1035 Exchange

A tax-free exchange of insurance-related assets, such as cash-value life insurance policies or annuity contracts.

401(k) Plan

A type of qualified retirement plan offered by employers that allows employees to defer a portion of their income for retirement savings on a tax-deferred basis, with potential employer matching contributions.

401(k) Loan

A loan taken from the assets within a 401(k) account, repaid with interest through payroll deductions. If the loan is not repaid, it may be considered a distribution and subject to taxes and penalties.

403(b) Plan

A type of qualified retirement plan similar to a 401(k), available to employees of non-profit and government organizations.

A

The amount of money that is available in an account at a given point in time. It is the net result of all the transactions that have taken place in the account, including deposits, withdrawals, and any fees or charges. The account balance can be positive, indicating that there are funds available, or negative, indicating that the account is overdrawn. It is important to keep track of your account balance to ensure that you have enough funds to cover your expenses and avoid overdraft fees.

Adjustable-Rate Mortgage (ARM)

A type of mortgage loan where the interest rate is not fixed, but instead changes periodically based on market conditions. This means that the monthly payments on an ARM can go up or down over time. ARMs typically start with a lower interest rate than fixed-rate mortgages, which can make them attractive to borrowers. However, there is also a risk that the interest rate and monthly payments could increase significantly over time. It is important for borrowers to carefully consider the potential risks and benefits of an ARM before choosing this type of mortgage.

Adjusted Gross Income (AGI)

A type of mortgage loan where the interest rate is not fixed, but instead changes periodically based on market conditions. This means that the monthly payments on an ARM can go up or down over time. ARMs typically start with a lower interest rate than fixed-rate mortgages, which can make them attractive to borrowers. However, there is also a risk that the interest rate and monthly payments could increase significantly over time. It is important for borrowers to carefully consider the potential risks and benefits of an ARM before choosing this type of mortgage.

Administrator

A person appointed by the court to manage the estate of a deceased person who died without leaving a valid will. The administrator is responsible for collecting the assets of the estate, paying any debts or taxes owed, and distributing the remaining assets to the heirs according to the laws of intestacy. The administrator has a fiduciary duty to act in the best interests of the estate and its beneficiaries, and must follow the legal procedures for administering an estate.

After-Tax Return

The return on an investment after taxes have been deducted. It represents the actual amount of money that an investor will receive from an investment after accounting for the impact of taxes. The after-tax return is important because it provides a more accurate picture of the true return on an investment, as taxes can significantly reduce the amount of money that an investor ultimately receives. To calculate the after-tax return, you need to know the pre-tax return on the investment and the investor’s marginal tax rate.

Aggressive Growth Fund

A type of mutual fund that seeks to achieve high returns by investing in high-risk, high-growth stocks. These funds typically invest in companies that have the potential for rapid growth, such as technology or biotech firms, and may also use leverage or other aggressive investment strategies to try to maximize returns. While aggressive growth funds can offer the potential for high returns, they also come with a higher level of risk, as the value of the fund can fluctuate significantly due to the volatility of the underlying investments. It is important for investors to carefully consider their risk tolerance and investment goals before investing in an aggressive growth fund.

Alternative Minimum Tax (AMT)

A federal income tax system in the United States that is designed to ensure that high-income individuals and corporations pay a minimum amount of tax, even if they have significant deductions or credits that would otherwise reduce their tax liability. The AMT operates alongside the regular income tax system, and taxpayers must calculate their tax liability under both systems and pay the higher of the two amounts. The AMT has its own set of rules and rates, and certain deductions and exemptions that are allowed under the regular income tax system are not allowed under the AMT.

Annual Percentage Rate (APR)

The annual cost of borrowing money, expressed as a percentage of the loan amount. It represents the total cost of the loan, including interest and fees, and is designed to provide a more accurate measure of the true cost of borrowing than the interest rate alone. The APR is commonly used to compare different loan offers, as it allows borrowers to easily compare the total cost of different loans. It is important to note that the APR is not the same as the interest rate, as it takes into account additional fees and charges that may be associated with the loan.

Annual Report

Aa comprehensive report on a company’s activities and financial performance throughout the preceding year. It is typically prepared by the company’s management and provided to shareholders, investors, and other interested parties. The annual report usually includes information such as the company’s financial statements, a letter from the CEO, a description of the company’s operations and business strategy, and other relevant information. The annual report is an important source of information for investors and analysts, as it provides a detailed overview of the company’s performance and future prospects.

