Glossary
1035 Exchange
A method of exchanging of similar, insurance-related assets without tax consequence. 1035 exchanges are only available for cash value life insurance policies and annuity contracts.
401(k) Plan
A qualified retirement plan that allows eligible employees to set aside a specific percentage of their income on a pre-tax basis; earnings are tax deferred. Employers may match all or part of employee contributions. Employees may have general responsibilities for investment choices and enjoy the direct tax savings.
401(k) Loan
A loan taken from a 401(k) retirement account. Loans are generally paid back, with interest, through payroll deductions. If the borrower leaves an employer with an outstanding loan, the full amount of the loan is generally due. If the borrower fails to repay the loan, it is considered a distribution, and income taxes will be due, with any applicable tax penalties.
403(b) Plan
A qualified retirement plan available to employees of non-profit and government organizations. 401(b) plans allow eligible employees to set aside a specific percentage of their income on a pre-tax basis; earnings are tax deferred. Employers may match all or part of employee contributions to the plan. In many cases, employees have general responsibilities for investment choices and enjoy the direct tax savings.
Account Balance
The amount held in account at the end of a reporting period. For example, a credit card balance may show the amount you owe to the company as a result of your purchases, while a bank account balance may show the amount owed to you by the bank as a result of interest earned on your money.
Adjustable Rate Mortgage (ARM)
A mortgage with an interest rate that is adjusted periodically, usually at intervals of one, three, or five years, based on a measure or an index, such as the rate on US Treasury bills or the average national mortgage rate.
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
The person appointed by the court to settle an estate when there is no will.
After-Tax Return
The return on an investment after subtracting taxes due.
Aggressive Growth Fund
A mutual fund whose primary investment objective is substantial capital gains.
Alternative Minimum Tax
An alternative 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.
American Stock Exchange (AMEX)
Stock exchange located in New York City. AMEX has the third highest volume of trading of any stock exchange in the U.S.
Annual Percentage Rate (APR)
The yearly cost of credit or a loan is expressed as a simple percentage number. The APR also includes any fees or additional costs associated with the agreement.
Annual Report
An annual report that describes company management, operations, and financial reports. Annual Reports are sent to every shareholder and are available for public review. The Securities and Exchange Commission (SEC) requires an annual report published by any corporation issuing registered stock.
Annuity
An insurance-based contract that provides future payments at regular intervals in exchange for current premiums.
Appraisal
A formal assessment of a property’s value, performed by a qualified professional.
Asset
Anything owned that has monetary value.
Asset Allocation
The process of repositioning assets in a portfolio to attempt to maximize potential return for a particular level of risk. This process is usually done using the historical performance of the asset classes within sophisticated mathematical models. Asset allocation it is a method used to help manage investment risk. It does not guarantee against loss.
Asset Class
A specific category of assets or investments — such as cash, bonds, stocks, or real estate — that share similar characteristics and behave similarly in the marketplace.
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.
Automatic Reinvestment
An arrangement under which an investment company automatically deposits mutual fund dividends or capital gains back into the fund to purchase additional shares.
Balanced Mutual Fund
A mutual fund whose objective is to hold a balance of stocks and bonds.
Bear Market
A market experiencing an extended period of declining prices. A bear market is the opposite of a bull market.
Beneficiary
This person or entity named in a will, life insurance policy, a qualified retirement plan, or an annuity is eligible, by the terms of such a policy or plan, to receive benefits upon the death of the insured or the plan participant.
Blue Chip Stock
The common stock of a company with a long history of profitability and consistent dividend payments.
Bond
A debt investment under which the issuer promises to pay a specified amount of interest and to repay the principal at maturity.
Book Value
The value of a company's assets, less its liabilities and the liquidation price of its preferred issues.
Bull Market
A market experiencing an extended period of rising prices. A bull market is the opposite of a bear market.
Buy-and-Hold
An investment strategy that advocates holding securities for the long term and ignoring short-term price fluctuations in the market.
Buy-Sell Agreement
A legal contract that provides for the purchase of all outstanding shares from a business owner who wishes to sell, wants to terminate involvement, is permanently disabled, or has died.
