Glossary

Most Popular

One of the things we hear most often from people is that they just don't understand their money and personal finance matters. And who can blame them? With all of the different terms -- from annuities to zero-coupon bonds -- it's a lot to keep track of! That's why we have our special Dolans.com glossary, chock full of the most common money terms and their easy-to-understand definitions that will make you an expert in no time. Whenever you read or hear a term you don't understand, check here first. Chances are you'll find what you need!

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A	Accelerated depreciation A method of depreciation that assigns the larger write-offs to the earlier years of the asset. This method allows you a bigger tax deduction in the early years as well, aiding the current cash flow of a business.
	Accrued interest Interest that has accumulated but has not been paid.
	Adjusted basis Base cost from which any capital gain or loss is calculated when a security is sold. The cost is adjusted for any stock splits or stock dividends that have occurred since the original purchase.
	Adjusted gross income (AGI) Part of the formula to calculate an individual's taxable income: gross income less business expenses and other allowable deductions. Other itemized deductions such as medical and miscellaneous deductions use this as a base.
	American depository receipts (ADRs) Certificates issued by a U.S. financial institution to represent the amount of foreign securities the U.S. institution holds in a foreign security. ADRs make trading in foreign securities easier in this country, by eliminating foreign currency exchange issues.
	Annualized return The value that an investment has achieved over a one-year period based on all factors such as interest, dividends, and unrealized appreciation.
	Annuity (fixed) A savings plan that provides for future periodic payments, usually in equal amounts. Most annuities intended for retirement will continue over your remaining lifespan.
	Annuity Contract sold by life insurance companies that guarantees the purchaser fixed or variable future payments, usually upon retirement. Earnings grow tax-deferred within the annuity until the contract begins payouts.
	Assignment of mortgage A document that transfers a loan obligation from one owner to another.
	Assumable mortgage An agreement whereby the buyer takes over the previous owner's mortgage, usually resulting in a lower interest rate for the buyer.

B	Balloon mortgage A mortgage that has a larger final payment than the previous payments. Sometimes this results from interest rate increases during the life of the loan.
	Bear One who expects the stock market to fall and the economy to weaken.
	Bearer bond A bond issued and payable to anyone who physically possesses it.
	Bid and asked The highest price an investor will pay for a security (bid) or the lowest price at which someone will sell a security (asked.)
	Bid-ask spread The difference between the best buying price and the best selling price for any given security.
	Blue chip A common stock that is known to be historically profitable, has an excellent record of growth, and is well-managed. Generally thought to be a conservative investment.
	Bond An instrument of debt.
	Book value per share Total assets minus liabilities, on a per-share basis.
	Book value For a stock, book value equals net assets per share. Generally, the original cost of an asset less depreciation.
	Break point This refers to the commission percentage levied on the purchase of mutual funds. Increments in the amount invested cause the percentage to be reduced; each increment is the break point.
	Bridge loan Short-term financing given to a borrower who is awaiting permanent financing.
	Bull One who is confident that the economy and the stock market are rising.

C	Callable Redeemable by the company at a stipulated price and time.
	Called away The exercise of an option contract forces the option writer to relinquish the stock.
	Cash surrender value The amount an insurer will return if the policy is canceled by the policyholder.
	Certificate of deposit (CD) An investment vehicle issued by a bank that will pay interest, periodically or at maturity. The interest rate is set by competitive forces in the economy. The principal is paid back at maturity.
	Certificate-less municipal One certificate representing an entire series of municipal bonds; each bond does not have its own certificate.
	Closed-end investment company This type of fund issues a limited number of shares. These shares are not repurchased by the fund but must trade on the securities markets, with supply and demand determining the price.
	Common stock A share of the ownership of a public company. It gives the owner the right to receive declared dividends and to vote on certain corporate decisions. The owners of the common stock are the last to participate in the receipt of assets if the company liquidates.
	Competitive bid For Treasury securities, the specification of the interest rate you are willing to accept.
	Confirm date The date the fund processed your transaction.
	Convertible Can be converted into common stock at any time.
	Coupon bond A debt instrument with detachable coupons for interest. These coupons are redeemable by the bearer.
	Coupon interest rate A bond's annual interest rate, expressed as a percentage of the bond's face value.
	CUSIP number Each security has its own unique number issued by the Committee on Uniform Security Identification Procedure.

