Glossary

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A


529 College Savings Plan

What is a 529 plan? A 529 plan provides tax-free investment growth and withdrawals for qualified education expenses. Parents who start saving in a 529 account when their children are young can take advantage of those tax savings, as well as compounded returns and in some states a tax deduction on contributions. A 529 plan can be used to pay for qualified education costs, including college, K-12, and apprenticeship programs.

Accredited Investment Fiduciary TM  (AIF)
Only Accredited Investment Fiduciary (AIF) Designees have been certified specifically for their ability to follow a fiduciary process with their clients' best interests at heart.

Accredited Investment Fiduciary Analyst TM  (AIFA) Different from other advisors.
While the practices are available to all advisors, only those who have earned the AIFA Designation are formally recognized by the Center for Fiduciary Studies for demonstrating a full understanding of how to implement those processes to help institutional clients fulfill their fiduciary obligations as it relates to ERISA Employer Sponsored Retirement Plans.

AIFA Designees are able to use the knowledge and resources they have gained through their training to:

  1. Evaluate your organization’s current fiduciary practices and recommend actions that address risk areas and help ensure compliance with applicable state and federal statutes and regulations
  2. Create and maintain a comprehensive investment policy statement that documents all of the processes and procedures that will be used to manage your portfolio
  3. Analyze and optimized your portfolio asset allocation strategy to better align with the plan or fund’s specific investment objective or the demographic needs of plan participants
  4. Apply objective standards for evaluating and recommending appropriate investment options for the plans portfolio
  5. Monitor and report performance of your portfolio and its underlying investments on an ongoing basis and recommending changes, when necessary.
  6. Serve as a resource foe education and assistance to help you understand and fulfill your fiduciary obligation with greater confidence.

In addition to providing fiduciary guidance and assistance, many AIFA Designees also take on the fiduciary responsibility for managing assets in a retirement plan or endowment. That removes the burden of day-to-day management of those assets from your shoulders. 

Accredited Investor
Regulation D Private Placement an investor must be either

  1. an affiliate of the issuer
  2. a financial institution, or
  3. a natural person with income exceeding $200,000 for each of the two (2) most recent years or joint income with spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year. These guidelines are subject to change. 

Adjusted Gross Income (AGI)
An interim calculation in the computation of income tax liability. It is computed by subtracting certain allowable adjustments from gross income.

Administrator
A person appointed by the court to settle an estate when there is no will.

Advisory Fee
The fee paid to an Investment adviser (portfolio manager) as compensation for managing a portfolio of securities.

After-Tax Return
The return from an investment after the effects of taxes have been taken into account.

Aggressive Growth Fund
A mutual fund whose primary investment objective is substantial capital gains. The return and principal value of mutual funds fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than their original cost. Investments seeking to achieve higher returns also involve a higher degree of risk. Mutual funds are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding to invest.

Alpha
Alpha (α) is a term used in investing to describe an investment strategy's ability to beat the market, or it's "edge." Alpha is thus also often referred to as “excess return” or “abnormal rate of return,” which refers to the idea that markets are efficient, and so there is no way to systematically earn returns that exceed the broad market as a whole.

Alternative Minimum Tax
A method of calculating income tax that disallows certain deductions, credits, and exclusions. This was intended to ensure that individuals, trusts, and estates that benefit from tax preferences do not escape all federal income tax liability. People must calculate their taxes both ways and pay the greater of the two.

Annuity
Originally an annuity was referred to as a straight life annuity or immediate life income annuity. These insurance contracts guarantee a stream of income for the lifetime of one person the annuity owner. They do not provide income to surviving spouses or additional annuitants. When the annuitant-owner dies annuity payments stop. With few exceptions, all other types of annuities have a death benefit equal to the policies cash value.

Types of Annuities
Single Premium Deferred Annuity (SPDA):  is a contract between an individual and an insurance company or financial institution that grows tax-deferred. SPDAs allow you to convert a lump sum of money into a retirement income stream. With an SPDA, you make a  one time payment called a premium and the money grows tax-deferred at a guaranteed interest rate for a set period of time. You can choose from different interest rate periods, such as five or seven years or sometimes longer. At the end of each period, you can choose another period, and larger accumulation values may be eligible for higher interest rates. With the acception of an Immediate Annuity most annuities have a death benefit equal to the policy's cash value.  

Flexible Premium Deferred Annuities (FPDA): is a tax-deferred insurance policy that allows you to fund your annuity with multiple premium payments over time instead of one lump sum. This type of annuity can be a good way to save for retirement or other life goals, and it can provide you with a guaranteed income stream later in life.  

Immediate Annuities: This type begins repayment immediately after the annuity is fully funded (often with a single premium). It is most often used by new retirees looking for a guaranteed predictable lifetime monthly income.

Deferred Annuities: Can be either single premium or periodic payments. Payout begins at a designated time many years after the contract is made. Payment may be given in a lump sum, or in a series of regular payments over a guaranteed period. These are often used as long-term investment vehicles, and benefit from being tax deferred.

Fixed Annuities: The funds are placed into a fixed income investment (such as bonds and insurance companies GICs), providing guarantee of principal at a fixed interest for a specified period. Because of these guarantees, this investment vehicle is considered at no or very low risk.

Fixed Indexed Annuities
Upside potential with downside protection

A fixed indexed annuity is a tax-deferred, medium to long-term savings option that provides principal protection in a down market and opportunity for growth in a rising market. Your Principle is never at risk, you lock in gains in positive years and remain stagnant in negative years. It gives you more growth potential than a fixed annuity along with less risk and less potential return than a variable annuity.

Returns are based on the performance of an underlying index, such as the S&P 500® Composite Stock Price Index, a collection of 500 stocks intended to provide an opportunity for diversification that represent a broad segment of the market. While the benchmark index does follow the market, as an investor, your money is never directly exposed to the stock market.

Multi-Year Guaranteed Annuity (MYGA): A multi-year Guaranteed Annuity (MYGA) is a type of fixed annuity that offers a guaranteed interest rate for a set period of time, usually between 3-10 years. MYGAs are also known as Fixed Rate or CD-type annuities because they are often compared to bank certificates of deposits (CDs) or term accounts. MYGAs can be a way to save for retirement and supplement Social Security benefits or other tax-advantaged retirement accounts. 

Variable Annuities: A variable annuity is a contract beween you and an insurance company. It serves as an investment account that may grow on a tax-deferred basis and includes certain insurance features, such as the ability to turn your account into a stream of periodic payments. You purchase a variable annuity contract by making either a single purchase payment or a series of purchase payments. A variable annuity offers a range of investment options. The value of your contract will vary depending on the performance of the investment options you choose. The investment options for a variable annuity are typically mutual funds, Exchange Traded Funds known as ETFs, stocks, bonds, money market instruments, or some combination of these investment options. Each Variable annuity is unique. Most include features that make them different from other insurance products and investment options. Keep in mind that you will pay extra for the features offered by variable annuites. You will also pay the ongoing annual brokers fee charge each year you own the Variable Annuity. 

 

403(b) plan, also called a tax-sheltered annuity (TSA): is a retirement plan offered by public schools and certain 501(c)(3) tax-exempt organizations. Employees save for retirement by contributing to individual accounts. Employers can also contribute to an employee's individual accounts. Choosing a 403(b) tax-sheltered annuity allows employees to invest part of their income before taxes into their employer sponsored retirement plan. TSA plans are offered to employees of public schools and tax-exempt organizations. The IRS taxes withdrawals, but not contributions going into a tax-sheltered annuity. 

Asset
Anything owned that has monetary value.