Capital Gain or Loss
The difference between the purchase price and sales price of an asset.
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 Management
The process of channeling available cash into expenditures that enhance productivity, directly or indirectly.
Cash Surrender Value
The amount a policy owner would receive when voluntarily terminating a cash-value life insurance or annuity contract before its maturity or before the insured event occurs.
Certificate of Deposit (CD)
A contract with a bank or savings and loan that promises a fixed interest rate on funds deposited for a specified period of time. CDs are typically insured by the Federal Deposit Insurance Corporation (FDIC) up to $100,000. There may be a penalty if funds are withdrawn before reaching maturity.
Charitable Lead Trust
A trust established for the benefit of a charitable organization under which the grantor can designate an income beneficiary to receive payment of a specified amount — at least annually — from the trust. The grantor may also be the income beneficiary. On the death of the grantor, remainder interest in the trust passes to the charitable organization.
Charitable Remainder Trust
A trust established for the benefit of a charitable organization under which the charitable organization receives payment of a specified amount (at least annually) from the trust. On the death of the grantor, remainder interest in the trust passes to his or her heirs.
Claim
A request for payment under the terms of an insurance policy.
COBRA
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 employees’ expense. It is formally known as the Consolidated Omnibus Budget Reconciliation Act.
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 percent coverage.
Commercial Paper
Unsecured, short-term debt used by corporations to fund short-term liabilities.
Commodities
Goods — such as grains, foodstuffs, livestock, oils, and metals — that 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 under which 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. There are currently nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
Compound Interest
Interest that is computed both on the principal and on accrued interest. Interest may be computed continuously, daily, monthly, quarterly, semiannually, or annually.
Consumer Price Index
The U.S. Department of Labor's main measure of inflation.
Convertible Term Insurance
Term life insurance that gives the policyholder the right to convert policy to permanent life insurance.
Corporate Bond
Debt security is issued by a corporation under which the issuer pays periodic interest and repays the principal at maturity.
Corporation
A group of people who act jointly for business and tax purposes. The corporation itself is able to incur debt and realize profit. A corporation is able to attract outside capital by selling shares of ownership, to shield its owners from liability beyond their investment outlay, to provide operations to continue beyond the lives of current shareholder owners, and to allow change of ownership through transfer of shares.
Correction
A reverse movement, usually downward, in the price of an individual stock, bond, commodity, or index, which brings it more in line with its underlying fundamental value.
Coverdell Education Savings Account (Coverdell ESA)
A savings vehicle that allows parents to accumulate tax-free savings on money earmarked for a child’s college education, within certain limits. These were formerly known as Education IRAs.
Credit History
A record of how a party has paid past debts.
Debt
A legal obligation — written or oral — to deliver a product, service, or cash.
Debt-to-Equity Ratio
The ratio of a company’s total debt to its total shareholder equity.
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.
Deed
A document that identifies the legal owner of real estate.
Deferred Annuity
An annuity contract that pays a payment or series of payments at a future date.
Defined Benefit Plan
A retirement plan under which a retiring employee will receive a guaranteed retirement benefit. Annual contributions may be made to the plan by the employer at the level needed to fund the benefit.
Defined Contribution Plan
A retirement plan under which the annual contributions made by the employer or employee are generally stated as a fixed percentage of the employee’s compensation or company profits. The amount of retirement benefits depends upon the investment performance of the employee’s account.
Deflation
A reduction in the price of goods and services. Deflation is the opposite of inflation.
Dependent
A person who relies on another for his or her financial support. Taxpayers who support dependents are allowed to claim dependent exemptions.
Direct Rollover
The tax-free transfer of money or property from the trustee or custodian of one qualified retirement plan or account to another.
Disability-Income Insurance
A policy that pays a portion of the insured’s income in the event disability prevents the insured from working.
Diversification
An investment strategy under which capital is divided among several assets and/or asset classes. Diversification operates under the assumption that different assets and/or asset classes are unlikely to move in the same direction, allowing gains in one investment to offset the losses in another.
Dividend
A 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 strategy under which an 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.
Dow Jones Industrial Average (DJIA)
The price-weighted average of 30 actively traded blue-chip stocks on the New York Stock Exchange (NYSE).
