Glossary

#

A B C D E F G H I L M N O P Q R S T U V W Y
Fees paid out of fund assets to cover the costs of marketing and selling fund shares. "Distribution fees" include fees to compensate brokers and others who sell fund shares, and to pay for...
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...
A type of tax-deferred retirement savings program available to employees of public schools, certain non-profits, and some members of the clergy.
A tax-advantaged way to save for future college expenses, such as tuition and housing.
Public companies file Form 8-K, known as the "current report," to the SEC to announce major events that shareholders should know about, including bankruptcy proceedings, a change in corporate...
A fee that some funds separately impose on investors for account maintenance. For example, individuals with accounts below a specified dollar amount may have to pay an account fee.
Interest earned on a security but not yet paid to the investor.
Advance fee frauds ask for payment up front in order for the deal to go through. The advance payment may be described as a fee, tax, commission, or incidental expense that will be repaid later. Some...
Affinity fraud refers to investment scams that prey upon members of identifiable groups, such as religious or ethnic communities, the elderly, or professional groups. The fraudsters who promote...
Stock trading outside the regular hours of major exchanges such as the New York Stock Exchange and the Nasdaq Stock Market. Regular trading hours are 9:30 a.m. to 4:00 p.m. Eastern Time.
Once-a-year meetings where the chief executive officer reports on the year's results to shareholders. At this meeting, shareholders vote to elect the board of directors and on other corporate...
A report filed to the SEC by public companies that includes the company's history, audited financial statements, a discussion of products and services, a review of the organization and its operations...
An annual rate of return is the profit or loss on an investment over a one-year period. There are many ways of calculating the annual rate of return. If the rate of return is calculated on a monthly...
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...
In the over-the-counter market, the term "ask" refers to the lowest price at which a market maker will sell a specific number of shares.
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.
Asset allocation involves dividing your investments among different categories, such as stocks, bonds, and cash.
Investments that have similar characteristics. The three main asset classes are stocks, bonds, and cash.
A sales charge, also known as a "deferred sales charge," investors pay when they redeem (sell) mutual fund shares. Funds generally use these to compensate brokers.
One one-hundredth (.01) of a percentage point. For example, eight percent is equal to 800 basis points.
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.
A beneficial owner holds stocks indirectly, for example, through a bank or broker-dealer. Beneficial owners are sometimes said to be holding shares in "street name."
The highest price a market maker will pay to buy a specific number of shares.
A binary option is a type of options contract in which the payout depends entirely on the outcome of a yes/no proposition and typically relates to whether the price of a particular asset will rise...
A group of people elected by shareholders to oversee the management of a corporation.
A debt security, similar to an IOU. When you buy a bond, you are lending money to the issuer. In return for the loan, the issuer promises to pay you a specified rate of interest during the life of...
The investor sells one bond and uses the proceeds to buy another bond, often at the same price.
Some annuities promise a bonus on your contract value, typically 1% to 5% of your purchase price. Always check the fees and expenses associated with this feature, as they can outweigh the benefit of...
An individual who acts as an intermediary between a buyer and seller, usually charging a commission to execute trades. Brokers are required to seek the best execution of trades they make for clients...
For certain routine matters to be voted upon at shareholder meetings, if you don’t vote by proxy or at the meeting in person, brokers may vote on your behalf at their discretion. These votes may also...
A time when stock prices are rising and market sentiment is optimistic. Generally, a bull market occurs when there is a rise of 20% or more in a broad market index over at least a two-month period.
Purchasing or owning shares of stock, with the expectation that the stock will rise in value.
Bonds that can be redeemed or paid off by the issuer prior to the bond's maturity date.
These give the issuing bank the right to terminate – or "call" – the CD after a set period of time, but they do not give the CD holder the same right. If interest rates fall, the issuing bank might...
The profit that comes when an investment is sold for more than the price the investor paid for it.
Money that can be used to pay for goods or services.
Don't assume that a "federally insured one-year non-callable" CD matures in one year. It doesn't. These words mean the bank cannot redeem the CD during the first year. A "one-year non-callable" CD...