Annuity

A financial product that provides a series of regular payments to the annuitant, typically for the rest of their life or for a specified period of time. Annuities are often used as a way to provide a steady stream of income during retirement. They can be purchased with a lump sum payment or through a series of payments over time, and the amount of the regular payments is determined by factors such as the amount invested, the age of the annuitant, and the terms of the annuity contract. There are many different types of annuities, including fixed, variable, and indexed annuities, each with its own features and benefits.

Appraisal

An evaluation of the value of an asset, such as a property or a piece of art, by a qualified professional. The purpose of an appraisal is to determine the fair market value of the asset, which can be used for various purposes such as buying or selling the asset, obtaining a loan, or determining the value for tax purposes. The appraiser uses various methods and techniques to arrive at an estimate of the asset’s value, taking into account factors such as its condition, location, and market demand.

Appraisal

An evaluation of the value of an asset, such as a property or a piece of art, by a qualified professional. The purpose of an appraisal is to determine the fair market value of the asset, which can be used for various purposes such as buying or selling the asset, obtaining a loan, or determining the value for tax purposes. The appraiser uses various methods and techniques to arrive at an estimate of the asset’s value, taking into account factors such as its condition, location, and market demand.

Asset

Something that has value and can be owned by an individual or an organization. Assets can include physical items such as property, vehicles, and equipment, as well as financial assets such as stocks, bonds, and cash. Assets are used to generate income or to provide a benefit to the owner, and their value can increase or decrease over time. The total value of an individual’s or organization’s assets is an important measure of their financial health and stability.

Asset Allocation

The process of dividing an investment portfolio among different asset categories, such as stocks, bonds, and cash, in order to balance risk and reward. The goal of asset allocation is to create a diversified portfolio that can help to reduce the overall risk of the portfolio while still providing the potential for growth. The specific asset allocation strategy that is appropriate for an individual investor will depend on factors such as their investment goals, risk tolerance, and time horizon. Asset allocation is an important part of investment planning and can help investors to achieve their financial goals.

Asset Class

A group of investments that share similar characteristics and behave similarly in the market. Common asset classes include stocks, bonds, real estate, commodities, and cash. Each asset class has its own level of risk and potential for return, and the performance of each asset class can vary over time. Asset allocation involves dividing an investment portfolio among different asset classes in order to balance risk and reward. By investing in multiple asset classes, investors can diversify their portfolio and potentially reduce their overall risk.

Audit

An independent examination of an organization’s financial records and operations to ensure that they are accurate and comply with relevant laws and regulations. Audits are typically performed by external auditors who are independent of the organization being audited, and their goal is to provide an objective assessment of the organization’s financial health and internal controls. An audit can help to identify any issues or irregularities in the organization’s financial records, and can provide valuable information to management, shareholders, and other stakeholders.

Automatic Reinvestment

A  feature offered by many investment accounts where any dividends or interest earned on the investments are automatically used to purchase additional shares or units of the investment. This allows the investor to take advantage of the power of compounding, as the reinvested earnings can generate additional earnings over time. Automatic reinvestment can be a convenient way for investors to grow their investment portfolio without having to actively manage it. However, it is important for investors to carefully consider their investment goals and tax situation before choosing to automatically reinvest their earnings.

B

A type of mutual fund that invests in a mix of stocks, bonds, and other assets in order to balance risk and reward. The goal of a balanced mutual fund is to provide investors with a diversified portfolio that can offer both growth potential and income, while also managing risk. The specific mix of assets in a balanced mutual fund will vary depending on the fund’s investment strategy and objectives, but typically includes a combination of stocks for growth and bonds for income and stability. Balanced mutual funds can be a good choice for investors who want a diversified portfolio but do not want to manage their own asset allocation.

Bear Market

A market condition where prices of securities are falling, and widespread pessimism causes the negative sentiment to be self-sustaining. It is generally defined as a decline of 20% or more from recent highs in broad market indices such as the S&P 500 or the Dow Jones Industrial Average. During a bear market, investors may become more risk-averse and sell off their holdings, leading to further declines in prices. Bear markets can be caused by a variety of factors, including economic recessions, changes in interest rates, or shifts in investor sentiment.

Beneficiary

a person or entity that is designated to receive the benefits or proceeds from a financial arrangement, such as a will, trust, insurance policy, or retirement account. The beneficiary is entitled to receive the specified assets or payments according to the terms of the arrangement. It is important for individuals to carefully consider their choice of beneficiary and to keep their beneficiary designations up to date, as this can have significant implications for their estate planning and financial security.