Early Withdrawal
The removal of funds from a fixed-rate investment before its maturity date or from a tax-deferred investment or retirement savings account before a pre-determined time. Early withdrawals may be subject to penalties.
Employer-Sponsored Retirement Plan
A tax-favored retirement plan that is sponsored by an employer. Among the more common employer-sponsored retirement plans are 401(k) plans, 403(b) plans, simplified employee pension plans, and profit-sharing plans.
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.
ERISA
A federal law covering all aspects of employee retirement plans. It is formally known as the Employee Retirement Income Security Act.
Equity
Anything that represents ownership interests, such as stock in a company. Equity also generally refers to the difference between an asset’s current market value and the debt against it. For example, if you own a car valued at $15,000, but owe $10,000 on a car loan, your equity in the car is $5,000.
Escrow
An independent third-party that assumes possession of a contract, deed, or money from a grantor until completion of any outstanding obligations or commitments. Upon the satisfaction of all parties, the agent delivers the property held in escrow to the grantee.
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 undertaken to provide for the orderly and cost-effective distribution of an individual's assets at the time of his or her death.
Estate Tax
Federal and estate taxes due on the death of a decedent.
Exchange-Traded Funds
A pooled investment fund in which an investment company creates a new company, into which it moves a block of shares to pursue a specific investment objective. The investment company then sells shares in this new company.
Executive Bonus Plan
A benefit paid for by an employer and owned by an executive. The bonus can 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.
Federal Income Tax Bracket
The range of taxable income that taxable at a specific rate. There are currently six federal income tax brackets: 10 percent, 15 percent, 25 percent, 28 percent, 33 percent, and 35 percent.
Federal Reserve System (The Fed)
A 7-member Board of Governors which oversees the Federal Reserve Banks. The Fed establishes monetary policy and monitors the economic health of the country. Its members are appointed by the President, subject to Senate confirmation, and serve 14-year terms.
Financial Aid
Financial support a student receives from federally and privately funded sources to attend college. Financial aid includes loans, grants, scholarships, and work-study programs.
Financial Statement
A written record of the financial circumstances of a company, firm, or organization. Among other things financial statements generally include balance sheets, changes in retained earnings, profit and loss statements, and cash flows.
First-to-Die Life Insurance
Life insurance covering two or more people that pays its death benefit when the first insured person dies.
Fixed Annuity
An investment contract sold by a life insurance company that provides regular payments to the purchaser for a specified period of time, or for life in exchange for a premium paid as a lump sum or a series of payments.
Fixed-Rate Mortgage
A mortgage with an interest rate that will not vary for the life of the loan.
Foreclosure
The legal procedure by which a mortgage holder, such as a bank or savings and loan, seizes the property of a borrower who has not made timely payments on a mortgage.
Front-End Load
A sales fee paid up-front by investors at the time they purchase an investment. The front-end load is deducted from the investment amount, thus lowering the size of the investment.
Fundamental Analysis
An approach to investment analysis that attempts to estimate the value of a particular stock based on examination of the finances of the company behind the stock rather than of the market on which it is traded.
Futures
An agreement to buy or sell a specific amount of a commodity or financial instrument at a set price on a specific date in the future.
Gift
A voluntary transfer of assets or property with no compensation.
Gift Taxes
A federal tax levied on the transfer of property as a gift. This tax is paid by the donor.
Gross Monthly Income
Total monthly income from all sources, before taxes and other expenses.
Group Life Insurance
Life insurance that insures a group of people. Group life insurance is often provided by employers as an employee benefit, or by a professional association for its members.
Health Savings Account (HSA)
A tax-favored account that accumulates funds for medical expenses.
Home Equity
The difference between a property’s current market value and the sum of all claims against it. For example, a house valued at $200,000 and carrying a $150,000 mortgage would have $50,000 in equity.
Income
Monies received from all sources, including wages, commissions, bonuses, Social Security and other retirement benefits, unemployment compensation, disability, interest, and dividends.
Index
An average of the prices of a hypothetical basket of securities representing a particular market or portion of a market. Among the most well known are the Dow Jones Industrials Index, or Dow, the Standard & Poor’s 500 Index, or S&P 500, and the Russell 2000 Index.
