401(k) Investment Glossary < A B C D E F G H I J K L M N O P Q R S T U V W X Y Z >

401(k) – Refers to line number 401(k) in the IRS tax code, which allows employers to establish a company-sponsored retirement plan. Employees may allocate a portion of their salaries into a plan, and contributions are excluded from their income for tax purposes. Companies may have a stricter set of guidelines then previously established under the IRS. Withdrawals from a 401(k) plan are taxed as ordinary income, and may be subject to an additional 10 percent federal tax penalty, if withdrawn prior to the age of 59½. A company’s fiduciaries determine which investment options the plan will offer.

403(b) – Refers to line number 403(b) in the IRS tax code, which allows state and local government organizations and non-profit organizations to establish retirement plans. Employees may allocate a portion of their salaries into this plan, and contributions are excluded from their income for tax purposed. Withdrawals from a 403(b) plan are taxed as ordinary income, and may be subject to a 10 percent federal tax penalty is withdraw prior to the age of 59½.

408(b) (2) – The new interim final regulation Rule 408(b) (2) has some upgrades from the proposed 2007 rule, including a shift from focusing on detailed contractual information and requirements to simpler, more comprehensive, disclosure requirements. In general providers must disclose what services they expect to provide, their compensation whether direct or indirect, whether monetary or non-monetary for the expected services.

a. No disclosure for services paying less than $250.

b. Unless a provider’s annual compensation from all sources monetary and non-monetary, is greater than $1,000, it is not subject to the interim final rule.

c. Whether compensation is direct or indirect, monetary or non-monetary it all has to be disclosed.

Also another key part of Rule 408(b) (2) requires sponsors to provide a chart with information about the funds in their retirement plan so participants can compare fees and expenses. The chart will include:

d. Performance returns for 1 year, 5 years and 10 years

e. Performance returns of an appropriate benchmark for each fund

f. Operating expenses for each fund, both as a percentage and as a dollar amount per $1,000 invested

457 – Refers to line number 457 in the IRS tax code, which allows state and local government organizations and non-profit organizations to establish retirement plans. 457 plans are non-qualified and defer up to 100 percent of compensation not exceeding the applicable dollar limit for the year. Contributions are not taxed until the assets are distributed from the plan.

Aggressive – A descriptive term applied to investors, fund managers, or specific investments. A method of portfolio management and asset allocation that strives to achieve the maximum return possible. A higher level of risk and volatility are associated, in exchange for the opportunity for a greater return

Annuity – An insurance based contract between an individual and an insurance company designed to provide future payments in regular intervals. Annuities can be purchased with either a single payment or a series of payments and are usually purchased from banks, credit unions, brokerage firms, or insurance companies.

Annuitant – A person upon whose life annuity is based.

Annuitize – Begin to collect income payments from an annuity.

Asset Allocation – The process of dividing assets in a portfolio into different asset classes in an attempt to maximize potential return for a specific level of risk. This process is usually done using mathematical models and historical performance data.

Asset Class - A category of investments in which similar characteristics are found.

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

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

Alternative Minimum Tax - A method of calculating income tax that disallows certain deductions, credits, and exclusions. This was designed to prevent taxpayers from escaping their fair share of tax liability through certain tax breaks. People must calculate their taxes both ways and pay the greater of the two.

Aggressive Growth Fund - A mutual fund whose primary investment objective is substantial capital gains. Investments seeking to achieve higher returns also involve a higher degree of risk. 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.

Adjusted Gross Income (AGI) – A measure of income used to determine how much of your income is taxable. It is computed by subtracting certain allowable adjustments from gross income.

Asset - Anything owned that has monetary value.

Audit - The examination of accounting and financial documents of a firm by a third party professional, in order to determine if the records are accurate, consistent, and conform to legal and accounting principles.

Asset Class Risk – The possibility that a given asset class will experience poor performance due to market and economic factors. Diversifying across multiple asset classes can reduce risk.

Examples:
• Rising interest rates negatively affect the value of long-term bonds.
• Small cap stock values decline at an accelerated rate when compared to large cap stock values during a recession.

Bear Market – A market condition in which the prices of securities are falling, and the stock market appears to be declining overall, it is said to be a bear market.

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

Blue Chip Stock - The common stock of a well established company with a long history of profitability and consistent dividend payments in both good and bad times.

Balanced Mutual Fund - A mutual fund containing a combination of stocks and bonds. Balanced funds tend to be less volatile than stock-only funds. Shares when sold may be worth more or less than their original cost.

Bond - A debt investment in which the issuer promises to pay the bondholders a specified amount of interest and to repay the principal at maturity. Bonds are issued by companies, municipalities, states, and U.S. and foreign governments to finance projects and activities.