Blue Chip Stock

A stock of a well-established and financially sound company that has a long history of stable and reliable growth. Blue-chip stocks are generally considered to be safe investments, as they are typically large, well-known companies with strong track records of performance. These companies often have a dominant market position, a strong brand, and a solid financial position, which allows them to weather economic downturns and continue to generate profits for their shareholders.

Bond

A type of debt security that represents a loan made by an investor to a borrower, typically a corporation or government entity. The borrower agrees to pay the investor regular interest payments and to repay the principal, or face value, of the bond when it matures. Bonds are generally considered to be less risky than stocks, as bondholders have a higher claim on the assets of the borrower in the event of bankruptcy. However, the value of a bond can fluctuate due to changes in interest rates or the creditworthiness of the borrower.

Book Value

A measure of the value of an asset or a company based on its financial records. It is calculated by subtracting the total liabilities of the asset or company from its total assets. In the case of a company, the book value represents the net worth of the company according to its balance sheet. Book value can be used as a way to assess the value of an asset or company, but it may not always reflect its true market value, as it is based on historical cost rather than current market conditions

Bull Market

A market condition where prices of securities are rising, and widespread optimism causes the positive sentiment to be self-sustaining. It is generally defined as a sustained increase in broad market indices such as the S&P 500 or the Dow Jones Industrial Average. During a bull market, investors may become more confident and buy more securities, leading to further increases in prices. Bull markets can be caused by a variety of factors, including economic growth, low interest rates, or positive investor sentiment.

Buy-and-Hold

An investment strategy where an investor buys securities and holds them for a long period of time, regardless of short-term market fluctuations. The goal of this strategy is to benefit from the long-term growth potential of the securities, rather than trying to time the market and make short-term gains. Buy-and-hold investors typically have a long-term investment horizon and are willing to weather short-term market volatility in the hopes of achieving higher returns over the long run. This strategy can be effective for investors who have a high risk tolerance and are able to remain patient during periods of market uncertainty.

Buy-Sell Agreement

A legal contract between the owners of a business that sets out the terms and conditions under which the ownership interests in the business can be bought or sold. The agreement typically specifies the events that can trigger a buyout, such as the death, disability, or retirement of an owner, and sets out the valuation method and payment terms for the buyout. Buy-sell agreements are commonly used in closely-held businesses to ensure a smooth transition of ownership and to protect the interests of the remaining owners.

C

The difference between the purchase price and the sale price of an asset, such as a stock, bond, or real estate. If the sale price is higher than the purchase price, the difference is a capital gain, and if the sale price is lower than the purchase price, the difference is a capital loss. Capital gains and losses are important for tax purposes, as they can affect an individual’s taxable income. In many countries, capital gains are taxed at a lower rate than ordinary income, while capital losses can be used to offset capital gains or other income.

Cash Alternatives

Short-term, low-risk investments that can be easily converted into cash. These investments typically have a low rate of return, but offer a high level of safety and liquidity. Examples of cash alternatives include money market funds, certificates of deposit (CDs), and U.S. Treasury bills. Cash alternatives can be a good option for investors who want to preserve their capital and have easy access to their funds, but they may not provide the same level of growth potential as other investments.

Cash Surrender Value

The amount of money that an individual would receive if they were to cancel or surrender a life insurance policy or annuity contract. This value represents the accumulated savings or investment component of the policy or contract, and may be subject to surrender charges or other fees. The cash surrender value is typically lower than the total premiums paid into the policy or contract, as it does not include the cost of insurance or other charges. It is important for individuals to carefully consider the potential consequences of surrendering a policy or contract before making a decision.

Certificate of Deposit (CD)

A type of savings account offered by banks and other financial institutions. When you invest in a CD, you agree to deposit a certain amount of money for a fixed period of time, typically ranging from a few months to several years. In return, the bank pays you interest on your deposit at a fixed rate that is generally higher than the rate on a regular savings account. CDs are considered to be low-risk investments, as they are insured by the Federal Deposit Insurance Corporation (FDIC) up to certain limits. However, it is important to note that you may face penalties if you withdraw your money before the CD matures.

Charitable Lead Trust

A type of trust that provides financial support to charities for a set period of time, with the remaining assets eventually going to other beneficiaries. It can be funded with various assets and may offer tax benefits to the beneficiaries.