Individual Retirement Account (IRA)
A qualified retirement account for individuals. Under certain conditions, contributions to a traditional IRA are deductible from income for tax purposes.
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)
A company’s first public offering of stock.
Interest
The cost to borrow money. Interest can also refer to a right or share in an asset or property.
Interest Rate
The cost of borrowed money expressed as a percentage for a given period of time, usually one year.
Intestate
The estate of a person who died without leaving a valid will. In such circumstances, state law determines who inherits the property and who serves as guardian for any minor children.
Investment Category
A broad class of assets with similar characteristics. The five investment categories include cash alternatives, fixed principal, equity, debt, and tangibles.
Investment Objective
The financial goal of an investment.
Irrevocable Trust
A trust that may not be modified or terminated by the trustor after its creation.
Joint Tenancy
Co-ownership of property by two or more people in which the survivor(s) automatically assumes ownership of a decedent's interest.
Jointly Held Property
Property owned by two or more persons under joint tenancy, tenancy in common, or, in some states, community property.
Keogh Plan
A defined-benefit or defined contribution retirement plan established by a self-employed individual for him/herself and his/her employees.
Key Employee
An employee who is considered crucial to the ongoing operation of the business or company and difficult to replace.
Key Person Insurance
Company-owned life insurance designed to address the financial aspect of replacing a key employee.
Level Premium Term Insurance
Term life insurance for which premiums remain the same from year to year.
Life Insurance
A contract under which an insurance company promises to pay a set benefit when the policyholder dies in exchange for premiums.
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.
Living Will
A written document that allows an individual to designate a person to make medical decisions in the event that he or she becomes incapacitated due to accident or illness.
Locking-In
The process of assuring that an interest rate, such as on a mortgage, CD (certificate of deposit), or fixed-rate bond, has been set. In the case of a mortgage, there may be a fee for locking-in the rate.
Long-Term Care Insurance
Insurance that covers the cost of long-term health care expenses, such as nursing home care, in-home assistance, assisted living, or adult day care.
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.
Management Fee
A charge against an investor’s assets for the fund manager’s services in overseeing the portfolio. The charge is calculated as a fixed percentage of the fund’s asset value and terms of the fee should be disclosed in the fund’s prospectus.
Marital Deduction
A provision of the tax code that allows all assets of a deceased spouse to pass to the surviving spouse free of estate taxes.
Market Risk
The risk common to all securities in the same asset class.
Market Timing
An investment philosophy under which investors actively buy and sell securities, hoping to turn quick profits on short-term price fluctuations.
Maturity
The date on which a debt becomes due for payment.
Medicaid
A federal program that covers medical expenses for individuals who are financially unable to afford health care.
Medicare
A federal program that covers health care for individuals age 65 and over, and for individuals who have certain disabilities.
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.
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.
Municipal Bond Fund
A mutual fund that invests in municipal bonds.
Mutual Fund
A pooled account that accumulates a pool of money that is then invested to pursue the objectives stated in the fund’s prospectus. The resulting collection of stocks, bonds and other securities is professionally managed by an investment company. Mutual funds are sold by prospectus.
National Association of Securities Dealers Automated Quotations (NASDAQ)
A computerized system that facilitates trading and provides current price quotes for the most actively traded over-the-counter securities.
Net Asset Value
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 Income
A company’s total revenues less its costs, expenses, and taxes.
Net Worth
The amount by which the value of a company’s assets exceeds its liabilities.
New York Stock Exchange (NYSE)
The oldest and largest stock exchange in the United States. It is also called The Big Board and The Exchange.
Noncontributory Retirement Plan
A pension plan that is funded only with employer contributions, requiring no employee contributions.
Nonqualified Plan
A retirement or employee benefit plan that does not meet the requirements of Section 401(a) under the Internal Revenue Code and, therefore, is not eligible for favorable tax treatment.
Old-Age, Survivors, and Disability Insurance (OASDI)
A comprehensive federal benefits program that includes retirement benefits, disability income, veteran’s pension, public housing, and even the food stamp program. It is also known as Social Security.