Asset Allocation
An investment strategy of dividing your investments among different assets, such as stocks, bonds, and cash. The asset allocation decision is a personal one. The allocation that works best for you changes at different times in your life, depending on how long you have to invest and your ability to tolerate risk. Asset allocation does not guarantee against loss; it is a method used to help manage investment risk.

Asset Class
A category of investments with similar characteristics.

Audit
The examination of the accounting and financial documents of a firm by an objective professional. The audit is done to determine the records' accuracy, consistency, and conformity to legal and accounting principles.

AUM Assets Under Management
The total assets of securities under management by an individual securities broker or investment advisor representative, a broker-dealer firm, a third-party money management firm or Registered Investment Advisor (RIA) firm.  

B


Balanced Mutual Fund
A mutual fund whose objective is a balance of stocks and bonds. Balanced funds tend to be less volatile than stock-only funds. The return and principal value of mutual funds fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than their original cost. Mutual funds are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

Basis

  1. Basis: an investor's yield to maturity.
  2. Taxation: Cost used to determine capital gain or loss on an investment.
  3. Used in DPPs to calculate maximum losses allowed for tax purposes. In general, basis consists of the investor's original contribution plus recourse loans.

Basis Point
A unit equal to 1/100 of 1% (0.01%) used in expressing variations in the yields of bonds. For example, the difference between 12.83% and 12.88% is 5 basis points.

Bear Market
When the overall stock market appears to be declining, it is said to be a bear market.

Beneficiary
A person named in a life insurance policy, annuity, will, trust, or other agreement to receive a financial benefit upon the death of the owner. A beneficiary can be an individual, company, organization, and so on.

Beta
Beta is a measure of a stock's volatility in relation to the overall market. If a stock moves less than the market, the stock's beta is less than 1.0. High-beta stocks are supposed to be riskier but provide higher return potential; low-beta stocks pose less risk but also lower returns. Another example: a Beta of 2.0 indicates a stock that is twice as volatile as the market as a whole. Often referred to as Systematic Risk.

Blue Chip Stock
Common stock of a company with a history of profitability and consistent dividend payments.

Bond
A debt issue or promissory note of a corporation, municipality, or the U.S. government. A bond is evidence of a debt in which the issuer promises to pay the bondholders a specified amount of interest and to repay the principal at maturity. Bonds are usually issued in multiples of $1,000 however, U.S government bonds can sometimes be issued in higher amounts. 

Book Value
The net value of a company's assets, less its liabilities and the liquidation price of its preferred issues. The net asset value divided by the number of shares of common stock outstanding equals the book value per share, which may be higher or lower than the stock's market value.

Bull Market
When the overall stock market appears to be advancing, it is said to be a bull market.

Business Cycle
The recurring periods of expansion and contraction in economic activity which affect inflation, unemployment, business profits, and interest rates.

Buy-Sell Agreement
A buy-sell agreement is an arrangement between two or more parties that obligates one party to buy the business and another party to sell the business upon the death, disability, or retirement of one of the owners.

C


Capital Gain or Loss
Difference between sales price and the purchase price of a capital asset. When that difference is positive, the difference is referred to as a capital gain. When difference is negative, a capital loss.

Cash Alternatives
Short-term investments, such as U.S. Treasury securities, certificates of deposit, and money market fund shares, that can be readily converted into cash.

Cash Surrender Value
The amount that an insurance policyholder is entitled to receive when he or she discontinues coverage. Policyholders are usually able to borrow against the surrender value of a policy from the insurance company. Policy loans that are not repaid will reduce the policy's death benefit and cash value by the amount of any outstanding loan balance plus interest.

Certified Financial Planner TM  Practitioner
A credential granted by the Certified Financial Planner Board of Standards, Inc. (Denver, CO) to individuals who complete a comprehensive curriculum in financial planning and ethics. The CFP
and federally registered CFP (with flame logo)® are certification marks owned by the Certified Financial Planner Board of Standards. These marks are awarded to individuals who successfully complete the CFP Board's initial and ongoing certification.

Certified Public Accountant (CPA)
A professional license granted by a state board of accountancy to an individual who has passed the Uniform CPA Examination administered by the American Institute of Certified Public Accountants and has fulfilled that state's educational and professional experience requirements for certification.

Charitable Lead Trust
A trust established for the benefit of a charitable organization. A grantor who places money, securities, property, and other assets in a charitable remainder trust can designate an income beneficiary, even if it is the grantor herself, to receive payment of a specified amount (at least annually) from the trust. You may also qualify for an income tax deduction on the estimated present value of the remainder interest that will eventually go to charity.

Charitable Remainder Trust
A trust established for the benefit of a charitable organization. A grantor who places money, securities, property, and other assets in a charitable remainder trust can designate an income beneficiary, even if it is the grantor herself, to receive payment of a specified amount (at least annually) from the trust. You may also qualify for an income tax deduction on the estimated present value of the remainder interest that will eventually go to charity.

Chartered Financial Consultant TM  (ChFC)
A professional financial planning designation granted by The American College (Bryn Mawr, PA) to individuals who complete a comprehensive curriculum in financial planning. Prerequisites include passing a series of written examinations, meeting specified experience requirements and maintaining ethical standards. The curriculum encompasses wealth accumulation, risk management, income taxation, planning for retirement needs, investments, estate and succession planning.

Chartered Life Underwriter (CLU)
A professional designation granted by The American College to individuals who complete a comprehensive curriculum focused primarily on risk management. Prerequisites include passing a series of written examinations, meeting specified experience requirements, and maintaining ethical standards. The curriculum encompasses insurance, financial planning, income taxation, life insurance, life insurance law, estate planning, and planning for businesses and professionals.

COBRA
The Consolidated Omnibus Budget Reconciliation Act is a federal law requiring employers with more than 20 employees to offer terminated or retired employees the opportunity to continue their health insurance coverage for 18 months at the employee's expense. Coverage may be extended to the employee's dependents for 36 months in the case of divorce or death of the employee.

Coinsurance or Co-Payment
The amount an insured person must pay for a covered medical and/or dental expense if his or her insurance doesn't provide 100% coverage.

Commodities
The generic term for goods such as grains, foodstuffs, livestock, oils, and metals which are traded on national exchanges. These exchanges deal in both "spot" trading (for current delivery) and "futures" trading (for delivery in future months).

Common Stock
A unit of ownership in a corporation. Common stockholders participate in the corporation's profits or losses by receiving dividends and by capital gains or losses in the stock's share price.

Community Property
State laws vary, but generally all property acquired during a marriage -- excluding property one spouse receives from a will, inheritance, or gift -- is considered community property, and each partner is entitled to one half. This includes debt accumulated. Nine states currently have community property laws: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. (Alaska adopted a community property system but it is optional.)

Compound Interest
Interest that is computed on the principal and on the accrued interest. Compound interest may be computed continuously, daily, monthly, quarterly, semiannually, or annually.

Consumer Price Index
The U.S. Department of Labor's main indicator of inflation. The Consumer Price Index is calculated each month from the cost of some 400 retail items in urban areas throughout the United States.

Consumer staples
Stocks that reflect daily essentials such as food and beverages, cleaning and personal hygiene products, household products like paper goods, and alcohol, tobacco, and cosmetics. But these stocks make up for that modest growth with low price volatility, reliable profits and dividends, and defensive positioning.

Custodian
A person or financial institution that has charge of custody of securities or property of another. Under the Uniform Gifts to Minors Act and the Uniform Transfer to Minors Act, the custodian is the person or financial institution that operates the account as a fiduciary for the minor who is the beneficial owner.

Custodian Bank
The bank designated by a mutual fund to hold the cash and securities of the fund and maintain fund level account records.