Different types of shares issued by a single fund, often referred to as Class A shares, Class B shares, and so on. Each class of a fund holds identical investments and shares the same investment...
A type of investment company that does not continuously offer its shares for sale but instead sells a fixed number of shares at one time. After its initial public offering, the fund typically trades...
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...
You will likely pay a commission when you buy or sell a stock through a financial professional. The commission compensates the financial professional and his or her firm when it is acting as agent...
The Committee on Uniform Securities Identification Procedures (CUSIP) number identifies most securities, including U.S. government and municipal bonds. CUSIP numbers are unique nine-character...
Interest paid on principal and on accumulated interest.
A type of back-end load, the amount of which depends on the length of time the investor holds his or her shares. For example, a contingent deferred sales load might be 5% if an investor holds his or...
A feature some funds offer that allows investors to automatically switch from one fund class to another, typically one with lower annual expenses, after a set period of time. The fund's prospectus or...
A corporate bond that can be exchanged for a specific number of shares of the company's stock, usually common stock. In most cases, the holder of the convertible bond determines whether and when a...
A framework which may include rules and regulations, corporate charter and bylaws, formal policies, as well as customs and other processes, that determines the leadership, organization, and direction...
Reports that public companies must file with the SEC.
A feature of a bond that denotes the amount of interest due and the date that the payment will be made.
The dollar amount of interest paid to an investor. The amount is calculated by multiplying the interest of the bond by its face value.
The interest rate on a bond. It is expressed as a semi-annual rate.
Large blocks of shares in an ETF, typically 50,000 shares or more.
Provide their opinion on the creditworthiness of a corporate or government borrower by issuing a grade, or credit rating, on bonds issued by that borrower.
The ratio of the interest rate payable on a bond to the actual market price of the bond, stated as a percentage. For example, a bond with a current market price of $1,000 that pays $80 per year would...
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...
An unsecured bond backed solely by the general credit of a company.
A failure by an issuer to pay principal or interest when due, or to fulfill other obligations, such as reporting requirements.
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.
A sales charge, also known as a "Back-end Load," investors pay when they redeem (sell) mutual fund shares. Funds generally use these to compensate brokers.
Defined benefit plans also are known as pension plans. Employers sponsor defined benefit plans and promise the plan's investments will provide you with a specified monthly benefit at retirement. The...
A retirement savings plan, such as a 401(k) plan, that does not promise a specific payment upon retirement. In these plans, the employee or the employer (or both) contribute to the employee's...
Financial instruments whose performance is derived, at least in part, from the performance of an underlying asset, security or index. For example, a stock option is a derivative because its value...
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.
A bond sold before it matures might not sell at full par value. If it sells below par, it is selling at discount.
Short-term obligations issued at a discount from face value. Discount notes have no periodic interest payments; the investor receives the note's face value at maturity. For example, a one-year, $1,...
Fees paid out of fund assets to cover marketing and selling fund shares. These fees may cover advertising costs, compensating brokers and others who sell fund shares, payments for printing and...
Diversification is a strategy that can be neatly summed up as "Don't put all your eggs in one basket." The strategy involves spreading your money among various investments in the hope that if one...
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...
If a CD is redeemed before it matures, you may have to pay a penalty or forgo a portion of the interest.
A public company's net profit divided by the number of its common shares.
The SEC's Electronic Data Gathering, Analysis and Retrieval database provides free public access to corporate information such as registration statements, prospectuses, and quarterly and annual...
The Employee Retirement Income Security Act of 1974, which is administered by the U.S. Department of Labor. ERISA does not require employers to offer a pension plan. But it does require employers who...
Fees that direct-sold college savings plans may charge to join in the program.
A fee that some funds impose on shareholders if they exchange (transfer) to another fund within the same fund group.
A type of exchange-traded investment product that must register with the SEC as either an open-end investment company (generally known as “funds”) or a unit investment trust. ETFs offer investors a...
