A

Annuity: A retirement savings vehicle that is tax-deferred and issued as a contract between an individual and an insurance company.  Annuities provide a variety of income options, including a payment one cannot outlive.  Annuities can be issued as immediate, fixed or as variable contracts.

B

Balance Sheet: A statement showing the financial condition of a company at any given point in time. It includes assets, liabilities and net worth. Assets always equal or balance, liabilities plus net worth.

Bear Market: A sharp, prolonged decline in the price of stocks usually brought on by a slowing economy. Because a bear fights by slapping downward, this term is associated with a falling market.

Beneficiary: An entity (a person or institution) named by the investor to inherit their estate or part of their estate after death.

Beta: A measure of volatility relative to a corresponding market. A security with a beta of one equals the market volatility. A beta higher than one means greater volatility than the market.

Blue Chip Stock: Shares of large companies that have a history of strong earnings growth and dividend payments. Known for strong management and excellent products and/or services, these companies usually operate in an established industry with expectations for continued success.

Bond: A certificate representing a debt obligation; the issuer pays interest on specific schedule and redeems by paying-off the principal at maturity.

Bond Ratings: Ratings that evaluate the possibility of default by a bond issuer.

Bull Market: A sharp, prolonged rise in the price of stocks, usually lasting several months. Because a bull attacks by thrusting upward, this term is associated with a rising market.

C

Capital Gain: Profit on the sale of a capital asset.

Capital Market: Debt and equity securities with maturities greater than one year.

Cash Flow: Net income plus other non-cash charges, such as depreciation and amortization. Cash flow determines a company’s ability to reinvest in its operations and pay dividends.

Common Stock: Shares of a public corporation. Should the company be forced to liquidate, assets are distributed to creditors, bondholders and preferred stockholders before common stockholders. Common stocks are usually purchased for appreciation potential.

Community Property: A joint account between a husband and wife in which upon death of one spouse his/her half of the account is transferred to his/her heirs.

Compounding: The process of adding interest earned to principal over a period of time.

Consumer Price Index: The price of a hypothetical basket of goods selected to represent the types of products purchased by typical consumers. It is used as a measure of inflation.

Corporate Bond: A debt obligation issued by a corporation.

Custodial Account: An account established for a child who is not of legal age. The account must use the name of the minor child as well as one adult, or custodian.

D

Debenture: An unsecured bond. Most bonds issued by large corporations are debentures, which are backed by the corporation’s reputation rather than secured by collateral.

Debt Security: A security where the issuer has promised to pay a specified amount of principal and interest to the owner of the security at a specified time in the future.

Depression: Economic condition characterized by falling prices, reduced purchasing power, rising unemployment, deflation, and a general decrease in business activity.

Diversification: A method used to reduce investment risk by placing resources into several different investment categories (i.e., growth, growth and income, and income). Diversification among stocks can be by sectors within an industry or by geographic location.

Dollar Cost Averaging: Investing equal dollar amounts at regularly scheduled intervals; results in buying more shares when prices are low and fewer shares when the prices are high.

Dow Jones Industrial Average (DOW): A price-weighted average of 30 actively traded blue-chip stocks. It is the oldest and most widely used of all stock market indicators. The average is quoted in points rather than dollars. The DJIA is calculated by adding the prices of the stocks using a divisor that is adjusted for splits and dividends, in addition to substitutions and mergers.

E

Equity: Ownership interest in a corporation, held by investors through common or preferred stock. Corporations issue equity to raise fund for the investment in the company.

Expense Ratio: The amount that mutual fund shareholders pay for management fees and operating expenses.

F

Fannie Mae: Federal National Mortgage Association (FNMA), a government-sponsored, publicly owned corporation whose stock trades on the NYSE. FNMA purchases mortgages from lenders and resells them to investors through the sale of fixed income securities, pass-through and equity.

Federal Deposit Insurance Corporation (FDIC): An agency of the Federal Government established to insure the deposits of account holders at FDIC member institutions.

Fiduciary: A person handling the property of another person for that other person’s behalf; e.g. trustee, guardian, executor, etc.

Financial Risk: Uncertainty involving the ability of an issuer to pay stockholders and creditor’s principal and interest.

FINRA: Financial Industry Regulatory Authority, a non-for-profit organization of dealers whose aim is to protect OTC customers through financial solvency and integrity.

Fixed Annuity: A contract issued by an insurance company. Fixed annuities resemble a bond since the insurance company promises to pay the investor a fixed rate of interest for a certain period of time.

Freddie Mac: Federal Home Loan Mortgage Corporation (FHLMC), a corporation created by the federal government which issues two types of mortgage certificates to finance its purchase of conventional residential mortgages.

G

Global Fund: Funds that invests in foreign securities.  

Growth-and-Income Stock: A common stock which pays a higher than average dividend. Many utility stocks can be considered to meet the criteria of this category. 

Growth Stock: A common stock with a high beta; typically does not pay dividends because free cash flow is being reinvested to expand the company.

I

Income Bonds: Interest bearing security with payments based upon issuers earnings.

Income Statement: A summary of revenues and expenses during a certain accounting period.