Charitable Remainder Trust

An irrevocable trust that allows individuals to donate assets to charity while still generating income for themselves or other beneficiaries. The trust is tax-exempt and designed to reduce the taxable income of individuals. The trust pays income to one or more non-charitable beneficiaries for a specified period of time, after which the remaining assets are donated to one or more charitable beneficiaries. Setting up a Charitable Remainder Trust makes the donor eligible for a partial tax deduction. It can offer benefits for retirement planning, estate planning, and tax management.

Claim

A statement or demand that something is true, due, or belongs to someone. A claim can be about money, property, rights, or facts. For example, an insurance claim is a formal request by a policyholder to an insurance company for coverage or compensation for a covered loss or policy event. The insurance company validates the claim and, if approved, issues payment to the insured or an approved interested party on behalf of the insured.

COBRA

COBRA stands for the Consolidated Omnibus Budget Reconciliation Act. It is a federal law that gives workers and their families who lose their health benefits the right to choose to continue group health benefits provided by their group health plan for limited periods of time under certain circumstances such as voluntary or involuntary job loss, reduction in the hours worked, transition between jobs, death, divorce, and other life events1.

Coinsurance or Co-Payment

A provision in an insurance policy where the insured and the insurer share the cost of covered medical services after the deductible is met.

Commercial Paper

A short-term, unsecured debt security issued by a corporation to finance short-term liabilities, backed only by the corporation’s promise to pay on the maturity date.

Common Stock

A security representing partial ownership in a corporation, giving the holder the right to vote for the board of directors and receive dividends.

Community Property

Laws in certain states where property and debts acquired during marriage, except for gifts or inheritances, are jointly owned by both spouses and divided upon divorce or annulment.

Compound Interest

The process of calculating interest on both the principal and any previously earned interest that has been reinvested.

Consumer Price Index (CPI)

A monthly measure of inflation calculated by the Department of Labor.

Convertible Term Insurance

A term life insurance policy that gives the policyholder the option to convert to permanent life insurance, subject to limitations.

Corporate Bond

A debt security issued by a corporation where the issuer promises to make periodic interest payments and repay the principal at maturity.

Corporation

A legal entity created under state law with privileges and liabilities separate from its members or shareholders.

Coverdell Education Savings Account (Coverdell ESA)

A tax-advantaged investment account for accumulating funds for future education expenses, subject to limitations.

Credit Score

An estimation of a potential borrower’s likelihood to repay debts and their creditworthiness.

D

Debt

An obligation owed by one party to another.

Debt-to-Equity Ratio

The ratio of a company’s total debt to its total shareholder equity, used to assess a company’s ability to repay its creditors.

Deduction

An amount that can be subtracted from gross income before calculating income taxes.

Deed

A legal document that confirms ownership or transfer of ownership of an asset from one person or entity to another.

Deferred Annuity

A contract with an insurance company that guarantees future payments in exchange for current premiums, with interest earned not taxable until paid out or withdrawn.

Defined Benefit Plan

A retirement plan where the benefit to a retiring employee is defined, normally funded by employer contributions.

Defined Contribution Plan

A retirement plan where annual contributions made by the employer or employee are defined, with benefits varying depending on investment performance.

Deflation

A decrease in the price of goods and services, the opposite of inflation.

Dependent

A person who relies on another for financial support, allowing the supporter to claim certain exemptions when filing income taxes within limits.

Direct Rollover

The direct transfer of assets from one qualified retirement plan or account to another without triggering a taxable event.

Disability Income Insurance

An insurance policy that pays a portion of the insured’s income when a specified disability makes working uncomfortable, painful, or impossible.

Diversification

An investment strategy where capital is divided among several assets or asset classes to manage risk, assuming different assets and/or asset classes are unlikely to move in the same direction.

Dividend

Taxable payments made by a company to its shareholders, paid quarterly or monthly and adjustable by the company’s board of directors.

Dollar-Cost Averaging

An investment strategy where a fixed dollar amount of securities is purchased at regular intervals, buying more shares when prices are low and fewer when prices rise.

Dow Jones Industrial Average (DJIA)

An average calculated by summing the prices of 30 leading stocks on the NYSE and dividing by a divisor adjusted for stock splits, spinoffs, or similar changes.

E

Early Withdrawal

Withdrawal of funds from an investment before its maturity date or from a tax-deferred account before meeting age requirements, potentially subject to penalties.