Book Value - The net value of a company's assets, less its liabilities and the liquidation price of its preferred assets. 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 – A market condition in which the prices of securities are rising or are expected to rise. When the stock market appears to be advancing overall, it is said to be a bull market.

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.

Capital Gain or Loss - The difference between the sales price and the purchase price of a capital asset. If the difference is positive, it is referred to as a capital gain, when the difference is negative, it is a capital loss.

Cash Value – Refers to the total value of an investment account and does not take into consideration distribution limits, surrender charges, or early-withdrawal penalties.

Capital Tax Gains – Certain investments are subject to taxes when the owner sells the investment at a higher price than the purchase price. Capital gains taxes are only incurred when the asset is sold. Only gains (earnings) are taxed.

Commingled Trust Fund – A combination of investment assets under a common management strategy. Generally managed by a bank trust department for employer-sponsored plans.

Company Match – Money that employers contribute to their employees’ employer-sponsored plan accounts as a percentage-of-employee-contribution or as a dollar-for-dollar-contribution match.

Company Risk – The possibility that an event will negatively impact a specific company, but not have a significant impact upon an asset class or the aggregate market.

Compounding – The ability of an asset to generate earnings, earnings are then reinvested in order to generate earnings from previous earnings.

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

Cash Surrender Value - The sum of money that an insurance policyholder is entitled to receive when he or she terminates coverage. This cash value is the savings component of most life insurance policies. 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.

Conservative – A descriptive term applied to investors, fund managers or specific investments. A lower level of risk and volatility are associated, in exchange for greater asset protection.

Contribution – Money an investor places in a retirement savings plan. Contributions can be pre tax or after tax, depending on whether or not the retirement plan is qualified, the relation between the contribution and the contributor’s income, and previous contributions made.

Cost Basis – The total amount of money contributed to an investment, regardless of gains, losses, penalties, or fees. This is often required for tax purposes.

CERTIFIED FINANCIAL PLANNER™ 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. CFP®, CERTIFIED FINANCIAL PLANNER™ 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. Designed to reduce taxable income by first donating a portion of the trusts income to charities, then transferring the remainder of the trust to a beneficiary after a specified time period.

Charitable Remainder Trust - A trust established for the benefit of a charitable organization. A tax-exempt trust designed to reduce taxable income by first dispersing income to the beneficiaries of the trust, then donating the remainder of the trust to a designated charity after a specified time period.

Chartered Financial Consultant (ChFC®) - A professional financial planning certification granted by The American College 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 certification 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 and financial planning, income taxation, individual life insurance, life insurance law, estate and succession planning, and planning for business owners 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 spouse or dependents for 36 months in the case of divorce or death of the employee.

Coinsurance or Co-Payment – The specified amount an insured person must pay out-of-pocket for health care services such as doctor visits, dental check-ups, and prescription drugs if his or her insurance doesn't provide 100 percent coverage.

Commodities - A generic term referring to goods such as grains, crops, 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 the future).

Common Stock - A security that represents ownership in a corporation. Common stockholders exercise control by electing a board of directors and voting on policies. Common stockholders also 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. Each partner is entitled to one half of the community property, including accumulated debt. There are currently nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

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

Consumer Price Index - A measure that examines the weighted average of prices on a wide array of consumer goods and services, ranging from transportation to food and medical care. The Consumer Price Index is calculated each month from the cost of some 400 retail items in urban areas throughout the United States.

Distribution – The removal of assets from a retirement savings plan. The assets are paid to the retirement account owner or beneficiary. Company specific rules in correspondence with the IRS govern distribution policies.

Diversification – The practice of purchasing a variety of investments in order to hedge against the risk associated with any single investment. Of course, diversification does not guarantee against a loss, but rather a method used to help manage investment risk. "Don’t put all your eggs in one basket."

Dollar Cost Averaging – A long-term investing strategy in which an investor buys a fixed dollar amount of a particular investment on a regular schedule regardless of share price. Meaning when prices are low more shares are purchased, and fewer share are purchased when prices are high. 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.

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

Defined Benefit Plan - A qualified retirement plan under which a retiring employee will receive a guaranteed retirement fund, usually payable in installments. Annual contributions may be made to the plan by the employer but, contributions are limited to a specified amount, indexed to inflation. Portfolio and risk management is under control of the company.

Defined Contribution Plan - A retirement plan under which a certain amount or percentage of money is set aside each year by company for the benefit of the employee. The amount of retirement benefits is not guaranteed; rather, it depends upon the investment performance of the employee's account.