Option
A contract that gives the buyer the right, but not the obligation, to buy or sell a security at a set price on or before a given date.
Par Value
The face value of a stock or bond when issued. The par value may bear little relationship to a security’s current market value.
Partnership
A contractual association between two or more individuals who share in the management and profitability of a business venture.
Permanent Life Insurance
Life insurance that does not expire and combines a death benefit with a savings portion.
Points
The initial fee charged by a lender for a loan. Each point is equal to 1% of the total principal of the loan.
Policy Loan
A loan made by an insurance company, secured by the cash surrender value of a life insurance policy.
Policy Rider
A provision that may be added to an insurance policy, at an additional cost, to increase or limit the benefits the policy otherwise provides.
Policyholder
The person or entity owning an insurance policy.
Portfolio
All the investments held by an individual or a mutual fund.
Power of Attorney
A legal document grants a person authority to perform specified acts or make decisions for another person in the event that person is unable to act on his or her own.
Preferred Stock
A class of stock with claim to a company’s earnings before payment can be made to holders of common stock. Holders of preferred stock are usually entitled to priority over common stock if the company liquidates.
Prenuptial Agreement
A legal agreement entered into before marriage that states who owns property acquired before the marriage and how property will be divided in the event of divorce.
Price/Earnings Ratio (P/E Ratio)
The market price of a stock divided by the company's annual earnings per share.
Prime Rate
A standardized, short-term borrowing rate established by the Federal Reserve Board.
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
The court-supervised process in which a decedent's estate is settled and distributed.
Property
Anything that has a value and is owned is termed property. It may be tangible or intangible, personal or public, or common.
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 that provides information needed by investors to make informed decisions prior to investing in a specific mutual fund, variable annuity, or variable universal life insurance.
Qualified Retirement Plan
A retirement plan established in conformity with IRS rules by an employer for the benefit of the employees. Contributions accumulate tax deferred until withdrawn and are deductible to the employer as a current business expense.
Rate of Return
The gain or loss of an investment over a specified period of time, expressed as a percentage of the original price of the investment.
Real Estate Investment Trust (REIT)
A pooled investment that invests primarily in real estate. REITs sell like stocks on the major exchanges.
Redemption
Repayment of a debt security or preferred stock, either for par value at maturity or for a premium before maturity.
Required Minimum Distribution (RMD)
Distributions from a qualified retirement plan which must begin by April 1 of the year following that during which the individual reaches age 70½.
Revenue
The amount of money a company receives during a given period from the sale of goods and services, before expenses and taxes.
Revocable Trust
A trust in which the creator reserves the right to modify or terminate the trust.
Risk
The chance that an investor will lose all or part of an investment.
Risk Tolerance
The measurement of an investor’s willingness or ability to handle declines in the value of his or her investment portfolio.
Rollover
A method by which assets can be transferred from one qualified retirement program to another without triggering a taxable event. The requirements for a rollover depend on the type of program from which the distribution is made and the type of program receiving the distribution.
Roth IRA
A nondeductible IRA that allows tax-free withdrawals when certain conditions are met. Income and contribution limits apply.
Roth IRA Conversion
The process of converting an existing IRA into a Roth IRA. Roth conversions have specific income eligibility requirements and income tax consequences.
Securities and Exchange Commission (SEC)
The primary federal regulatory agency for the securities industry. The SEC is composed of five commissioners appointed by the president and approved by the Senate.
Security
Evidence of an investment, either in direct ownership (as with a stock), debt (as with a bond), or indirect ownership (as with options).
Self-Directed IRA
An individual retirement arrangement that allows a holder a wider choice of investments, including stocks, bonds, mutual funds, and money market funds.
Share
A certificate representing one unit of ownership in a corporation, mutual fund, or limited partnership.
SIMPLE (Savings Incentive Match Plan for Employees) Plan
A retirement plan that allows pre-tax contributions and mandatory employer matching contributions. All contributions are immediately vested in a SIMPLE plan.
Single-Life Annuity
An insurance-based contract that provides future payments at regular intervals in exchange for current premiums.
Split-Dollar Plan
An arrangement under which an employer and employee share the obligations and benefits of a life insurance policy.