The fund's total annual operating expenses, including management fees, distribution fees, and other expenses, expressed as a percentage of average net assets.
The Financial Accounting Standards Board (FASB) is the accounting standard setter for purposes of the Federal Securities Laws. See GAAP.
The Financial Industry Regulatory Authority, a self-regulatory organization for the brokerage industry.
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...
Examples of financial products include but are not limited to the following: stocks, bonds, derivatives, and currencies.
An insurance product that promises a minimum rate of interest while your account is growing. The insurance company also guarantees that the periodic payment will be for a set amount for a fixed...
A long-term bond with a set interest rate.
A bond whose interest rate is adjusted periodically according to a predetermined formula; it is usually linked to an interest rate index such as LIBOR.
The lower limit for the interest rate on a floating-rate bond.
The Foreign Corrupt Practices Act (“FCPA”) generally prohibits the bribing of foreign officials. The FCPA also requires publicly traded companies to maintain accurate books and records and to have a...
A foreign currency exchange rate is a price that represents how much it costs to buy the currency of one country using the currency of another country. Currency traders buy and sell currencies...
Markets that trade currencies.
You can find a wealth of information in the company’s annual report on Form 10-K. Among other things, the 10-K offers a detailed picture of a company’s business, the risks it faces, and the operating...
Form 8-K provides investors with current information to enable them to make informed decisions. The types of information required to be disclosed on Form 8-K are generally considered to be “material...
A person whose goal is to con people out of their money.
Variable annuity contracts typically have a "free look" period of ten or more days. During this period, you are free to terminate your contract without paying any surrender charges and you will...
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...
The value of an asset at a specified date in the future.
An agreement to buy or sell a specific quantity of a commodity or financial instrument at a specified price on a particular date in the future.
Markets that trade futures contracts for commodities such as gold, oil or wheat, as well as financial futures.
A municipal bond not secured by any assets; instead it is backed by the issuer's power to tax residents to pay bondholders.
GAAP (Generally Accepted Accounting Principles) are accounting standards, conventions and rules. It is what companies use to measure their financial results. These results include net income as well...
An order to buy or sell a security at a specific (limit) price that remains in effect until the order is completed or cancelled.
Bonds that are believed to have a higher risk of default and receive low ratings by credit rating agencies, namely bonds rated Ba or below (by Moody's) or BB or below (by S&P and Fitch). These...
High-Yield Investment Programs (HYIP) are unregistered investments typically run by unlicensed individuals – and they are often frauds. The hallmark of an HYIP scam is the promise of incredible...
This annuity has no accumulation phase. Instead, you start receiving annuity payments right after you purchase the annuity.
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...
An initial public offering occurs when a company first sells its shares to the public.
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 "...
The Internet allows individuals or companies to communicate with a large audience without spending a lot of time, effort, or money. Anyone can reach tens of thousands of people by building an...
To engage in any activity in which money is put at risk for the purpose of making a profit.
An investment adviser is a firm or an individual that, for compensation, engages in the business of advising others as to the value of securities or as to the advisability of investing in, purchasing...
A company that issues and invests in securities. The three types of investment companies are mutual funds, closed-end funds, and unit investment trusts.
Bonds that are believed to have a lower risk of default and receive higher ratings by the credit rating agencies, namely bonds rated Baa (by Moody's) or BBB (by S&P and Fitch) or above. These...
The entity obligated to pay principal and interest on a bond.
Terms used to describe a company’s size and market value ( market capitalization ).
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,...
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...
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...
A measure of the relative ease and speed with which a security can be bought or sold in a secondary market.
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,...
The interest rates banks charge each other for short-term loans. LIBOR is frequently used as the base for resetting rates on floating-rate securities.
Congress directed the establishment of the Lost and Stolen Securities Program (LSSP) to curtail trafficking in lost, stolen, missing, and counterfeit securities certificates. Rule 17f-1 under the...
A payment of a sum of money at one time, such as an inheritance.
Fees that direct-sold college savings plans may charge for continued participation in the plan.