D	Dates of record The last day a new purchaser of stock will be entitled to receive a declared dividend.
	Debentures A bond that is collateralized by the general credit of the issuer.
	Debt-equity ratio The percentage of risk involved in a company's capitalization.Divide long-term debt by stockholder's equity to obtain this ratio.
	Deep discount bond A bond selling at less than 80 percent of its par value.
	Deferred profit-sharing plan A company-sponsored retirement plan, with the company contributing a percent of the employee's wages. This reduces the employee's current taxable income.
	Defined benefit plan A pension plan that stipulates the exact amount of a beneficiary's retirement benefits.
	Depreciation An amount representing the decline in value of a tangible asset. The amount is subtracted from the asset's original cost to get the present book value.
	Discount broker A broker charging a smaller commission than usual because no other services are provided except for the purchase/sale of securities.
	Discount broker A brokerage that charges a lower fee because it provides no services other than the execution of transactions. A full-service broker may offer investment advice as well.
	Discount Amount below maturity value at which a bond is selling.
	Dividend The return of profits to the company's shareholders. Dividends can be either in cash or in stock and are distributed on a per-share basis.
	Dividend reinvestment When a dividend is declared the investor can opt to buy more shares instead of receiving the cash.
	Dollar cost averaging A method in which an individual purchases a security with a fixed amount of money at set intervals. Locally, more should be bought when the price is low and less will be bought when the price is high. This results in an "averaging" strategy.
	Double tax exempt Exempt from federal as well as state income taxes.
	Dow Jones Industrial Average The average of the prices of thirty representative industrial stocks on the New York Stock Exchange. The Dow Jones Industrial Average is the most commonly quoted index.
	Downtick When a security is sold for less than the last price involving the same security.

E	Early retirement Retirement before age 65 (or your applicable Social Security retirement date.) You can retire as early as 62, but you will receive only 80 percent of your Social Security benefits. This reduction is permanent and you will never receive 100 percent of the amount. If you wait till age of full retirement, you are entitled to 100 percent of the amount.
	Earnings per share The net income of a corporation broken down on a per-share basis.
	Effective annual yield The return an investment makes as expressed in its equivalent simple interest rate.
	Elliott wave theory Developed by Ralph Elliott in 1938, theory predicts future trends and the next probable broad market movement. It counts and measures price changes in the Dow Jones Average.
	Employee stock ownership plan (ESOP) A company plan giving employees the opportunity to buy shares of the company's stock through a contribution system.
	Equivalent taxable yield The amount an investor must earn from a taxable bond to get the same earnings as from a non-taxable bond.
	Exchange privilege Enables mutual fund shareholders to transfer their investment from one fund to another within the same fund family.

Federal Reserve bank

One of the 12 banks that make up the Federal Reserve system. These banks offer treasury securities for sale and also monitor commercial and savings banks in their regions.

FHA loan

This is a loan backed by the Federal Housing Administration and is the largest source of mortgage assistance available to the general public. FHA loans features low down payments and can be assumable under certain conditions.

Full service broker

A broker who provides services other than the purchase and sale of securities, such as advice on taxes and investment vehicles.

Grace period

The time between the date a loan payment is due and the date the loan will be called in or canceled.

Graduated payment mortgage

A mortgage that has a fixed interest rate, but monthly payments rise during the first 10 years. The increased payments reduce the life of the loan.

Growth investments

Investments that are expected to appreciate through the years.

Health maintenance organization (HMO)

A health care system that provides a full range of health services to an enrolled population in return for a payment in advance. Certain HMOs are eligible for Medicare reimbursement.

Hospital insurance (HI)

One of the two separate programs in Social Security, the other being Old-Age, Survivors, and Disability Insurance program. The HI program pays for hospitalization, which is Part A of Medicare.

Hypothecation agreement

When securities are pledged to open a margin account, this agreement is signed money can be borrowed against those securities.