Dividend - A distribution of a portion of a company’s 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.

The Efficient Frontier – A mathematical and systematical approach used to calculate:
• The level of risk an investor should expect for a given level of return or
• The level of return that should be expected for a given level of risk

Exchange Traded Fund (ETF) - An investment shell that trades throughout the day on an exchange, similarly to stocks; and less regulated than mutual funds. ETFs experience price changes throughout the day as their bought and sold.

Employer-Sponsored Retirement Plan - A tax-favored retirement plan that is sponsored by an employer for the benefit of his/her employees, the most 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 - The Employee Retirement Income Security Act of 1974 is a federal law covering all aspects of employee retirement plans. If employers provide plans, they must be properly funded and provide for vesting, survivor's rights, and disclosures.

ESOP (employee stock ownership plan) – A qualified, defined contribution, employee benefit retirement plan in which company contributions must be invested primarily in qualifying employer securities. ESOPs are used as a finance tool in order to align the interests of the company’s employees with those of the company’s shareholders.

Estate Conservation - Activities designated 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 – A tax levied on an heir’s inherited portion of an estate, with limitations set by state governments.

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 a will in order to carry out the directions and requests of the decedent.

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

Fiduciary – A person legally appointed to exercise discretionary authority or control over the management of a retirement plan or its assets.

Federal Income Tax Bracket - The range of taxable income groups specified by the Internal Revenue Service which determines which rate an individual, trust, or corporation will pay. Currently, there are six federal income tax brackets: 10 percent, 15 percent, 25 percent, 28 percent, 33 percent, and 35 percent.

Fixed Income - Income from investments, such as CDs, Social Security benefits, pension benefits, some annuities, or most bonds, that is the same every month. No fluctuation in income amounts.

Gift Taxes - A federal tax levied on the transfer of property as a gift. This tax is paid by the donor. For something to be considered a gift, the receiving party cannot pay the full amount for the gift, but may pay an amount less than full value. The gift tax exemption is indexed for inflation.

Holographic Will - A will entirely in the handwriting of the testator. The minimal requirements that must be met for a holographic will to be recognized are:
• Proof that the testator wrote the will
• Proof that the testator had the mental capacity to write the will
• Must contain the testator’s wish to distribute personal property to beneficiaries.

Income Investing – An investment strategy, in which the objective is to buy investments that, will pay an ongoing stream of income.

Index fund – A type of mutual fund with a portfolio that matches or tracks the components of a market index like the S&P 500 Index. This can provide exposure to a large number of companies within a targeted market segment.

Index – A statistical measure of change in an economy or a specific securities market. A compilation of investments, often stocks, of a particular category that is used as a benchmark to reflect the overall performance of all investments within the designated category.
Example:
• The S&P 500 is an index created using a sampling of 500 large US companies that Standard & Poor’s believe is representative of all large U.S. companies.

Individual Retirement Account (IRA) – An investing tool used by individuals in order to save for retirement. Contributions to a traditional IRA are deductible from earned income if the taxpayer meets certain requirements. The earnings that accumulate are 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.

Inflation – A general increase in the price of products and services over time, causing purchasing power to fall. The government's main measure of inflation is the Consumer Price Index. Central banks will attempt to curve sever inflation; along with sever deflation to keep the excessive growth of prices to a minimum.

Intestate – The act of dying without leaving behind a legal will. State law then determines who inherits the property or 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.

Irrevocable Trust - A trust that may not be modified without the permission of the beneficiary. The grantor has transferred all right of ownership over to the beneficiary.

Joint and Survivor Annuity – An annuity payment from a qualified plan or 403(b) account that provides a life annuity to the participant and a survivor annuity for the spouse. The retiree and his or her spouse must specifically choose not to accept this payment form.

Joint Tenancy – A type of property were two or more individuals own or rent a property together, each with equal obligations and rights. If one dies the other tenant will assume all rights to the property.

Liability - 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 money from 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 inherent risk involved 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.

Liquidity – The ability to convert an asset or security into cash.

Living Trust - A trust created by a person during his or her lifetime, which allows for easy transfer of assets.

Lump-Sum Distribution - A one-time payment for the entire amount due, rather than breaking payments into smaller installments. Some lump-sum distributions receive special tax treatment, and may be rolled over into another tax-deferred account.

Market Risk – The day-to-day potential Risk associated with the overall financial market and economic conditions. This is also referred to as systematic risk.

MSCI EAFE Index – Morgan Stanley Capital Index Europe, Australasia, Far East; the index is a benchmark for equity market performance in developed countries, excluding the U.S. and Canada.