Employee Stock Ownership Plan (ESOP)

A defined-contribution plan providing a company’s workers with an ownership interest in the company, usually as shares of company stock.

Employer-Sponsored Retirement Plan

A retirement plan sponsored by an employer for its employees, either a defined-contribution plan (such as SEP IRAs, 401(k) plans, and 403(b) plans) or a defined-benefit plan (such as traditional pensions).

Equity

The value of real property or a business after liabilities have been paid.

Employee Retirement Income Security Act (ERISA)

A federal law establishing regulations for retirement plans and spelling out federal income tax regulations for qualified retirement plans.

Estate Management

Preparations for managing a person’s financial and healthcare matters during their lifetime and distributing their assets upon their death.

Estate Tax

Federal and/or state taxes levied on the assets of a deceased person, paid by the estate rather than the heirs.

Exchange-Traded Funds (ETFs)

A share of an investment company owning a block of shares selected to pursue a specific investment objective, trading like stocks on stock exchanges and sold by broker-dealers.

Executive Bonus Plan

An executive benefit paid by an employer.

Executor

A person named by a will or appointed by the probate court to distribute the deceased’s assets as directed by the will or state probate laws.

F

Federal Income Tax Bracket

A series of income ranges where a taxpayer’s income is taxed at a certain rate, paying the tax rate in a given bracket only for that portion of their overall income within the bracket’s range.

Federal Reserve System (The Fed)

The United States’ central bank, consisting of 12 independent banks operating under the supervision of a seven-member, federally appointed board of governors, striving to maintain maximum employment, stable price levels, and moderate long-term interest rates while establishing and enforcing banking regulations and providing banking services to the federal government.

Financial Aid

Loans, grants, scholarships, and work-study programs from federally and privately funded sources enabling students to attend college.

Financial Statement

A formal record of the financial activities of a business, person, or other entity, including a balance sheet, profit and loss statement, and cash flow statement for businesses.

G

Gift

The voluntary transfer of assets where the giver receives no compensation and retains no interest in the gift.

Gift Tax

A tax levied by the federal government and some states on property transfers as gifts, increasing with the gift amount and paid by the donor.

Gross Monthly

Income Total monthly income from all sources before taxes and other expenses are considered.

Group Life

Insurance Life insurance insuring all members of a specific group, such as employees of a company or members of a professional association.

H

Health Savings Account (HSA)

An account offering individuals covered by high-deductible health plans a tax-advantaged means to save for medical expenses, with funds contributed within certain limits not subject to federal income taxes and able to be rolled over from year to year if not spent.

Home Equity

The real value of a home after liabilities have been paid.

I

Income

Money or other compensation received from any source, including wages, commissions, bonuses, retirement benefits, unemployment compensation, disability, interest, and dividends, generally taxable unless specifically exempted by law.

Index

An average of the prices of a hypothetical basket of securities representing a particular market or portion of a market, such as the Dow Jones Industrials Index, S&P 500 Index, or Russell 2000 Index.

Individual Retirement Account (IRA)

A type of retirement account that allows individuals to save for retirement. Contributions may be tax-deductible and withdrawals are taxed as ordinary income. Required minimum distributions must begin at age 72.

Inflation

The rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling.

Initial Public Offering (IPO)

The first time a company offers its stock to the public for purchase.

Interest Rate

The percentage of a loan amount that is charged for borrowing money.

Intestate

The state of an estate when the owner dies without leaving a valid will.

Investment Objective

The financial goal of an investment.

Irrevocable Trust

A trust that cannot be changed or canceled after it has been created without the permission of the beneficiary or trustee.

J

Joint Tenancy

A form of property ownership where two or more people have equal ownership and the right of survivorship.

Jointly Held Property

Property owned by more than one person, where all owners have equal rights to use the property.

K

Keogh Plan

A tax-deferred retirement plan for self-employed individuals and employees of unincorporated businesses with higher contribution limits than IRAs. Distributions are taxed as ordinary income and may be subject to a penalty if taken before age 59½.

Key Employee

An employee with valuable skills, knowledge, or abilities who is critical to the success of a company.

Key Person Insurance

Insurance owned by a company to cover the cost of replacing a key employee in the event of their death or disability.

L

Life Insurance

A contract between an individual and an insurance company where the company promises to pay a benefit upon the death of the policyholder in exchange for premiums.

Liquidity

The ability to quickly buy or sell an asset or security without affecting its price.