I	Income investments Investments that offer immediate income. They generally will have a fixed maturity value and fixed income.
	Indenture The part of a bond that specifies its terms and obligations.
	Indexing The current method for calculating Social Security retirement benefits, in which they are adjusted for changes in average wages.
	Individual retirement account (IRA) Generally, employed individuals not involved with a company or union pension can make deductible payments of up to $4,000 into a tax-deferred fund. Withdrawals can be made without penalty after age 59 1⁄2.
	Intangible asset An asset without physical substance but having value - for example, a patent, copyright or franchise.
	Intermediate care facility Designed for patients who don't need intensive care or a skilled nursing facility, but do need room and board along with medical, nursing or rehabilitative services.
	Inverted yield curve A trend of yields from similar securities with short-term yields that are higher than their long-term yields.

Jumbo certificate of deposit

Any certificate of deposit over $100,000. Usually purchased by institutional investors.

Junk bond

A high-yield, speculative bond with a low credit rating.

K	Keogh plan A tax-sheltered, self-funded pension plan available to those who are self-employed or have part-time self-employment income. Contributions can be any investment vehicle except precious metals and collectibles.

Limit order

An order whereby an investor specifies a price at which to buy or sell securities.

Listed security

A stock that is listed, recorded and traded on a stock exchange.

Load

A sales charge or commission assessed by mutual funds (called "load funds") to cover their selling costs.

M	Management fee The amount paid by mutual fund investors to their investment adviser. The average annual fee is about one-half of one percent of fund assets.
	Margin account A brokerage account established for those who wish to buy securities: it may be borrowed against.
	Maturity The date the principal amount is repaid.
	Medicare aid An extension of Medicare coverage to people under 65 who have been entitled to Social Security payments for 24 consecutive months or more, and to those requiring kidney transplants or dialysis treatment.
	Mortgage banker The intermediary between the institution that originates the mortgage and the investor who buys the mortgage.
	Mortgage broker An agent who arranges loans but does not service the loans after the contract is set.
	Moving average An average that is continuously adjusted, with each new added price changing the overall average for a particular period of time.
	Municipal bond A debt issue from a city or state agency, or a not-for-profit institution. The interest is exempt from federal income tax. If the bond is issued in the bondholder's state, state and local taxes may be exempt.

N	Negative amortization creation of a home mortgage with a lower than average interest rate, with the difference added to the principal. Mortgage payments increase as time goes on.
	Net asset value (NAV) per share The market worth of a mutual fund's total assets - after deducting liabilities - divided by the number of shares outstanding. NAV is expressed as the value of a single share in the fund.
	Net earnings Gross revenue less total operating expenses, minus taxes.
	No-load fund A commission-free mutual fund that sells its shares at net asset value.
	Noncompetitive bids For Treasury securities, the interest rate that is equivalent yield of accepted competitive bids.

Open-end investment company

A mutual fund that will redeem its shares on demand.

Over-the-counter stocks

Securities that trade outside the organized stock exchanges. They are typically stocks of companies too small for listing on a major exchange.

P	Par A bond's par value is usually $1,000. This is the amount that will be paid at maturity.
	Penny stock A share of stock that is usually traded for under $1 a share. They are normally issued by a speculative company with a short, erratic history of earnings or no earnings.
	Points A point is a charge of 1 percent of the total amount borrowed, levied by the mortgage lender. For example, a 2-point fee on a $100,000 mortgage is $2,000.
	Preferred provider organization (PPO) A PPO is a group of hospitals and/or physicians that contracts with employers and insurers to provide health coverage at a competitive rate.
	Preferred stock Shares that represent ownership in a company. They usually carry fixed dividends with payment preference over common stock.
	Premium The amount for which a bond is selling over its maturity value.
	Price-earnings ratio The ratio of a price of a stock to its earnings per share. This ratio tells an investor how many times earnings a stock is selling for and is calculated by dividing the per-share earnings of the company into the current selling price of the stock.
	Primary insurance amount (PIA) The largest benefit a worker can receive upon retiring at age 65. All Social security benefits are based on the PIA. Beginning in the year 2000, the age at which full benefits are payable will slowly rise from 65 to 67 in 2022.
	Program trading The trading of very large amounts of stocks by institutions using a computerized formula for the spread of the market prices of the stocks involved.
	Prospectus An official document that each investment company must publish, describing the mutual fund and offering its shares for sale. It also includes information required by the Securities and Exchange Commission.
	Proxy Gives a shareholder the right to have someone else vote on his or her behalf, usually at the annual stock holders meeting.
	Put option An agreement giving a buyer the right to sell a specific quantity of a particular security by a specific date. The holder hopes for a drop in price.