Modern Portfolio Theory – Provides numerical evidence that by owning multiple investments in a portfolio, investors can reduce or hedge against portfolio risk to a level that is lower than any single investment in the portfolio. This theory uses an equation called The Efficient Frontier to calculate which portfolios at each risk level have the highest expected returns.

Money Market Fund – A conservative investment fund of mutual funds that has the objective of earning interest for shareholders while maintaining a net asset value of $1 per share, usually comprised of short-term (less than one year) securities. Money-market funds are neither insured nor guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any government agency.

Mutual Fund – A collection of stocks, bonds, and other securities that allow a group of investors to pool money together and invest as a group. The performance depends on changes and fluctuations within the market. Shares when sold may be worth more or less than their original cost.

Marginal Tax Rate - The amount of tax paid on an additional dollar of income. As income rises, so does the tax rate.

Marital Deduction - A provision of the tax codes, that allows an individual to transfer some assets to his or her spouse tax free, which in turn creates a reduction in taxable income. This provision is also referred to as the "unlimited marital deduction." The marital deduction may not apply in the case of noncitizens.

Municipal Bond - A debt security issued by a state, municipality, or county in order to finance its capital expenditures. The income from municipal bonds is exempt from federal income taxes; it may also be exempt from state income taxes in the state in which the municipal bond is issued. 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 before their maturity date 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 will typically fall. The principal value of bond funds fluctuates with changes in market conditions. They are exempt from federal tax, and are usually exempt from state taxes for residents of the state in which they are issued in. Shares, when sold may be worth more or less than their original cost.

Net Asset Value - The per-share or exchange-traded funds (ETF) 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.

Option Contract – A contract that can be bought and sold on exchanges, and represents 100 shares of the underlying stock.

Penalty – A fine assessed by the IRS when an employee takes a distribution that is outside the IRS parameters. Generally, the penalty is 10 percent, and does not eliminate the need to assess regular income tax.

Pre-tax – Refers to money that has not yet incurred a tax of any sort.

Pooled Income Fund - A trust comprised of gifts that are pooled and invested jointly. Income from the fund is distributed to both the funds participants and named beneficiaries according to their particular share of the fund. The trust is managed by a charitable organization, and contributions are partially deductible for income tax purposes.

Portfolio – A grouping of all the investments held by an individual or a mutual fund.

Preferred Stock - A class of stock with claim to a company's earnings. Preferred stock payments take priority over common stock payments. Generally, preferred stocks pay dividends at a fixed rate.

Prenuptial Agreement - A legal contract arranged before marriage, stating rights to the property acquired before marriage and during marriage and how it will be dispersed if the event of a divorce. ERISA benefits are not affected by prenuptial agreements.

Price/Earnings Ratio (P/E Ratio) – A valuation ratio of a company’s current share price compared to its per-share earnings. The ratio is calculated by taking the market value per share, and dividing it by earnings per share. Because the P/E ratio is a widely regarded yardstick for investors, it often appears with stock price quotations.

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

Probate - A court-supervised process in which a decedent's estate is settled and distributed. Also refers to the legal process involved in determining if the will is valid and authentic.

Profit-Sharing Plan – A plan under which employees share in the profits of the company. The company makes annual contributions to the employees' accounts based on the company’s earnings. These funds usually accumulate tax deferred until the employee retires or leaves the company. Also known as a deferred profit-sharing plan.

Prospectus – A formal legal document provided by investment companies to prospective investors, also known as an offer document. The prospectus gives investors necessary information 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.

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. In most cases, the QDRO allots 50 percent of the value of the assets gained from the beginning of the marriage to the time of divorce to 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 meet the requirements of the Internal Revenue Code in order to be eligible to receive tax benefits. Contributions accumulate tax deferred until withdrawn and are deductible to the employer as a current business expense.

Revocable Trust - A trust in which the creator reserves the right to alter or terminate the trust. During the life of the trust, income earned is distributed to the grantor, and only after death do the assets transfer to the beneficiaries of the trust.

Risk - The chance that an investor will lose all or part of an investment. An investments actual return will be different than expected.

Risk-Averse – A description of investors who 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.

Rollover - A method by which an individual can transfer the assets from one retirement program to another without suffering tax consequences. 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 – An individual retirement plan in which contributions are not tax deductible and qualifies distributions are tax free. Income and contribution limits apply.

Redemption Fee – A fee collected by investment companies from traders practicing mutual fund timing. Certain mutual funds charge shareholders when they redeem shares, and the fee is used to pay for the cost associated with the redemption process.

Required Minimum Distribution – Annual payments from retirement plans like 401(k)s and IRAs, to account owners required by the IRS. These payments begin April 1, following the calendar year in which the account owner turns 70½.