A fee paid out of fund assets to the fund's investment adviser for investment portfolio management. A fund's management fees appear under Annual Fund Operating Expenses in the fee table in the fund's...
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...
If you buy on margin and the value of your securities declines, your brokerage firm can require you to deposit cash or securities to your account immediately, or sell any of the securities in your...
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...
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...
A market index tracks the performance of a specific "basket" of stocks that represent a particular market or economic sector. U.S. examples include the Dow Jones Industrial Average, an index of 30 "...
A firm that stands ready to buy and sell a particular stock on a regular and continuous basis at a publicly quoted price.
A market order is an order to buy or sell a stock at the current market price. Unless you specify otherwise, your broker will enter your order as a market order. The advantage of a market order is...
When a broker-dealer sells you securities out of its inventory, the broker-dealer acts as a principal in the transaction (that is, selling to you directly the securities it holds). When acting in a...
The combining of two or more companies into a single entity.
Stock in very small companies whose market capitalization, reflecting the total value of the company's stock, is low or "micro." Microcap stocks tend to be low priced and trade in low volumes...
A market that provides trading in short-term debt.
Mortgage-backed securities, or MBS, are bonds or notes backed by a pool of mortgages on residential or commercial properties. As the mortgage borrowers pay the principal and interest on their loans,...
The common name for an open-end investment company. Like other types of investment companies, mutual funds pool money from many investors and invest the money in stocks, bonds, short-term money-...
The value of a fund's assets minus its liabilities. SEC rules require funds to calculate their NAV at least once daily. To calculate the NAV per share, simply subtract the fund's liabilities from its...
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...
A fund that does not charge any type of sales load. But not every type of shareholder fee is a "sales load," and a no-load fund may charge fees that are not sales loads. No-load funds also charge...
The disclosure document prepared by a bond issuer that gives detailed financial information about the issuer and the bond offering. Municipal securities issuers must prepare an “Official Statement”...
The legal name for a mutual fund. An open-end company is a type of investment company.
The costs a fund incurs in running the fund, including management fees, distribution fees, and other expenses.
Options are contracts giving the purchaser the right – but not the obligation -- to buy or sell a security at a fixed price within a specific period of time. Stock options are traded on a number of...
See Defined Benefit Plan
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...
The combined holdings of stock, bond, commodity, real estate and other investments by an individual or institutional investor.
The amount by which the price of a bond exceeds its principal (par) amount.
A type of 529 plan that allows you to pay for future college tuition now, at or near the current tuition rate. Some pre-paid tuition plans also allow you to pre-pay for room and board.
The unscheduled partial or complete payment of the principal amount outstanding on a loan, such as a mortgage, before it is due.
The risk that principal repayment will occur earlier than scheduled, forcing the investor to reinvest at lower prevailing rates.
A company's P/E ratio is a way of gauging whether the stock price is high or low compared to the past or to other companies. The ratio is calculated by dividing the current stock price by the current...
Markets in which newly issued securities are sold to investors and the issuer receives the proceeds.
If someone approaches you about investing in a so-called "prime bank" program, "prime World Bank" financial instrument, or similar high-yield security, you should know that these investments do not...
The total amount of money being borrowed or lent; the initial amount of money invested.
A summary of key information about an ETF that explains how to obtain a prospectus.
Revenue minus cost; money made on a transaction.
Promissory notes are a form of debt that companies sometimes use to raise money. They typically involve investors loaning money to a company in exchange for a fixed amount of periodic income...
A document that describes the mutual fund to prospective investors. Every mutual fund provides a prospectus with information about the mutual fund's investment objectives, risks, past performance,...
A document sent to shareholders letting them know when and where a shareholders’ meeting is taking place and detailing the matters to be voted upon at the meeting. You can attend the meeting and vote...
A way for shareholders to vote for corporate directors and on other matters affecting the company without having to personally attend the meeting.
A company that offers its securities through an offering and now has those securities traded on the open market.
“Pump-and-dump” schemes involve the touting of a company’s stock (typically small, so-called “microcap” companies) through false and misleading statements to the marketplace. These false claims could...
