A qualified retirement account for individuals. Contributions to a Traditional IRA may be fully or partially deductible, depending on your individual circumstances. Once you reach age 73, you must begin taking the required minimum distributions from a traditional IRA in most circumstances. Withdrawals from traditional IRAs are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Contributions to a traditional IRA may be fully or partially deductible, depending on your adjusted gross income.
An upward movement in the average level of prices. Each month, the Bureau of Labor Statistics reports on the average level of prices when it releases the Consumer Price Index (CPI).
A company’s first public offering of stock. In an IPO, investment banks buy a company’s shares and then offer them to the public at an offering price. As the stock is traded, the market price may be more or less than the offering price. Keep in mind that the return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost.
The cost to borrow money expressed as a percentage of the loan amount over one year.
The condition of an estate when its owner dies without leaving a valid will. In such circumstances, state law normally determines who inherits property and who serves as guardian for any minor children.
The stated financial goal of an investment.
A trust that cannot be altered, stopped, or canceled after its creation without the permission of the beneficiary or trustee. Using a trust involves a complex set of tax rules and regulations. Before moving forward with a trust, consider working with a professional who is familiar with the rules and regulations.
A form of property ownership under which two or more people have an undivided interest in the property and in which the survivor or survivors automatically assume ownership of the interest of any joint tenant who dies.
Property owned simultaneously by more than one person. All co-owners have an equal right to use the property, and no co-owner can exclude another co-owner from the property. The most common forms of jointly-held property are joint tenancy, tenancy in common, and, in some states, community property.
A tax-deferred retirement plan for self-employed individuals and employees of unincorporated businesses. Keogh plans are similar to IRAs but have significantly higher contribution limits. Distributions from Keogh plans and most other employer-sponsored retirement plans are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 70½, you must begin taking required minimum distributions.
An employee who has valuable skills, knowledge, or organizational abilities, who is considered critical to the success of a given company.
Company-owned insurance designed to cover the cost of replacing a key employee if he or she were to die or become disabled.
A contract under which an insurance company promises, in exchange for premiums, to pay a set benefit when the policyholder dies. Several factors will affect the cost and availability of life insurance, including age, health and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.
The ease and speed with which an asset or security can be bought or sold.
A trust created by a living person which allows that person to control the assets he or she contributes to the trust during his or her lifetime and to direct their disposition upon his or her death.
A written document that allows the originator to designate someone to make medical decisions on his or her behalf in the event that he or she becomes incapacitated due to accident or illness.
Insurance that covers the cost of medical and non-medical services needed by those who have a chronic illness or disability—most commonly associated with aging. Long-term-care insurance can cover the cost of nursing home care, in-home assistance, assisted living, and adult day care.
A one-time payment of the entire amount held in an employer-sponsored retirement, pension plan, annuity, or similar account, rather than breaking payments into smaller installments.
The cost of having assets professionally managed. This fee is normally a fixed percentage of the fund’s asset value; terms of the fee are disclosed in the prospectus.
A provision of the tax code that allows an individual to transfer an unlimited amount of assets to his or her spouse at any time—including upon the individual’s death—without triggering a tax liability.
The risk that an entire market will decline, reducing the value of the investments in it without regard to other factors. This is also known as Systemic Risk.
An investment philosophy under which investors buy and sell securities in an attempt to profit from short-term price fluctuations.
The date on which a debt security comes due for payment and on which an investor’s principal is due to be repaid.
The federal government’s health program for eligible individuals and families with low income and resources. It is means tested, meaning those who apply for benefits must demonstrate they have need.
The federal government’s health program for individuals aged 65 and over and for individuals who have certain disabilities or end-stage renal disease.
A mutual fund that invests in assets that are easily converted into cash and which have a low risk of price fluctuation. This may include money market holdings, Treasury bills, and commercial paper. Money held in money market funds is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Money market funds seek to preserve the value of your investment at $1.00 a share. However, it is possible to lose money by investing in a money market fund.
A debt security issued by a state, county, city, or other political entity (such as a school district) to raise public funds for special projects. The income from municipal bonds is normally exempt from federal income taxes. It may also be exempt from state income taxes in the state in which the municipal bond is issued. Bond prices rise and fall daily. Municipal bonds are subject to a variety of risks, including adjustments in interest rates, call risk, market conditions, and default risk. Some municipal bonds may be subject to the federal alternative minimum tax. When interest rates rise, bond prices generally will fall. Certain municipal bonds may be difficult to sell. A municipal bond issuer may be unable to make interest or principal payments, which may lead to the issuer defaulting on the bond. If this occurs, the municipal bond may have little or no value. If a bond is purchased at a premium, it may result in realized losses. It’s possible that the interest on a municipal bond may be determined to be taxable after purchase.
A mutual fund offered by an investment company which specifically invests in municipal bonds. Mutual fund balances are subject to fluctuation in value and market risk. Shares, when redeemed, may be worth more or less than their original cost. Mutual funds are sold only by prospectus. Individuals are encouraged to consider the charges, risks, expenses, and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money.