Split-Dollar Life Insurance
A contractual arrangement under which an employer and employee share the obligations and benefits of a life insurance policy.
Spousal IRA
An individual retirement arrangement for a nonworking spouse funded with contributions from the working spouse. The Internal Revenue Service sets a limit on the combined amount a married couple may contribute to a traditional and spousal IRA.
Standard & Poor’s 500 Index (S&P 500)
An index of 500 of the most widely held common stocks on the New York Stock Exchange.
Stock
A security representing partial ownership in a corporation. Common stock entitles shareholders to participate in stockholder meetings and to vote for the board of directors. Preferred stock does not confer voting rights, but it takes precedence in claims against profits and assets.
Stock Certificate
A document that substantiates the ownership of shares of stock in a corporation. Stock certificates are made out to the shareholder or the brokerage firm, and they identify the issuer, the number of shares, the par value, and the stock class.
Stock Market
The stock market is a general term referring to the organized trading of securities in the various market exchanges and the over the counter (OTC) market.
Stock Purchase Plan
A mechanism for employees to purchase company stock.
Stock Split
A distribution of additional shares to each stockholder in proportion to the shares the individual already owns. For example, if a stock splits 2-for-1, a shareholder who owns one share with a $100 par value before the split, would own two shares, each with a $50 par value, after the split.
Tax Credit
Credits that are subtracted directly, dollar for dollar, from your income tax bill.
Tax Deduction
An amount subtracted from a taxpayer’s gross income before his or her tax liability is calculated.
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.
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 stock analysis that evaluates trading movements and trends looking for repetitive patterns in an attempt to predict future price movements.
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
Life insurance under which an insurance company provides coverage for a specific period and for which the insured pays a specific price. If the policyholder outlives the term of the policy, it is no longer in effect.
Testamentary Trust
A trust established by a will that takes effect upon the death of the testator.
Testator
One who has made a will or who dies having left a will.
Time Horizon
The projected length of time for which an investor plans to hold investments.
Title
A document that identifies legal ownership of property.
Title Insurance
A form of insurance that protects against loss due to a defect in a real estate title, such as an ownership dispute or a lien against property.
Title Search
The inspection of city, town, or county records to determine the legal owner of real estate property, as well as any applicable liens, mortgages, or future interests.
Total Return
The sum of all earnings from a given investment, including dividends, interest, and any capital gains.
Treasuries
Debt obligations offered by the United States government through the Federal Reserve Bank. Backed by the full faith and credit of the federal government, Treasuries have varying maturities and yields.
Treasury Bill
A debt security, issued by the federal government and backed by its full faith and credit, which has a maturity of one year or less. Treasury bills have face values ranging from $10,000 to $1 million, and they sell at a discount based on current interest rates.
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 another person.
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 qualified retirement plan to another employer’s qualified retirement plan or to an IRA that ensures that no federal income tax will be withheld by the trustee of the first plan.
Underwriting
The process by which an insurance company determines whether, and on what basis, it can assume the risk of a specific life insurance policy.
Uniform Gift to Minors Act (UGMA)
A law that allows an adult to contribute to a custodial account in a minor’s name without having to establish a trust or name a legal guardian.
Universal Life Insurance
Permanent life insurance that provides a flexible premium and, by extension, the face amount of the policy. Universal life insurance builds up cash value which pays a modest rate of return.
Variable Interest Rate
An interest rate that moves up and down with a specific measure or index, such as current money market rates or the lender’s cost of funds.
Variable Universal Life Insurance
Permanent life insurance that provides a flexible premium and, by extension, the face amount of the policy and, under which the policyholder directs how his or her premiums will invested among several investment subaccounts available.
Volatility
The range of price swings of a security or market over time.
Whole Life Insurance
Permanent life insurance with a fixed premium that builds up cash value which pays a modest rate of return.
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.
Withholding
The process by which an employer deducts a portion of employee wages for income, Social Security, and Medicare taxes.
Yield
The amount of current income provided by an investment. The yield is distinguished from the return, which includes price appreciation or depreciation.
Zero-Coupon Bond
A bond that makes no periodic interest payments. Instead, zero-coupon bonds are sold at a steep discount from their face value.