R	Real estate investment trust A closed-end investment company that invests in real estate.
	Redemption notice A notice informing bondholders that their securities are being called in, with the time and terms of the redemption.
	Redemption price The amount per share that mutual fund shareholders receive when they liquidate their shares.
	Residential care facility Accommodations to those who are capable of meeting their own needs, concentrating on the social and recreational concerns of the residents.
	Revenue bond A bond backed by a tax placed on a specific project.
	Reverse equity mortgage A mortgage that allows the owner to spend the equity in the home while still keeping the ownership. There are several lender payout options.Generally, the loan is due when either the home is sold or the owner dies. A number of restrictions (including the applicant's age) apply.
	Right of recision The legal right to cancel any contract within a specific period of time, with full refund and no penalty. It protects consumers from high-pressure tactics and other unscrupulous sales methods.

S	Second-to-die-insurance Insurance taken out to protect a surviving spouse from having to pay a great deal of estate taxes, among other reasons.
	Securities and Exchange Commission An agency of the U.S. government responsible for regulating and supervising the securities industry.
	Serial bonds A group of bonds from the same issue that have different maturity dates.
	Series E bonds A former government savings bond series, issued from World War II to 1979, that will pay the owner interest for up to 40 years. The series E bond was replaced by the series EE and can be exchanged.
	Series EE bonds Discounted U.S. government savings bonds. They are sold in denominations of at least $25 and mature in seven to ten years.
	Series HH bonds These bonds are sold in denominations of at least $500 and mature in 10 years. They sell at face value.
	Shared equity mortgage A mortgage in which two or more owners are responsible for the full term of the mortgage. Usually each is responsible for an agreed-upon portion of the down payment and is entitled to occupy a portion of the property. The lender considers this a joint tendency.
	Short sale The sale of a security that the seller doesn't own but hopes to be able to buy back at a lower price, thus profiting from the difference. This can be accomplished only with a brokerage firm that lends the seller the security so that it can be delivered to the buyer.
	Single premium deferred annuity A tax-deferred investment in which a lump-sum payment is made to an insurance company, with the annuity depreciating over the years as payments are taken.
	Sinking fund bond A bond issued with a fund for its redemption in place.
	Skilled nursing facility A qualified facility that has the staff and necessary equipment to provide skilled nursing care or other related health services.
	Spot exchange rate The amount of one country's currency needed to buy a unit of another country's currency, with the purchase requiring immediate delivery.
	Stock dividend Additional shares of stock distributed in proportion to an owner's current holdings.
	Stop-loss order An investor's instruction to the broker to sell a security if its price drops to a specified level.
	Stripped bond This refers to a coupon bond that has been stripped of its coupons. No interest is paid to the bondholder, but if held to maturity the full face value will be paid.
	Stripped Treasury obligations Zero coupon Treasury bonds that mature in three months to 29 years.

T	Tax swapping When an investor sells a security for a loss at the end of the tax year to generate a capital loss, the tax savings is then invested in another security considered likely to bring a higher profit.
	Tax-exempt bond See Municipal bond.
	Term insurance Insurance that provides a death benefit for a specific period of time. If you die during the specified term, your beneficiary receives the proceeds ... no cash value build-up.
	Trade date The actual date on which your shares were purchased or sold.
	Treasury auction A weekly Treasury Department auction in which government obligations are offered for sale.
	Treasury Direct The system of purchasing government securities directly from the Federal Reserve in which investors' accounts are maintained on the books of the Bureau of the Public Debt. Engraved certificates are no longer issued to purchasers of Treasury securities. Go to treasurydirect.gov.
	Treasury stock Previously issued stock that a company buys back. It reduces the company's equity outstanding and does not receive dividends or carry voting rights.
	Triple tax exempt Exempt from federal, state and local taxes.
	Two-hundred-day moving average A chart prepared daily that monitors price averages over the past 200 days, which often provides a good indicator of trends.