Cyclical Stock
Stocks which are generally affected by the business cycle, example: automobile, steel, and paper stocks (vs.) Defensive Stocks. A defensive stock is a stock that provides consistent dividends and stable earnings regardless of the state of the overall stock market. They are sometimes referred to as Consumer Staples Stocks. There is a constant demand for their products, so defensive stocks tend to be more stable during the various phases of the business cycle.

D


Debenture
A corporate bond backed by the general credit of a company, generally not secured.

Deduction
An amount that can be subtracted from gross income, from a gross estate, or from a gift, thereby lowering the amount on which tax is assessed.

Defensive Stock
A stock that is resistant to changes in general economic activity, food, utility, and tobacco stocks.

Defined Benefit Plan
A qualified retirement plan under which a retiring employee will receive a guaranteed retirement benefit, usually payable in monthly lifetime installments. Annual contributions are made by employer at a level needed to fund the monthly benefit received at retirement. Annual contributions from employer are limited to a specified amount and indexed to inflation.

Defined Contribution Plan
A retirement plan under which the annual contributions made by the employer or the employee is stated as a fixed percentage of the employee's compensation or company profits. The amount of retirement benefits is not guaranteed; rather, it depends upon the investment performance of the employee's account.

Deflation
A persistent and appreciable fall in the genera level of prices. It is characterized by production exceeding demand and normally takes place during a recession.

Derivative
A financial product that derives its value from movements in another financial product. Examples would include call and put options.

Direct Indexing Portfolios
Direct indexing is an automated investing strategy, where a money Manager uses computer algorithms to buy all the stocks you would normally own by buying an index fund in your own account. The main aim of this strategy is to lower your capital-gains tax bill. 

Direct Participation Program (DPP)
A business venture structured to pass through income and tax losses to investors. Commonly structured as a limited partnership.

Diversification
The spreading of investment risk among diverse types of securities and various companies in different fields or sectors of the economy.

Dividend
A pro rata portion of earnings usually distributed in cash by a corporation to its stockholders. In preferred stock, dividends are usually fixed; with common shares, dividends may vary with the fortunes of the company.

Dollar Cost Averaging
A system of investing in which the investor buys a fixed dollar amount of securities at regular intervals. The investor thus buys more shares when the price is low and fewer shares when the price rises, and the average cost per share is lower than the average price per share. Dollar cost averaging does not ensure a profit or prevent a loss. Such plans involve continuous investments in securities regardless of fluctuating prices. You should consider your financial ability to continue making purchases during periods of low and high price levels. However, this can be an effective way for investors to accumulate shares to help meet long-term goals.

Dow Jones Industrial Average
An average of 30 of the larges stocks. The prices of  the 30 stocks are totaled and then divided by a divisor that is intended to compensate for past stock splits and stock dividends and that is changed from time to time. Other Dow Jones averages include the Transportation (20 stocks), Utilities(15stocks), and the Composite (65stocks).

Due Diligence of New Securities to be issued
Refers to careful consideration prior to new security being issued. Underwritings will conduct meetings, during the cooling-off period, to assure all pertinent information has been considered before issuance.

Durable Power of Attorney for Finances (DPOA)
A durable attorney for finances (DPOA) enables you to authorize someone to act on your behalf in financial and legal matters. Your agent could pay everyday expenses, watch over your investments, and file taxes, among other tasks. A DPOA may become effective immediately or when a triggering event occurs, such as a doctor certifying that you are physically or mentally incapacitated.

Durable Power of Attorney for Health Care (HPOA)
A durable power of attorney for health care (HPOA), also known as a health-care proxy, enables you to appoint a representative to make medical decisions for you if you become unable to do so yourself. You can appoint anyone to be your agent as long as the individual is of legal age (usually 18 or older), and you can decide how much power your representative will have. An HPOA should be HIPAA compliant so your representative can access your private medical information.

E


Earned Income
Income generated from employment: wages, salary, commissions, and bonuses etc. (cannot be passive income). 

Earnings Per Share (EPS)
The amount of a corporation's earnings that is available to each share of common stock. The firms accountancy firm will arrive at the EPS calculated by dividing net income minus preferred dividends by the number of outstanding common shares.

Economic Sectors (11 economic sectors)
Communication Services
Consumer Discretionary 
Consumer Staples
Energy
Financial
Healthcare
Industrial
Materials
Real Estate
Technology
Utilities

Efficient Frontier
A statistical result from the analysis of the risk and return for a given set of assets that indicates the balance of assets that may, under certain assumptions, achieve the best return for a given level of risk.

Employer-Sponsored Retirement Plan
A tax-favored retirement plan that is sponsored by an employer. Among the more common employer-sponsored retirement plans are Defined Benefit plans, Profit-sharing plans, 401(k) plans, 403(b) plans, simplified employee pension plans.

Enrolled Agent (EA)
An enrolled agent is a person who has passed the appropriate examination in order to represent taxpayers before the Internal Revenue Service. Enrolled agents, like attorneys and certified public accountants, are unrestricted as to which taxpayers they can represent, what types of tax matters they can manage, and which IRS offices they can represent clients before.

Equity
The value of a person's ownership in real property or securities; the market value of a property or business, less all claims and liens against it.

Equity Income Fund
A mutual fund whose main objective is income, The fund invest in the and preferred stock of companies that pay high dividends.

ERISA
The Employee Retirement Income Security Act is a federal law covering all aspects of employee retirement plans. If employers provide plans, they must be adequately-funded and provide for vesting, survivor's rights, and disclosures.

ESOP (employee stock ownership plan)
A defined contribution retirement plan in which company contributions must be invested primarily in qualifying employer securities.

Estate Conservation
Activities coordinated to provide for the orderly and cost-effective distribution of an individual's assets at the time of his or her death. Estate conservation often includes the use of wills and trusts.

Estate Tax
Upon the death of a decedent, federal and state governments impose taxes on the value of the estate left to others (with limitations).

Exchange-rate
The price at which one country's currency can be converted into another country's currency.

Exchange-Traded Fund (ETF)
A type of investment Company that represents a basket of securities and is traded on an exchange. The basket of securities usually represents an index such as the Nasdaq 100 or the S&P 500.

Executive Bonus Plan
The employer pays for a benefit that is owned by the executive. The bonus could take the form of cash, automobiles, life insurance, or other items of value to the executive.

Executor
A person named by the probate courts or the will to carry out the directions and requests of the decedent.

F


Federal Income Tax Bracket
The range of taxable income that is taxable at a certain rate. The brackets for tax years 2020 and 2021 are 10%, 12%, 22%, 24%, 32%, 35%, and 37%.

Federal Deposit Insurance Corporation (FDIC)
A federally sponsored privately held corporation that insures commercial bank deposits of up to $250,000.

Federal Home Loan Mortgage Corporation (Freddie Mac)
A privately held, NYSE-listed corporation, nicknamed Freddie Mac, that purchases residential Federal Housing Administration and Veterans  Administration mortgages from savings institutions and resells them by means of mortgage-backed securities. These securities are not guaranteed by the U.S. government.

Federal Housing Administration (FHA)
A federal agency that insures lenders against defaults on residential mortgages.

Federal Land Bank (FLB)
A part of the Federal Farm Credit System. It provides long-term loans to farmers and ranchers for various agricultural purposes.

Federal National Mortgage Association (FNMA)
A privately held corporation, nicknamed Fannie Mae, which purchases residential, Federal Housing Administration, and Veterans Administration mortgages from savings institutions, and resells them by means of mortgage-backed securities. These securities are not guaranteed by the U.S. government.