A pooled investment account offered by an investment company. Mutual funds pool the monies of many investors and then invest the money to pursue the fund’s stated objectives. The resulting portfolio of investments is managed by the investment company. Mutual fund balances are subject to fluctuation in value and market risk. Shares, when redeemed, may be worth more or less than their original cost. Mutual funds are sold only by prospectus. Individuals are encouraged to consider the charges, risks, expenses, and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money.
An American stock exchange originally founded by the National Association of Securities Dealers. When the NASDAQ stock exchange began trading on February 8, 1971, it was the world’s first electronic stock market.
The net market value of a mutual fund’s current holdings divided by the number of outstanding shares. The product of this division estimates the per-share value of the fund’s assets.
A company’s total revenues minus its costs, expenses, and taxes. Net income is the bottom line of a company’s income statement (which may also be called the profit and loss statement).
The value of a company’s or individual’s assets minus liabilities.
A stock exchange located on Wall Street in New York City, NY. Many regard the NYSE as the largest exchange in the U.S., and possibly in the world.
A retirement plan that is funded entirely by employer contributions, with no employee contributions.
A retirement or employee benefit plan that is not eligible for favorable tax treatment.
The official name of the Social Security program. In addition to retirement benefits, it offers disability income, veterans’ pensions, public housing, and food stamps.
A contract under which two or more individuals manage and operate a business venture.
A class of life insurance policies that do not expire—as long as premiums are kept current—and which combine a death benefit with a savings component. This savings portion can accumulate a cash value against which the policy owner may be able to borrow funds. Several factors will affect the cost and availability of life insurance, including age, health and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.
A loan made by an insurance company to a policyholder. Policy loans are secured by the cash value of a life insurance policy. Withdrawals of earnings are fully taxable at ordinary income tax rates. If you are under age 59½ when you make the withdrawal, you may also be subject to a 10% federal income tax penalty. Also, withdrawals may reduce the benefits and value of the contract.
A provision to a life insurance policy that is purchased separately from the basic policy and that provides additional benefits at additional cost.
The person or entity who holds an insurance policy; usually the client in whose name an insurance policy is written.
The combined investments of an individual investor or mutual fund.
A legal document that grants one person authority to act for another person in specific legal or financial matters in the event that said individual becomes incapacitated.
Securities that represent ownership in a corporation and have a higher claim on a company’s assets and earnings than common stock. Dividends on preferred stock are generally paid out before dividends to common stockholders.
A contract entered into by those contemplating marriage that sets forth how their individual property will be divided should they ultimately divorce.
A ratio calculated by dividing a stock’s price by its earnings per share. Investors use this ratio to learn how much they are paying for a company’s earnings.
The interest rate commercial banks charge their most credit-worthy or “prime” customers. The prime interest rate is influenced by the federal funds rate.
The original amount invested in a security, excluding earnings; the face value of a bond; or the remaining amount owed on a loan, separate from interest.
The court-supervised process in which a deceased person’s debts are paid and any remaining assets distributed to his or her heirs.
A defined-contribution plan under which employees share in company profits. The funds within the plan accumulate tax deferred.
Anything over which a person or business has legal title. Property may be held in common or privately owned.
A legal document that provides the information an investor needs to make an informed decision about an investment offered for sale to the public. Prospectuses are required by and filed with the Securities and Exchange Commission.
A retirement plan that is established and operates within the rules laid down in Section 401(a) of the Internal Revenue Code, and thus receives favorable tax treatment.
A measure of the performance of an investment. Rate of return is calculated by dividing any gain or loss by an investment’s initial cost. Rates of return usually account for any income received from the investment in addition to any realized capital gains.
A pooled investment that invests primarily in real estate. REITs trade like stocks on the major exchanges. Keep in mind that the return and principal value of REIT prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost.
The return of an investor’s principal in a debt security—such as a preferred stock or bond—upon maturity or cancellation by the entity that originally issued the security. Redemption can also refer to the sale of units in a mutual fund.
The amount that must be withdrawn annually from a qualified retirement plan, beginning April 1 of the year following the year in which the account holder reaches age 73.
The amount of money a company brings in from its business activities during a given period, before expenses and taxes have been subtracted.
A trust that can be altered or canceled by its grantor. During the life of the trust, any income earned is distributed to the grantor; upon the grantor’s death, the contents of the trust are transferred to its beneficiaries according to the terms of the trust.
The chance an investment will be lost or will provide less-than-expected returns.
A measurement of an investor’s willingness or ability to handle investment losses.
A tax-free transfer of assets from one qualified retirement program to another. Rollovers must be made in accordance with specific requirements to avoid a taxable event.
A qualified retirement plan in which earnings grow tax deferred and distributions are tax free. Contributions to a Roth IRA are generally not deductible for tax purposes, and there are income and contribution limits. Roth IRA contributions cannot be made by taxpayers with high incomes. To qualify for the tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½. Tax-free and penalty-free withdrawal also can be taken under certain other circumstances, such as after the owner’s death. The original Roth IRA owner is not required to take minimum annual withdrawals.