Income Stock: Common stock with a high current yield and has historically paid a large portion of corporate earnings in the form of dividends. Many Real Estate Investment Trusts (REIT) stocks are considered income stocks.

Individual Retirement Account (IRA): Tax deferred personal investment account.

Initial Public Offering (IPO): The first time a company offers publicly traded common stock.

International Fund: A fund that invests exclusively in non-domestic securities.

Investment Banker: Intermediary between the public and a corporation during the underwriting process. Investment bankers usually buy newly issued securities directly from the issuer and sell them to individuals and/or institutions.

Investment Company: A company that is paid a management fee to invest pooled funds of small investors. Investment Company’s offer investors professional management, diversification and liquidity.

Investment Grade: Refers to the quality of a bond, and can be identified by a BBB rating or better.

J

Junk Bonds: Junk bonds, also called High Yield Bonds, are considered speculative lesser quality debt obligations and can be identified by ratings of BB or lower.

K

Keogh Plans: Tax deferred pension plan structured for business owners and/or employees of unincorporated businesses.

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L

Liquidity: The ability to convert to cash quickly or the ability to sell an asset in large volume without negatively impacting the sales price. 

Listed Securities: Securities traded on registered exchanges.

M

Margin Account: A client account with the ability to accept credit extended by a broker/dealer.
Market Risk – Also known as Systematic Risk, is the amount of risk that cannot be removed through diversification.

Marketability: The degree of a readily available market for a security.

Maturity Date: Date when debt security is due and payable to the bondholder.

Money Market Securities: The market for short term debt instruments such as treasury bills, commercial paper and bankers acceptance notes. 

Money Market Funds: Mutual funds composed of short-term money market securities.

Money Supply:  The amount of money available in the economy.

Municipal Bond: Debt obligations issued by state and/or local governments. Proceeds generated by a municipal bond offering are used to finance capital projects for the “public good”, such as schools, roads, hospitals and water/sewer systems. Municipal Bond interest is often tax advantaged.

Municipal Security:  See Municipal Bond and Municipal Note.

Mutual Fund: Pooled investment managed by a professional investment company for the benefit of shareholders.

N

Net Asset Value (NAV): A formula used by mutual fund companies to price shares at the close of business each day.

No-Load Mutual Funds: Mutual fund investment available directly to the public without sales charges.

O

Ordinary Income: Income derived from normal activities of a business or individual.

Overvalued: A price that cannot be justified by the earnings outlook. Overvalued securities are expected to eventually drop in price.

P

Portfolio: A combination of holdings including stocks, bonds, mutual funds or other types of securities.

Prospectus: A formal written offer used to sell a security. Most mutual funds require a prospectus.

Public Offering Price (POP): Price at which a newly issued security can be purchased by the public.

R

Recession: A downturn in general economic activity lasting at least two quarters.

Relative Valuation: Compares price-to-earnings ratio (P/E) of a specific equity to the  P/E of the general equity market (i.e., S&P 500). Individual securities can trade at a premium (higher) or discount (lower) to the general market.

Return on Equity (ROE): The amount earned on a company’s common stock in a given period of time; reported as a percentage gain or loss.

Rollover: The transfer of assets from a retirement plan account into an Individual Retirement Plan Account (IRA) account.

ROTH IRA: An IRA account funded with after tax dollars.

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S

Sallie Mae: An entity that purchases student loans from originating financial institutions and provides student financing.

Securities and Exchange Commission (SEC): Provides securities industry regulation as set forth by the Securities Exchange Act of 1934.

Security: A representation of ownership in any note, stock, debenture or certificate of participation.

Short Sale: The sale of a borrowed security, which must be executed in a margin account.

S&P 500 (Standard and Poor’s 500): An indicator for five hundred of the most widely held domestic common stocks.  The S&P 500 reflects the collective movement of all 500 stocks within the index.

Stock Dividend: A payment in the form of cash or stock to shareholders.

Stock Exchange: An organized marketplace where securities are traded by members of the exchange.

Stock Market Indexes: Indicators used to monitor movements of a group of equities.

T

Tax Deferral: The ability to delay payment of tax. 

Tax Shelter: Legal avoidance or reduction of tax liabilities.

Tax Exempt: Free of tax liability.

Technical Analysis: The use of charts and/or computer programs to predict the pricing trends of a market or individual security.

Treasury Bill: US Treasury securities with maturities of less than 1 year and minimum denomination of $10,000.
 
Treasury Note: US Treasury securities with maturities ranging from 1-10 years and minimum denomination of $1,000.

Treasury Bond: US Treasury securities with maturities greater than 10 years and minimum denomination of $1,000.

U

Undervalued: A security selling at a discount to liquidation price.

Unit Trust: A fixed pool of securities sold in $1,000 increments.

United States Treasuries: Direct obligations of the US government, issued to finance national debt.

V

Valuation: The estimated market value of a stock.

Variable Annuity: A tax advantaged contract issued by insurance companies which offers investors a choice of investing in one or more professionally managed sub-accounts.

Y

Yield: The total income (dividends) produced from a security divided by the original issue price or market price. 

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