Unit investment trust (stocks)

An American trust in which investors receive dividend distributions and a partial asset value when the trust is dissolved, or just a partial asset value when the trust is dissolved.

Universal life

Adjustable insurance policy that breaks out the cost of the death benefit, the investment account, and administrative expenses. The policyholder can increase, decrease or skip the payment.

Universal variable

A policy with flexibility of payment and investment choice. There's the option to choose from various investments for your premium, as well as flexibility of premium payments.

V	VA loan This is a mortgage loan in which the Veteran's Administration acts as a co-signer to assist qualified individuals who need home mortgages. Most veterans and those currently in the armed services qualify. Its main attraction is the low down payment and the assumability by a new buyer under certain conditions.
	Vanishing premium A policy in which the dividends are projected to grow to an amount that can cover the premium. They are supposedly paid off in eight to ten years, when the policy becomes self-sustaining. However, it often does not work out that way so do not count on them.
	Variable annuity An annuity contract investment in a various portfolio yielding lifetime retirement payments that vary according to the results of the investments.
	Variable life Permanent insurance with the cash value invested in a self-controlled account.
	Vesting The rights an employee earns for working at the same company for a certain amount of time. This usually refers to pension rights.

W	Waiting period The amount of time that must pass after a person becomes insured before the policy will pay benefits for a pre-existing condition or specific illness.
	White knight A party chosen to merge with in order to repel an unwanted corporate raider.
	Whole life A policy that covers you for your entire life. The excess premium that are paid in the earlier years go into a tax-deferred savings or investment account.
	With right of survivorship A joint account in which ownership of the assets passes to the survivor.

Yield

The amount of earnings a security returns expressed as a percentage of the amount paid for the security.

Yield

The interest a bond will pay, with a yield expressed as a percentage of the amount paid.

Zero coupon bond

A Treasury security selling at a deep discount from face value. It pays no interest until maturity, when the bondholder receives face value.

Zero-based budgeting

A method of budgeting in which all spending must be justified rather than based on spending in preceding years. Therefore, all budget lines start at zero.

Zero-coupon bond

A bond sold at deep discount that pays no interest until maturity. At that time, the holder receives face value plus all accrued interest.

10-K report

The annual report required by the SEC of all listed securities.

12B-1 mutual fund

A registered mutual fund that charges investors a small fee for promotional expenses. The charge is used for advertising and marketing.

401(k) plan

This is a retirement plan in which an employee can contribute a percent of his gross salary - up to $15K in 2007 and 2008 - in a company's pension plan. Income tax is deferred on the contribution and the earnings on the investment.

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Dolans.com

Glossary

Most Popular

Accelerated depreciation

Accrued interest

Adjusted basis

Adjusted gross income (AGI)

American depository receipts (ADRs)

Annualized return

Annuity (fixed)

Annuity

Assignment of mortgage

Assumable mortgage

Balloon mortgage

Bear

Bearer bond

Bid and asked

Bid-ask spread

Blue chip

Bond

Book value per share

Book value

Break point

Bridge loan

Bull

Callable

Called away

Cash surrender value

Certificate of deposit (CD)

Certificate-less municipal

Closed-end investment company

Common stock

Competitive bid

Confirm date

Convertible

Coupon bond

Coupon interest rate

CUSIP number

Dates of record

Debentures

Debt-equity ratio

Deep discount bond

Deferred profit-sharing plan

Defined benefit plan

Depreciation

Discount broker

Discount broker

Discount

Dividend

Dividend reinvestment

Dollar cost averaging

Double tax exempt

Dow Jones Industrial Average

Downtick

Early retirement

Earnings per share

Effective annual yield

Elliott wave theory

Employee stock ownership plan (ESOP)

Equivalent taxable yield

Exchange privilege

Federal Reserve bank

FHA loan

Full service broker

Grace period

Graduated payment mortgage

Growth investments

Health maintenance organization (HMO)

Hospital insurance (HI)

Hypothecation agreement

Income investments

Indenture

Indexing

Individual retirement account (IRA)

Intangible asset

Intermediate care facility

Inverted yield curve

Jumbo certificate of deposit

Junk bond

Keogh plan