The process of transferring assets from a traditional, SEP, or SIMPLE IRA to a Roth IRA. Roth IRA conversions are subject to specific requirements and may be taxable.
A qualified retirement plan that allows employees and employers to contribute to traditional IRAs set up for employees. SIMPLE plans are available to small businesses—those with 100 or fewer employees—that do not currently offer another retirement plan.
A federal agency with a mandate to protect investors; to maintain fair, orderly, and efficient markets; and to facilitate capital formation. The SEC acts as one of the primary regulatory agencies for the investment industry.
An individual retirement arrangement in which the account holder can direct the investment of funds, subject to certain conditions and limits.
A unit of ownership in a corporation or financial asset.
An arrangement under which a life insurance policy’s premium, cash values, and death benefit are split between two parties—usually a corporation and a key employee or executive. Under such an arrangement an employer may own the policy and pay the premiums and give a key employee or executive the right to name the recipient of the death benefit. Several factors will affect the cost and availability of life insurance, including age, health, and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.
An arrangement under which an employer and employee share the obligations and benefits of a life insurance policy.
An individual retirement arrangement under which an IRA is established for a non-working spouse and is funded with contributions from the working spouse. Spousal and non-spousal IRAs are subject to combined annual contribution limits and must meet certain requirements. Once you reach age 73, you must begin taking the required minimum distributions from a traditional IRA in most circumstances. Withdrawals from traditional IRAs are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Contributions to a traditional IRA may be fully or partially deductible, depending on your adjusted gross income.
An average calculated by summing the prices of 500 leading companies in leading industries of the U.S. economy and dividing the sum by a divisor which is regularly adjusted to account for stock splits, spinoffs, or similar structural changes. Index performance is not indicative of the past performance of a particular investment. Past performance does not guarantee future results. Individuals cannot invest directly in an index.
An equity investment in a company. Stockholders own a share of the company and are entitled to any dividends and financial participation in company growth. They also have the right to vote on the company’s board of directors. Keep in mind that the return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost.
A legal document that certifies ownership of a specific number of shares of stock in a corporation. In many transactions, the stockholder is registered electronically, and no certificate is issued.
A program under which an employer offers its employees the opportunity to buy stock at a favorable price, often through payroll deduction.
A decision by a company to increase the number of shares of stock it has outstanding by issuing more shares to its current shareholders. For example, in a 2-for-1 split each shareholder would receive as many new shares as he or she owns—effectively doubling the number of shares he or she owns. The price per share adjusts to account for the split. In the example of a 2-for-1 split, each of the new shares would have a par value of half the prior price.
A credit subtracted from income taxes after preliminary tax liability has been calculated.
An amount that can be subtracted from a taxpayer’s income before taxes are calculated. Taxpayers may use the standard deduction or may itemize deductions if allowable itemized deductions exceed the standard deduction.
A condition of certain plans and accounts under which the funds in the plan or account along with any accrued interest, dividends, or other capital gains, are not subject to taxes until the funds are withdrawn.
Debt securities issued by a state, county, city, or other political entity (such as a school district) that generate income which is exempt from federal income taxes. Income from such bonds may also be exempt from state income taxes in the state in which the bond is issued. However, some tax-exempt bonds may be subject to the federal alternative minimum tax. Bond prices rise and fall daily. Municipal bonds are subject to a variety of risks, including adjustments in interest rates, call risk, market conditions, and default risk. When interest rates rise, bond prices generally will fall. Certain municipal bonds may be difficult to sell. A municipal bond issuer may be unable to make interest or principal payments, which may lead to the issuer defaulting on the bond. If this occurs, the municipal bond may have little or no value. If a bond is purchased at a premium, it may result in realized losses. It’s possible that the interest on a municipal bond may be determined to be taxable after purchase.
A taxpayer’s gross income, minus any adjustments, itemized deductions or the standard deduction, and personal exemptions. Taxable income is used to compute tax liability.
A method of evaluating securities by examining recent price movements and trends in an attempt to identify patterns that can suggest future activity. Generally, technical analysis is the opposite of fundamental analysis.
A form of property ownership under which two or more people have an undivided interest in the property and in which the interest of a deceased owner passes to his or her beneficiaries rather than to the surviving owners.
Life insurance that provides coverage for a specific period. If the policyholder dies during that time, his or her beneficiaries receive the benefit from the policy. If the policyholder outlives the term of the policy, it is no longer in effect. Several factors will affect the cost and availability of life insurance, including age, health, and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.
A trust created by a will or trust that is established on the death of the trustor. Using a trust involves a complex set of tax rules and regulations. Before moving forward with a trust, consider working with a professional who is familiar with the rules and regulations.
The amount of time an investor plans to hold an investment or portfolio of investments.
A legal document that serves as evidence of ownership of an asset or security.
The total of all earnings from an investment or portfolio, including both capital appreciation and any income received.
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