Federal Reserve Board
A quasi-governmental entity responsible for monetary policy within the United States. It seeks to control the supply of money and credit to control inflation and create a stable, growing economy.

Fed Funds Rate
The market rate banks charge each other on overnight loans of reserves held at the FRB. 

Fidelity Bond
An insurance policy required of every broker-dealer to provide protection for the firm in the event of fraud or theft by broker-dealer employees.

Fiduciary
A person who is acting for another person and therefore in a position of trust, there best interest.

Financial Planning
A financial plan is based on an individual’s or a family’s clearly defined financial goals. For individuals and married couples, the basic financial plan may include: a written budget or cash flow analysis to track income and expenses, cash emergency fund to cover a minimum of 6 months living expenses, medium and long-term savings goals, investment goals, college funding, home purchase, starting a business, and leaving a  legacy. Your goals should be quantified and set to milestones for tracking your journey.

First-In First-Out (FIFO)
(1) A method used when calculating capital gains and losses from redemptions of mutual fund shares, or the sale of other corporate securities, in which the first shares purchased are assumed to be the first shares sold when calculation the amount of gain or loss. If no designation is made to the IRS by the investor, FIFO will be required.

Fixed Annuity
An annuity contract in which the insurance company makes fixed (guaranteed) dollar payments to the annuitant for the term of the contract (usually until he or she die).

Fixed Indexed Annuities: (also referred to as Indexed Annuities)
A fixed indexed annuity is a tax-deferred, medium to long-term savings option that provides principal protection in a down market and opportunity for growth in a rising market. Your Principle is never at risk, you lock in gains in positive years and stay where you are at in negative years. It gives you more growth potential than a fixed annuity along with less risk and less potential return than a variable annuity.

Returns are based on the performance of an underlying index, such as the S&P 500® Composite Stock Price Index, a collection of five hundred (500) stocks intended to provide an opportunity for diversification and represent a broad segment of the market. While the benchmark index does follow the market, the investors investment is not exposed to negative stock market results.

Fixed Income
This income comes from sources such as CDs, Social Security benefits, pension benefits, annuities, which provide the same every month.

401(k) Plan
An employer may establish a defined contribution retirement plan for the benefits of their employee’s. Employees may allocate a portion of their salaries into this type of plan, and contributions excluded from income for tax purposes (with limitations). Contributions and earnings will compound tax deferred. Withdrawals from a 401(k) plan are taxed as ordinary income and may be subject to an additional 10% federal tax penalty if withdrawn prior to 59½.

403(b) Plan
Is a defined contribution plan established for the benefit of its employees by a nonprofit organization. Employees may allocate a portion of their salaries into this plan, and contributions are tax deductible until receive later on. Contributions and earnings will compound tax deferred. Withdrawals from a 403(b) plan are subject to ordinary-income and may be subject to an additional 10% federal tax penalty if withdrawn prior to age 59½.

Fundamental Analysis
An approach to the stock market in which specific factors - such as the price-to-earnings ratio, yield, or return on equity to determine what stock may be favorable for investment.

Futures
Exchange-traded contracts specifying a future date of delivery or receipt of a certain amount of a specific tangible or intangible product including wheat, soybeans, pork bellies, metals, and financial instruments.

G


General Account
The account in which an insurance company invests premiums from traditional (guaranteed) fixed insurance products. This account will invest in fixed-income and other conservative investments to provide for minimum payouts to policy holders.

General Obligation Bond (GO)
A municipal bond secured by the taxing power of the issuer. It is also known as a full-faith-and-credit bond since it is secured by the full faith and credit of the issuer. 

Gift Taxes
A federal tax levied on the transfer of property as a gift. This tax is paid by the donor. For 2020 and 2021, the first $15,000 a year from a donor to each recipient is excluded from tax. Most states also impose a gift tax. The gift tax exclusion is indexed for inflation.

Government Bonds
Obligations of the U.S. Government, regarded as the highest credit grade securities issued. Also called Treasury securities.

Government National Mortgage Association (GNMA or Ginnie Mae)
A wholly owned government agency that helps raise funds for mortgage market by issuing securities backed by pools of mortgages with the full faith and credit of the U.S. Treasury.

Gross Domestic Product or Production (GDP)
The total value of all goods and services produced with the borders of a country.

Growth Stock
The stock of a company with a record of growth in earnings at a relatively rapid rate.

Guardian
A person who is legally vested with the power and responsibility to take care of another person and manage that person's property and rights. This can occur when a person is incapacitated due to illness or age, or because the person is a minor.

H


Hedging
The use of a security (e.g., an option) to reduce the market risk of a current holding. The hedging security (the option) is expected to perform well under market conditions in which the other security would perform poorly.

High-Yield Bonds 
Non-investment grade bonds, also referred to as Junk Bonds.

Holographic Will
A will entirely in the handwriting of the testator. Without witnesses, holographic wills are valid and enforceable only in some states.

I


Income Bond
A corporate debt issue that pays interest only when, and if, the company has income. Also called an Adjustment Bond.

Income Stock
A stock that pays a relatively high dividend (utility stocks, for example)

Index
A statistical measure of a group of stocks such as the S&P 500. Indices can be broad based (which cover a wide range of companies and mirror the market as a whole) or narrow based (which consist of securities from a particular industry.

Indexed Annuity: (also referred to as Fixed Indexed Annuities)
A fixed indexed annuity is a tax-deferred, medium to long-term savings option that provides principal protection in a down market and opportunity for growth in a rising market. Your Principle is never at risk, you lock in gains in positive years and stay where you are at in negative years. It gives you more growth potential than a fixed annuity along with less risk and less potential return than a variable annuity.

Returns are based on the performance of an underlying index, such as the S&P 500® Composite Stock Price Index, a collection of 500 stocks intended to provide an opportunity for diversification and represent a broad segment of the market. While the benchmark index does follow the market, as an investor, your money is never directly exposed to the stock market.

Index Fund
A mutual fund with the objective to mirror the performance of a given benchmark (e.g., S&P 500, DJIA, FTSE 100).

Inflation
An increase in the price of products and services over time. The government's main measure of inflation is the Consumer Price Index.

Initial Public Offering (IPO)
The first public issue of stock from a company for a specific security. 

Insured Bonds 
Municipal bonds that are covered by an insurance policy that will pay all interest and principal due should the issuer default. Major insurers include MBIAC, ESA, AMBAC, and FGIC.

Internet
Since 1990, when computer scientist Tim Berners-Lee invented the World Wide Web, we’ve witnessed a transformation of financial information technology in the investment world. New advanced algorithms with speed and accuracy are able to predict probability out comes for investment portfolios with a high degree of accuracy in real time.

Intestate
A person who dies without leaving a valid will. State law then determines who inherits the property or serves as guardian for any minor children.

Investment Adviser (IA)
A firm or individual defined in the Investment Advisers Act of 1940, that provides investment advice about securities, is in the business of giving advice, and is compensated for that advice.

Investment Advisers Act of 1940
The federal act that regulates investment advisors.

Investment Category
A broad class of assets with similar characteristics. The five investment categories include cash alternatives, fixed principal, equity, debt, and tangibles.

Investment Company Act of 1940
The federal law that regulates investment companies.

Investment Grade
Refers to bonds rated in the top four rating categories by Moody's Baa or higher) or Standard & Poor's (BBB) or higher) that are eligible for investment by fiduciaries. 

IRA (Individual Retirement Account)
Contributions to a traditional IRA are deductible from earned income in the calculation of federal and state income taxes if the taxpayer meets certain requirements. The earnings accumulate tax deferred until withdrawn, and then the entire withdrawal is taxed as ordinary income. Individuals not eligible to make deductible contributions may make nondeductible contributions, the earnings on which would be tax deferred.