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.
The amount of goods and services that can be purchased by a given unit of currency, taking into account the effect of inflation.
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...
Each quarter, public companies file reports to the SEC containing unaudited financial statements and information about the company's operations in the previous three months.
A company that owns and typically operates income producing real estate or real estate-related assets, such as office buildings, shopping malls, apartments, hotels, resorts, self-storage facilities,...
Real return is what is earned on an investment after accounting for taxes and inflation. Real returns are lower than nominal returns, which do not subtract taxes and inflation.
Rebalancing brings a portfolio back to its original asset allocation mix. This is necessary because over time, some investments will grow faster than others, and holdings may become out of alignment...
A shareholder fee that some funds charge when investors redeem (sell) mutual fund shares. Redemption fees, which must be paid to the fund, are not the same as and may be in addition to a back-end...
A registered owner or record holder holds stocks directly with the company, rather than in "street name." Registration Statement -- By law, public companies in the U.S. must disclose important...
The total amount of money, or gross income, generated by a company from selling its goods and services. A simple way to think about revenue is it’s the price of a widget multiplied by the number of...
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.
In finance, risk refers to the degree of uncertainty about the rate of return on an asset and the potential harm that could arise when financial returns are not what the investor expected. In general...
An investor's ability and willingness to lose some or all of an investment in exchange for greater potential returns.
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 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,...
Income that is not spent on consumption but is put aside.
Required by law, most public companies must periodically (at least every three years) provide their shareholders with an advisory vote on the compensation of the most highly compensated executives...
Markets where existing securities are bought and sold.
This part of the U.S. tax code allows you to exchange an existing variable annuity contract for a new annuity contract without paying tax on the income and investment gains in your current account...
An investment instrument such as a stock or bond.
A bond that has a higher priority than another bond's claim to the same class of assets in case of a default or bankruptcy. Settlement Date -- The agreed date for the delivery of bonds and payment of...
An individual or institution that owns one or more shares of stock in a company.
An individual or entity that owns stock in a company.
Fees paid to respond to inquiries from investors and provide them with information about their investments.
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...
An ETF designed to replicate the performance of the Standard & Poor's 500 Index. Because of its acronym, the SPDR instrument is referred to as a "spider."
Conveys information about an open or closed-end fund that some investors find useful. Funds are not required to provide investors with the SAI, but they must provide it for free upon request. Also...
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...
A general term for the organized trading of stocks through exchanges, over-the-counter, and computerized trading venues.
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...
A type of sales charge that applies if you withdraw money from a variable annuity within a certain period of time, usually six to ten years. This is known as the surrender period. The charge declines...
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 target date fund...
A public offer to purchase the stated amount of stock of a corporation from its shareholders at the stated price within a stated time limit often in an effort to gain control of the company.
Each publicly traded common stock in the U.S. receives a short abbreviation that identifies it, known as its stock symbol or stock ticker symbol. Some stocks have single-letter ticker symbols while...
Your time horizon is the number of months, years, or decades you need to invest to achieve your financial goal.
The total of a fund's annual fund operating expenses, expressed as a percentage of the fund's average net assets. You'll find the total in the fund's fee table in the prospectus.
An institution, usually a bank, designated by the issuer as the custodian of funds and official representative of bondholders.
A type of investment company that typically makes a one-time "public offering" of only a specific, fixed number of units. A UIT will terminate and dissolve on a date established when the UIT is...
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.
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...
A wash sale occurs when you sell or trade securities at a loss and within 30 days before or after the sale you: Buy substantially identical securities, Acquire substantially identical securities in a...
A wrap account is an investment account where a "wrapped" fee or fees cover all of the management, brokerage and administrative expenses for the account. The fee or fees are generally based on the...
The annual percentage rate of return earned on a bond calculated by dividing the coupon interest rate by its purchase price.
A line graph that shows the relative yields on debt over a range of maturities from three months to 30 years. Investors, analysts and economists use yield curves to evaluate bond markets and interest...