Roth – Refers to a portion of tax law that allows individuals to contribute to a retirement account on an after-tax basis. Money contributed will not be taxed upon distribution. Currently the only Roth accounts available are Roth IRA and Roth 401(k)s.

Standard & Poor's 500 (S&P 500) – One of the most commonly used benchmarks for the overall performance of the U.S. stock market. An index of 500 stocks, which are chosen based on market size, industry grouping, and liquidity, among other factors. Designed to be a leading indicator of the U.S. equities market and also reflect the risk/return characteristics of large U.S. company stocks.

Security – According to Section 2(a)(1) of the Securities Act of 1933, unless context otherwise requires, a security includes "any note, stock, treasury stock, security future, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a ‘security,’ or any certificate of interest of participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing."

• The definition is constantly evolving, both in general financial industry use and according to SEC regulations.
• Additional interpretations by the Supreme Court have led federal securities laws to define security as an "investment contract" and as "any instrument commonly known as a ‘security’."

Separately Managed Account – Also referred to as a sub-advised fund which is managed by a team or firm other than the firm that holds the assets. Most often found in wrap programs or variable annuities.

Stable Value Fund – An investment vehicle found in retirement plans and IRA accounts, that holds high-quality bonds and interest-bearing contracts purchased from banks and insurance companies. These bonds can be short or intermediate in terms of duration. The interest-bearing contracts have a guarantee, called a wrapper, in which the principal and interest payments will remain steady.

Surrender Charge – A fee levied on certain financial contracts with cash value, like life insurance and annuities, charge the owner an early termination fee, which is deducted from the cash value upon termination. Most surrender charges gradually decrease over a period of time until they dissipate. The fee is used to cover the costs of keeping the insurance policy on the providers books.

Systematic Risk – The inherent risk involved with an entire market segment.

Self-Employed Retirement Plans - Self-employed retirement plans are 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.

Simplified Employee Pension Plan (SEP) – A retirement plan under which the employer contributes to an employee's IRA, the contributions can 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.

Split-Dollar Plan - An arrangement between two parties, in which they share the cost of a life insurance policy and split the proceeds.

Spousal IRA – A Traditional or Roth IRA designed for a couple when one spouse has no earned income. The maximum combined contribution that can be made each year to an IRA and a spousal IRA currently is $10,000 or $12,000 if over 50 or 100 percent of earned income, whichever is less, for the 2012 tax year.

Target Date Funds – A hybrid Mutual fund that periodically revamps asset allocation in accordance with a predetermined time frame. As the target date approaches the fund will become more conservative.

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

Tax-deferred – Investment earning such as interest and dividends that are not subject to capital gains taxes, until the investor withdraws and takes possession of them.

Tax Loss Harvesting – Practice of selling securities for a loss in order to offset capital gains tax liability.

Thrift Savings Plan (TSP) – A retirement savings plan established in 1986, by the Federal Employees Retirement System Act. These plans are specifically intended for civil and military employees of the federal government.

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

Tax-Exempt Bonds - Under certain conditions, the interest from bonds issued by states, cities, and other government agencies is exempt from federal, 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.

Technical Analysis - An approach to investing in stocks, in which a stock's past performance is mapped onto charts, and then examined in order to find patterns to use for future performance indicators.

Tenancy in Common - A form of co-ownership, in which 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, but has a set duration on the coverage period and needs renewal every so often.

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

Testator - One who has drafted a will or who dies having left a will.

Total Return – The actual rate of return of an investment or a pool of investments over an evaluation period. Total return includes dividends, interest, and any capital gain.

Trust - A legal entity creating a relationship in which one party knows as a trustor, gives another party called the trustee, the right to hold property or assets for the benefit of a third party.

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

Unsystematic Risk – Risk that is not tied to a market segment rather to specific investments.

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.

Variable – Term used to describe non-guaranteed, non-fixed return investment. Performance will determine returns.

Volatility – A measure of risk that refers to the frequency with which investments tend to rise and fall in value.

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 possibly the 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.

Wrap fee – A comprehensive fee levied by an investment manager or advisor against a client, for providing services such as investment advice, investment research and brokerage services. Typically percentage based according to the amount of assets under management. This allows an investment advisor to charge one fee to their clients, simplifying the process for both parties.

Welfare Benefit Plan - An employee benefit plan that provides such benefits as medical, sickness, accident, disability, death, or unemployment benefits. This type of plan can be found under section 419 of the Internal Revenue Code.

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 legally enforceable decleration 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.

Yield - 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 different from the return, due to the face that return includes price appreciation or depreciation.