IRA Rollover 
The reinvestment of assets received as a lump-sum distribution from a tax-deferred retirement plan. If the reinvestment is done properly within 60 days there are no tax consequences.

IRA Transfer, also known as a Trustee-to trustee transfer
The movement of IRA assets from on custodian directly to another, in which the account owner is never in direct possession of those assets.

Irrevocable Trust
A trust that may not be modified or terminated by the trustor after its creation.

J


Joint and Survivor Annuity
Most pension plans must offer this form of pension plan payout that pays over the life of the retiree and his or her spouse after the retiree dies. The retiree and his or her spouse must specifically choose not to accept this payment form.

Joint Tenancy
Co-ownership of property by two or more people in which the survivor(s) automatically assumes ownership of a decedent's interest. A similar definition is joint tenants (WROS) With Right of Survivorship.

Jointly Held Property
Property owned by two or more persons under joint tenancy, tenancy in common, or, in some states, community property.

Junk Bond
A colloquial term for a speculative, noninvestment-grade bond. 

K


Keogh Plan (HR-10Plan)
A qualified retirement plan that may be established by self-employed individuals for themselves and any qualified employees.

L


Ladder structure
A bond portfolio structure that staggers bond maturities so they occur at regular intervals, providing a spaced schedule of maturing securities. This structure tends to perform best when interest rates are stable.

Lagging Economic Indicator
An economic measure used to determine past economic activity published by The Conference Board, a nonprofit organization. Indicators include corporate profits, prime rate, inventories, etc.

Last-In, First-Out (LIFO)
An inventory valuation method that assumes the newest inventory (Last-in) item is sold first (first-out) vs. (FIFO).

Life Insurance:
Whole Life and Indexed Universal Life

Permanent life insurance such as Whole Life offers lifetime coverage and allows for the tax-free buildup of cash values each year the policy remains in force, the same holds true for Indexed Universal Life. Both policies have two cash accumulation features, the first is a guaranteed cash value component with a minimum guaranteed interest rate usually 1% to 3%. For Whole Life, the second cash value feature are dividends declared and credited annually (dividends are not guaranteed). Indexed Universal Life Policies (IULs) usually do not pay dividends, instead they have an interest crediting feature which is tied to one or more  indexes that you select such as the S&P 500 and NASDAQ 100. This is the non-guaranteed cash value component of the policy and works like this: The index strategy you selected will have either an interest rate cap or a participation rate. One of these two components will work in tandem with the indices you chose which determines how much interest is credited to the policy each year or every two years. IUL’s also have internal policy cost, like cost of insurance and administration fee. When you apply for an Indexed Universal Life Insurance Policy, you select either (A) level death benefit or (B) increasing death benefit option. Choosing option B will affect the non-guaranteed cash value of the policy because you are purchasing increasing amounts life insurance coverage.    

Both Whole Life and Universal Life policies require higher premiums than term insurance. However, if you can afford Whole Life or Indexed Universal Life, or even part whole life and part term today, you are making a smart financial and personal health decision. Whole life and Indexed Universal life provides lifetime protection as long as premiums are paid. Generally, both have a standard policy with premiums payable to age 100. However, you can choose a shorter premium payment period between 5 and 20 years or to age 65. After the premium payment period, no further premiums are due. If time is on your side and you start prior to age 66 with large enough premiums, Whole Life or IUL can provide supplemental tax-free retirement income; the younger you start the better your results.  

Term Life Insurance 
Term Life Insurance covers you for a specified term period: 10, 15, or 20 years. The policy is guaranteed renewable to age 80 or 85 as long as premiums are paid on time. Of course, each time you renew the policy for a new term period, your premium increases based on your new attained age. Term insurance is designed for temporary coverage at affordable rates as long as you meet the health underwriting requirements when applying for coverage. Unless you convert the Term Life to Whole Life or Indexed Universal Life early or in middle age of your adult life, you could end up running out of coverage when you are older and need it most. This can be due to health history, or a medical condition that’s developed along the way. Each year you delay acquiring Whole Life or Indexed Universal Life Insurance you become a year older and the premium or cost of insurance goes up and your health history gets longer. So, the sooner you lock in the premium rate and coverage amount you desire by converting your policy from Whole Life or Indexed Universal Life, the better off you will be. As of 2022, current tax laws allow life insurance proceeds to be income tax-free to beneficiaries.

Limited Partnership
A nontaxable business entity used primarily in DPPS. Each investor is responsible for the taxes on his portion of the income of loss generated by the business.

Listed Stock
Is stock of a public company that is traded on a securities exchange

Long the stock
A term that signifies ownership of securities: "I am long 100 IBM" means "I own one hundred shares of IBM stock".

Long Term Care Insurance (California policies)
Are designed to help people pay for part or all Long term-care cost. Most polices require that you be not able to perform at least 2 of 6 Activities of Daily Living functions or (ADLs) They include: bathing, continence, dressing, eating, toileting, transferring, and for non-tax qualified policies, ambulating (California Insurance Code [CIC] 10232.8 [a] [2] for Non-Tax Qualified and CIC 10232.8 [d] for Federally Qualified LTC policies).

Medi-Cal "Look-Back" period in California is 30 months.
If you move money or property within the 30 month to qualify for benefits, they may be count back in. "Transfer" means an outright gift or a "sale" made at less than "fair market value." If disqualifying transfer of property is made, Medi-Cal will calculate the period of ineligibility for nursing facility level of care.

Liability
Is any claim against the assets of a person or corporation: accounts payable, wages, and salaries payable, dividends declared payable, accrued taxes payable, and fixed or long-term obligations such as mortgages, debentures, and bank loans.

Limited Partnership
Limited partnerships pool the money of investors to develop or purchase income-producing properties. When the partnership subsequently receives income from these properties, it passes the income on to its investors as dividend payments. Limited Partnerships are subject to special risks such as illiquidity and those risks inherent in the underlying investments. There are no assurances that the stated investment objectives will be reached. At redemption, the investor may receive back less than the original investment. Individuals must meet specific suitability standards. These standards, along with the risks and other information concerning the partnership, are set forth in the prospectus, which can be obtained from your financial professional. Please consider the investment objectives, risks, charges, and expenses carefully before investing. Be sure to read the prospectus carefully before deciding whether to invest.

Liquidity
How quickly and easily an asset or security can be converted into cash.

Living Trust
A trust created by a person during his or her lifetime which they can change as they wish.

Living Will
A living will, which is another type of advance medical directive, can be used to outline which medical procedures you want to be used to prolong your life, typically in the event of a terminal illness. It does not become effective until you become incapacitated. Even if your state does not authorize a living will, you may still want one as a way to document your wishes.

Lump-Sum Distribution
The disbursement of the entire value of an employer-sponsored retirement plan, pension plan, annuity, or similar account to the account owner or beneficiary. Lump-sum distributions may be rolled over into another tax-deferred account.

M


Margin

  1. Profit e.g., Gross Margin.
  2. On Margin: The use of credit to finance securities transactions.
  3. Account: An account established by a broker-dealer to extend credit to a customer.

Margin Call
A demand upon a customer to deposit money or securities with a broker. A Reg. T margin call is sent when purchase is made and a maintenance margin call is sent because equity has fallen below specific levels.

Modern Portfolio Theory
The Modern Portfolio Theory (MPT) refers to an investment theory that allows investors to assemble an asset portfolio that maximizes expected return for a given level of risk. The theory assumes that investors are risk-averse; for a given level of expected return, investors will always prefer the less risky portfolio. Hence, according to the Modern Portfolio Theory, an investor must be compensated for a higher level of risk through higher expected returns. MPT employs the core idea of diversification – owning a portfolio of assets from different classes is less risky than holding a portfolio of similar assets.

