savings accounts, but penalties may apply for withdrawing money before maturity.


Total Return
A measure of a fund’s performance that encompasses all elements of return: dividends, capital gains distributions, and changes in net asset value. Total return is the change in the value of an investment over a given period, assuming any reinvestment of dividends or capital gains distributions, expressed as a percentage of the initial investment.


Traditional 401(k) Plan
An employer-sponsored investment plan for retirement. Employees make pre-tax contributions to the plan and all contributions and earnings grow tax deferred until withdrawn, when ordinary income taxes will apply. Withdrawals prior to age 59 ? may be subject to a 10% penalty. Employers may match a portion of employees’ contributions.


Traditional IRA
A retirement account to which you can contribute up to a specified amount each year (the maximum amount is determined by Congress). Individuals aged 50 and older may also be eligible to make additional annual catch-up contributions (up to a specified amount). IRAs give your money the potential to grow tax-deferred and, depending on your personal circumstances, contributions may be tax deductible (withdrawals prior to age 59 ½ may be assessed a 10% IRS penalty). Withdrawals from Traditional IRAs are taxed at then-current rates.


Treasury Bills
Short-term debt securities issued by the U.S. Treasury, "T-bills" typically sell at less than par (face) value and mature within one year. The interest an investor earns is the difference between the buying price and the amount paid at maturity.


Trust
An agreement in which a grantor transfers assets to a trustee for the purpose of benefiting one or more beneficiaries.


Trustee
The administrator of a trust.


U


U.S. Savings Bonds
Represent loans to the federal government, to be repaid in full, with interest, at a specified future date known as the maturity date. Series EE bonds issued today are sold at a 50% discount to face value (the amount paid at maturity).


Unlimited Marital Deduction
This provision of federal estate tax laws allows individuals to leave their entire estate to a surviving spouse tax free if the surviving spouse is a U.S. citizen.


V


Variable Annuity
An annuity that allows you to invest your money in accounts offering variable rates of return, such as stock or bond portfolios. As a result, your premium dollars may be exposed to risk generally associated with investing in the markets.


Volatility
The day-to-day (or year-to-year) fluctuation in the value of publicly traded securities and, by extension, broad markets.


Z


Zero Coupon Bond
A type of bond that does not pay regular interest, but is sold at a deep discount from its stated principal amount.