Marital Deduction (decedents estate)
A provision of the tax codes that allows all assets of a deceased spouse to pass to the surviving spouse free of estate taxes. This provision is also referred to as the "unlimited marital deduction." The marital deduction may not apply in the case of noncitizens.

Market Capitalization
Market Capitalization, or market cap, is the total value of the shares outstanding of a publicly traded company. It is calculated by multiplying a company’s number of shares outstanding by the current market price per share.

Money Market Fund
A mutual fund that specializes in investing in short-term securities and tries to maintain a constant net asset value of $1. Money-market funds are neither insured nor guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any government agency. Although money market funds seek to preserve the value of your investment at $1 per share, they can lose money.

Municipal Bond
A debt security issued by municipalities. The income from municipal bonds is usually exempt from federal income taxes. It may also be exempt from state income taxes in the state in which the municipal bond is issued. Some municipal bond interest could be subject to the federal alternative minimum tax. If you sell a municipal bond at a profit, you could incur capital gains taxes. The principal value of bonds fluctuates with market conditions. Bonds sold prior to maturity may be worth more or less than their original cost.

Municipal Bond Fund
A mutual fund that specializes in investing in municipal bonds. Bond funds are subject to the same inflation, interest-rate, and credit risks associated with their underlying bonds. As interest rates rise, bond prices typically fall, which can adversely affect a bond fund's performance. The principal value of bond funds fluctuates with changes in market conditions. Shares, when sold or redeemed, may be worth more or less than their original cost. Mutual funds are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

Mutual Fund
A collection of stocks, bonds, or other securities purchased and managed by an investment company with funds from a group of investors. The return and principal value of mutual funds fluctuate with changes in market conditions. Shares when sold, or redeemed, may be worth more or less than their original cost. Mutual funds are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding to invest.

N


Nasdaq
An exchange that provides brokers and dealers with price quotations on securities traded over-the-counter. The system has three levels, Level I shows the highest bid and lowest offer in the system. Level II shows individual market maker's quotes. Level III is used by market makers to enter their quotes into the system.

Net Asset Value (NAV)
The per-share value of a mutual fund's current holdings. The net asset value is calculated by dividing the net market value of the fund's assets by the number of outstanding shares.

Net Worth
The total value of an entity's assets minus any liabilities or an individual’s total assets including real property, home content, investment, collectibles and any other assets minus any liabilities.

Net Yield
Tax-adjusted yield on a taxable bond, used for comparison with a tax-exempt municipal yield.

New Your Stock Exchange (NYSE)
The largest Organized securities market in the United States, founded in 1792. Also known as the Big Board.

No-Load Fund
A mutual fund that has no front-end or back-end sales charge.

Nonqualified Annuity
A retirement plan in which after-tax dollars are invested and payments from the plan are considered part return of principal (not taxed) and part are earnings (taxed).

P


Pooled Income Fund
A trust created by a charitable organization that combines the contributions of several donors and distributes income to those donors based on the earnings of the trust. The trust is managed by the charitable organization, and contributions are partially deductible for income tax purposes.

Portfolio
All the investments held by an individual or a mutual fund.

Preferred Stock
A class of stock with claim to a company's earnings, before payment can be made on the common stock, and is usually entitled to priority over common stock if the company liquidates. Preferred stocks pay dividends at a fixed rate declared annually by its Board of Directors.

Prenuptial Agreement
A legal agreement arranged before marriage stating who owns property acquired before marriage and during marriage and how property will be divided in the event of divorce. ERISA benefits are not affected by prenuptial agreements.

Price-Earnings Ratio (P/E) 
A way to compare stocks selling at various price levels. The P/E ratio is the price of a share of stock divided by earnings per share for a twelve-month period. Example:   a stock selling for $100.00 per share and earning $5.00 per share is said to be selling at a price-earnings ratio of 20. 

Principal
In a security, the principal is the amount of money that is invested, excluding earnings. In a debt instrument such as a bond, it is the face amount.

Probate
It is the court-supervised process in which a decedent's estate is settled and distributed.

Profit-Sharing Plan
An agreement under which employees share in the profits of their employer. The company makes annual contributions to the employees' accounts. These funds usually accumulate tax deferred until the employee retires or leaves the company.

Prospectus
A document provided by investment companies to prospective investors. The prospectus gives information needed by investors to make informed decisions prior to investing in a specific mutual fund, variable annuity, or variable universal life insurance. The prospectus includes information on the minimum investment amount, the investment company's objectives, past performance, risk level, sales charges, management fees, and any other expense information about the investment company, as well as a description of the services provided to investors.

Q


Qualified Domestic Relations Order (QDRO)
At the time of divorce, this order would be issued by a state domestic relations court and would require that an employee's ERISA retirement plan accrued benefits be divided between the employee and the spouse.

Qualified Retirement Plan
A pension, profit-sharing, or qualified savings plan that is established by an employer for the benefit of the employees. These plans must be established in conformity with IRS rules. Contributions accumulate tax deferred until withdrawn and are deductible to the employer as a current business expense.

R


Real Estate Investment Trust (REIT)
A publicly traded security representing holdings in real estate investments. A REIT is not an investment company, nor is it a DPP.

Recession
A phase of the business cycle characterized by reduced business activity, reduced corporate and personal borrowing and rising unemployment. Generally defined as two consecutive quarters of decline in GDP.

Registered Representative
The employee of a member firm whose job junction requires him or her to be registered with an SRO. Specifically, the individual employees responsible for serving the customers of a broker-dealer. Also known as an Account Executive.

Retained Earnings
The net profits that a corporation does not pay out in dividends. Also known as Earned Surplus.

Retirement Planning
A major part of financial planning is retirement planning. This is the process that looks at all your different sources of money earmarked to generate retirement income. Once your financial plan is complete, you will know where you stand and whether or not you need to make adjustments to your financial strategies in order to reach your retirement goals. Our software looks at all your different sources that you are counting on for retirement income. It takes into account Social Security, qualified retirement funds from government and private employer plans as well as IRAs.

Revenue Bond
A bond issue that is secured by a pledge of the revenues of a specific project.

Revocable Trust
A trust in which the creator reserves the right to modify or terminate the trust.

Right
A short-term equity security that gives stockholders the opportunity, ahead of others, to buy the new securities in proportion to the number of shares each owns.

Risk
The chance that an investor will lose all or part of an investment.

Risk-Averse
Refers to the assumption that rational investors will choose the security with the least risk if they can maintain the same return. As the level of risk goes up, so must the expected return on the investment.

RMD (Required Minimum Distribution)
Anyone born after June 30,1949 falls under the SECURE ACT of 2020 and 2021 amendments will use age 72 to begin Required Minimum Distribution (RMDs).  Anyone born on or before June 30,1949 stays under the pre-SECURE ACT age of 701/2 RMD rules. The government has also developed a new mortality table that will affect those that are required to start RMDs at age 72. (These rules are subject to change periodically)

Under the SECURE ACT, for non-spousal beneficiaries the new 10 yr. payout rule applies. Starting at age 72 non-spousal beneficiary must take 100% of their IRA account by the end of the 10th year. (These rules are subject to change periodically)

Rollover
A method by which an individual can transfer the assets from one retirement program to another without the recognition of income for tax purposes. Requirements for a rollover depend on the type of program from which the distribution is made and the type of program receiving the distribution. It is recommended that a direct trustee-to-trustee transfer be used which is safe and avoids the 20% withholding penalty.

Roth IRA
A nondeductible IRA that allows tax-free withdrawals when certain conditions are met. Income and contribution limits apply.

Roth IRA Contribution & Withdrawal Rules
Because your Roth IRA contributions are made with after-tax dollars, you can withdraw your regular contributions (not the earnings) at any time and at any age with no penalty or tax. After you have withdrawn an amount equal to all of your contributions, the earnings will be taxable but only if the distribution isn’t a qualified distribution. If the distribution is qualified, then none of your distribution will be taxed.

All of your Roth IRAs are treated as one for the purposes of withdrawal rules. It doesn’t matter the number of Roth IRA accounts you have.

Roth IRA Early Withdrawal Penalty & Converted Amounts
When converting a traditional IRA to a Roth IRA, you must pay income tax on the conversion amount, but then you never have to worry about paying taxes again when taking qualified withdrawals, even if future tax rates are higher. However, Roth IRA withdrawal rules differ for Roth conversions. To take a tax-free distribution and avoid the 10% early withdrawal penalty, the money must stay in the Roth IRA for five years after the year you make the conversion and you must be at least 59½. A separate five-year period applies to each conversion you make.

S


Sales Charge
The amount of the purchase price of mutual fund shares that the underwriter will receive and will therefore not be invested in shares.

Secondary Market
The trading in existing or outstanding securities (vs. new issues). Secondary market transactions take place on the exchanges or over-the-counter.

Section 529 Plan (College Savings Plan)
A state-sponsored college savings vehicle that give a tax incentive for parents saving for their children’s college education.

Sectors (11 major sectors of the economy)
Communication Services
Consumer Discretionary 
Consumer Staples
Energy
Financial
Healthcare
Industrial
Materials
Real Estate
Technology
Utilities

Securities and Exchange Commission(SEC)
The commission, established by Congress to help protect investors, that administers the Securities Act of 1933, the Securities Exchange Act of 1934., the Securities Act Amendments of 1975, the Trust Indenture Act, the Investment Company Act, the Investment Adviser Act, and the Public Utility Holding Company Act.

Securities Investor Protection Corporation (SIPC)
A nonprofit membership corporation created by an act of Congress to protect clients of brokerage firms that are forced into bankruptcy. Membership is composed of all brokers and dealers registered under the Securities Exchange Act of 1934, all members of national securities exchanges, and most members. SIPC provides customers of these firms protection of up to $500,000 of cash and securities, of which no more than $250,000 may be in cash.

Security
Evidence of an investment, either in direct ownership (as with stocks), creditorship (as with bonds), or indirect ownership (as with options).

Self-Employed Retirement Plans
In the past, the terms “Keogh plan” and “H.R. 10 plan” were used to distinguish a retirement plan established by a self-employed individual from a plan established by a corporation or other entity. However, self-employed retirement plans are now generally referred to by the name of the particular type of plan used, such as SEP IRA, SIMPLE 401(k), or self-employed 401(k). The contribution amount is indexed annually for inflation.

Senior Securities
Senior Securities that have a preferential claim over common stock on a company's earnings and in the case of liquidation. Preferred stock and bonds are considered senior securities.

Spread

  1. The difference between the bid and offer price of a security.
  2. The difference between the public offering price of a new issue and the proceeds received by the issuer; the underwriting spread.
  3. The purchase and sale of puts or calls on the same underlying security with different expirations and /or strike prices.

Separate Account
Investment pool funded by contributions to variable contracts, including variable annuities and variable life insurance. These assets are kept separate from insurance company's general account.

Sharpe Ratio
The Sharpe ratio measures the performance of an investment compared to a risk-free asset, after adjusting for its risk. It is the difference between the returns on the investment and the risk-free return, divided by the standard deviation of the investment.

Simplified Employee Pension Plan (SEP)
A type of plan under which the employer contributes to an employee's IRA. Contributions may be made up to a certain limit and are immediately vested.

Single-Life Annuity
An insurance-based contract that provides future payments at regular intervals in exchange for current premiums. Generally used as a supplement to retirement income and pays over the life of one individual, usually the retiree, with no rights of payment to any survivor.

Split-Dollar Plan
An arrangement under which two parties (usually a corporation and employee) share the cost of a life insurance policy and split the proceeds.

Spousal IRA
An IRA designed for a couple when one spouse has no earned income. For the 2020 and 2021 tax years, each half of the couple can contribute $6,000 a year ($7,000 if they are age 50 or older), for a maximum combined annual contribution of $12,000 to $14,000, or 100% of earned income (whichever is less). The total may be split between the two IRAs as the couple wishes, provided that the contribution to either IRA does not exceed the maximum annual contribution limit for 2021 ($6,000 if you are under age 50 and $7,000 for those age 50 and older).

Small Business Administration (SBA)
A federal agency that provides loans to small business investment companies (SBIDs) that supply venture capital and financing to small businesses Debenture sold by SBICs are fully guaranteed by the SBA.

Standard Deviation for Investments
Standard deviation allows Stock or Mutual fund performance swings to be captured into a single number. Example, for most funds, future monthly returns will fall within one standard deviation of its average return 68% of the time and within two standard deviations 95% of the time.

Say a fund has a standard deviation of 4 and average return of 10% per year or, more precisely, 68% of the time. We can expect the fund’s future returns to range between 6% and 14% or its 10% average plus or minus its standard deviation of 4. Most of the time (95% of the time), its returns will fall between 2% and 18%, or within two standard deviations of its mean.

Standard & Poor's 500 Index (S&P 500)
A composite index consisting of 500 stocks further divided into four other indexes: S&P Industrial (400), S&P Transportation (20- stocks), S&P Utilities (40 stocks), and S&P Financial (40 stocks).

Stirpes or per stirpes
Per stirpes is a legal term stipulating that should a beneficiary predecease the testator—the person who has made the will—the beneficiary's share of the inheritance goes to that beneficiary's heirs. While the term per stirpes is commonly used to refer to an individual's assets under a will, it is sometimes used in beneficiary designation in Individual Retirement Accounts

(IRAs). While per stirpes and per capita are similar, there are differences. Per stirpes in Latin means "by branch," meaning, in this case, that a portion of the will must go to a person or that person's heirs. Per capita means that any surviving descendants of the same generation distribute property equally.

Stock Dividend
A dividend paid in securities rather than cash. The dividend may be additional shares or the issuing company, or in shares of another company (usually a subsidiary) held by the company

Stock Market (purpose of the Stock Market)
The primary purpose of a stock market is to regulate the exchange of stocks, as well as other financial assets. Such regulation ensures a fair environment for not only investors, but also the corporations whose stocks are traded in the market.

Stock Split
The division of the outstanding shares of a corporation into a larger number of shares. A-3for-1 split by a company with 1 million shares outstanding results in 3 million shares outstanding, but proportionate equity in the company would remain the same.

Stress Test
Stress Testing is about assessing the potential impact of economic scenarios (e.g., oil crash, inflation, interest rates) on your portfolio and other investments. In a Portfolio stress test, “what if” scenarios are constructed based on real life macro-economic uncertainties and measure their potential impact on your portfolio.

Structured Notes Structured notes are debt securities issued by financial institutions, like investment banks, that combine a bond with a derivative component to meet specific investment goals. The goal of these retail products can be growth, income, or risk management. 

Suitability
An investment that meets a client's investment objectives and financial situation.

Supply-Side Economics
The theory that reduced taxation and government regulation will stimulate investment and spur economic growth.

T


12b-1 Fee
A fee charged against a mutual fund's average net assets and used to pay for promotional expenses.

Tax Credit
Tax credits, the most appealing type of tax deductions, are subtracted directly, dollar for dollar, from your income tax bill.

Tax Deferred
Interest, dividends, or capital gains that grow untaxed in certain accounts or plans until they are withdrawn.

Tax-Exempt Bonds
Under certain conditions, the interest from bonds issued by states, cities, and certain other government agencies is exempt from federal income taxes. In many states, the interest from tax-exempt bonds will also be exempt from state and local income taxes. If you sell a tax-exempt bond at a profit, you could incur capital gains taxes. Some tax-exempt bond interest could be subject to the federal alternative minimum tax. Principal value of bonds fluctuates with market conditions. Bonds sold prior to maturity may be worth more or less than their original cost.

Taxable Income
The amount of income used to compute tax liability. It is determined by subtracting adjustments, itemized deductions or the standard deduction, and personal exemptions from gross income.

Technical Analysis
An approach to investing in stocks in which a stock's past performance is mapped onto charts. These charts are examined to find familiar patterns to use as an indicator of the stock's future performance.

Tenancy in Common
A form of co-ownership. Upon the death of a co-owner, his or her interest passes to the designated beneficiaries and not to the surviving owner or owners.

Term Insurance
Term life insurance provides a death benefit if the insured dies. Term insurance does not accumulate cash value and ends after a certain number of years or at a certain age.

Testamentary Trust
A trust established by a will that takes effect upon death.

Testator
One who has made a will or who dies having left a will.

Time Deposit 
An arrangement where depositor has agreed to leave money in an account for a given period.

Total Return
Total of all earnings from a given investment, including dividends, interest, and any capital gain.

Trader of securities
An individual who buys and sells for his or her own account for short-term profit. Also, an employee of a broker-dealer or financial institution who specializes in handling purchases and sales of securities for the firm and/or its clients.

Treasury Bills (T-Bills)
Short-term obligations of the U.S. government. Thy have 4-week, 13-week, 26-week, and 52-week maturities. They are purchased at a discount and mature at face value

Treasury Bonds
U.S. Government obligations with original maturities for more than 10 years. They are issued in $1,000 denominations and pay interest semiannually.

Treasury Notes
U.S. government obligations with original maturities of more than one year up to ten years. They are issued in $1,000 denominations and pay interest semiannually.

TIPS US Treasury Inflation Protected Securities
TIPS, is a Treasury bond that is indexed to an inflationary gauge to protect investors from the decline in the purchasing power of their money. The principal value of TIPS rises as inflation rises while the interest payment varies with the adjusted principal value of the bond.

Treasury Stock
Stock that was issued by a company but later reacquired. Treasury stock receives no dividends and does not carry voting rights while held by the company.

Trust
A legal entity created by an individual in which one person or institution holds the right to manage property or assets for the benefit of someone else. Types of trusts include Testamentary Trust – A trust established by a will that takes effect upon death; Living Trust – A trust created by a person during his or her lifetime; Revocable Trust – A trust in which the creator reserves the right to modify or terminate the trust; Irrevocable Trust – A trust that may not be modified or terminated by the trustor after its creation

Trustee
An individual or institution appointed to administer a trust for its beneficiaries.

Trustee-to-Trustee Transfer
A method of transferring retirement plan assets from one employer's plan to another employer plan or to an IRA. One benefit of this method is that no federal income tax will be withheld by the trustee of the first plan.

U


Uniform Gifts To Minors Act (UGMA)
The act that established rules governing the purchase of securities for a minor . A gift to a minor is irrevocable and securities  must be registered in the name of an adult as custodian for the minor. See also: Uniform Transfers to Minors Act.

Uniform Transfers To Minors Act (UTMA)
Legislation that allows for postponement of the transfer of assets to the former minor's control beyond the age of majority.

Universal Life Insurance
A type of life insurance that combines a death benefit with a savings element that accumulates tax deferred at current interest rates, subject to change, but with a guaranteed minimum. Under a universal life insurance policy, the policyholder can increase or decrease his or her coverage, with limitations, without purchasing a new policy. Universal life is also referred to as "flexible premium" life insurance. Access to cash values through borrowing or partial surrenders can reduce the policy's cash value and death benefit, increase the chance that the policy will lapse, and may result in a tax liability if the policy terminates before the death of the insured. Policy loans or withdrawals will reduce the policy's cash value and death benefit. Additional out-of-pocket payments may be needed if actual dividends or investment returns decrease, if you withdraw policy values, if you take out a loan, or if current charges increase. There may be surrender charges at the time of surrender or withdrawal and are taxable if you withdraw more than your basis in the policy. Any guarantees are contingent on the claims-paying ability of the issuing company. The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased.

V


VIX Cboe Volatility Index (VIX)
The Cboe Volatility Index (VIX) is a real-time index that represents the market's expectations for the relative strength of near-term price changes of the S&P 500 index (SPX). Because it is derived from the prices of SPX indexed options with near-term expiration dates, it generates a 30-day forward projection of volatility. Volatility, or how fast prices change, is often seen as a way to gauge market sentiment, and in particular the degree of fear among market participants.

Variable Universal Life Insurance
A type of life insurance that combines a death benefit with an investment element that accumulates tax deferred. The account value can be allocated into a variety of investment subaccounts. The investment return and principal value of the variable subaccounts will fluctuate; thus, the policy's account value, and death benefit, will be determined by the performance of the chosen subaccounts and is not guaranteed. Withdrawals may be subject to surrender charges and are taxable if the account owner withdraws more than his or her basis in the policy. Policy loans or withdrawals will reduce the policy's cash value and death benefit and may require additional premium payments to keep the policy in force. There may also be additional fees and charges associated with a VUL policy. Any guarantees are contingent on the claims-paying ability of the issuing company. Variable universal life is sold by prospectus. Please consider the investment objectives, risks, charges, expenses, and your need for death-benefit coverage carefully before investing. The prospectuses, which contains this and other information about the variable universal life policy and the underlying investment options, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

Volatility
The range of price swings of a security or market over time.

W


Welfare Benefit Plan
An employee benefit plan that provides such benefits as medical, sickness, accident, disability, death, or unemployment benefits.

Whole Life Insurance
A type of life insurance that offers a death benefit and also accumulates cash value tax deferred at fixed interest rates. Whole life insurance policies generally have a fixed annual premium that does not rise over the duration of the policy. Whole life insurance is also referred to as "ordinary" or "straight" life insurance. Access to cash values through borrowing or partial surrenders can reduce the policy's cash value and death benefit, increase the chance that the policy will lapse, and may result in a tax liability if the policy terminates before the death of the insured. Policy loans or withdrawals will reduce the policy's cash value and death benefit. Additional out-of-pocket payments may be needed if actual dividends or investment returns decrease, if you withdraw policy values, if you take out a loan, or if current charges increase. There may be surrender charges at the time of surrender or withdrawal and are taxable if you withdraw more than your basis in the policy. Any guarantees are contingent on the claims-paying ability of the issuing company. The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased.

Will
A legal document that declares a person's wishes concerning the disposition of property, the guardianship of his or her children, and the administration of the estate after his or her death.

Y


Yield
Generally, the yield is the amount of current income provided by an investment. For stocks, the yield is calculated by dividing the total of the annual dividends by the current price. For bonds, the yield is calculated by dividing the annual interest by the current price. The yield is distinguished from the return, which includes price appreciation or depreciation.

Z


Zero-Coupon Bond
This type of bond makes no periodic interest payments but instead is sold at a steep discount from its face value. Because these bonds do not pay interest until maturity, their prices tend to be more volatile than bonds that pay interest regularly. Interest income is subject to ordinary income tax each year, even though the investor does not receive any income payments. Bonds sold prior to maturity may be worth more or less than their original cost. They are also referred to as STRIPS.