Living Trust A trust created by an individual during their lifetime that allows them to control the assets placed in the trust and direct their distribution upon death.

Living Will

A legal document that allows an individual to specify their medical treatment preferences in the event they become incapacitated.

Long-Term-Care Insurance

Insurance that covers the cost of medical and non-medical services for individuals with chronic illnesses or disabilities, including nursing home care, in-home assistance, assisted living, and adult day care.

Lump-Sum Distribution

A one-time payment of the entire balance of a retirement, pension plan, annuity, or similar account.

M

Management Fee

A fee charged by a professional asset manager as a percentage of the assets under management.

Marital Deduction

A tax provision that allows an individual to transfer unlimited assets to their spouse without incurring tax liability.

Market Risk

The risk that the value of investments will decline due to overall market conditions.

Market Timing

An investment strategy where investors buy and sell securities based on short-term price fluctuations.

Maturity

The date when a debt security is due for repayment and the investor’s principal is returned.

Medicaid

A government health program for eligible low-income individuals and families.

Medicare

A government health program for individuals aged 65 and over, and for those with certain disabilities or end-stage renal disease.

Money Market Fund

A mutual fund that invests in low-risk, easily convertible assets such as money market holdings, Treasury bills, and commercial paper. Money market funds seek to preserve the value of the investment at $1.00 per share, but it is possible to lose money.

Municipal Bond

A debt security issued by a state or local government entity to raise funds for public projects. The income from municipal bonds is usually exempt from federal income tax and may also be exempt from state income tax in the state where the bond is issued.

Municipal Bond Fund

A mutual fund that invests specifically in municipal bonds. The value of the fund’s shares will fluctuate with market conditions.

Mutual Fund

An investment vehicle that pools money from multiple investors to purchase a diversified portfolio of securities. The value of the fund’s shares will fluctuate with market conditions.

N

National Association of Securities Dealers Automated Quotations (NASDAQ)

An American stock exchange that was the world’s first electronic stock market.

Net Asset Value

The per-share value of a mutual fund’s assets, calculated by dividing the net market value of the fund’s holdings by the number of outstanding shares.

Net Income

A company’s total revenue minus its costs, expenses, and taxes, representing the company’s profit.

Net Worth

The value of an individual’s or company’s assets minus their liabilities.

New York Stock Exchange (NYSE)

A large stock exchange located in New York City.

Non-contributory Retirement Plan

A retirement plan funded entirely by employer contributions, with no employee contributions required.

Non-qualified Plan

A retirement or employee benefit plan that does not meet the requirements for favorable tax treatment.

O

Old-Age, Survivors, and Disability Insurance (OASDI)

The official name for the Social Security program, which provides retirement benefits, disability income, veterans’ pensions, public housing, and food stamps.

P

Partnership

A business structure where two or more individuals manage and operate a business together.

Permanent Life Insurance

A type of life insurance policy that does not expire and combines a death benefit with a savings component that can accumulate cash value.

Policy Loan

A loan from an insurance company to a policyholder, secured by the cash value of a life insurance policy.

Policy Rider

An additional provision added to a life insurance policy that provides extra benefits at an additional cost.

Policyholder

The individual or entity who owns an insurance policy.

Portfolio

A collection of investments held by an individual investor or mutual fund.

Power of Attorney

A legal document that grants one person the authority to act on behalf of another person in legal or financial matters.

Preferred Stock

A type of stock that represents ownership in a corporation and has a higher claim on the company’s assets and earnings than common stock. Preferred stockholders typically receive dividends before common stockholders.

Prenuptial Agreement

A legal contract entered into by individuals before marriage that outlines how their assets will be divided in the event of divorce.

Price/Earnings Ratio (P/E Ratio)

A valuation ratio calculated by dividing a stock’s price by its earnings per share, used to determine how much an investor is paying for a company’s earnings.

Prime Interest Rate

The interest rate charged by commercial banks to their most creditworthy customers, influenced by the federal funds rate.

Principal

The original amount invested in a security or the remaining amount owed on a loan, separate from interest.

Probate

The legal process of settling a deceased person’s estate, including paying debts and distributing assets to heirs.

Property

Anything over which an individual or business has legal ownership, which may be held privately or in common.

Profit-Sharing Plan

A type of defined-contribution plan where employees share in the company’s profits, with funds accumulating tax-deferred.

Prospectus

A legal document that provides detailed information about an investment offered for sale to the public, required by and filed with the Securities and Exchange Commission.

Q

Qualified Retirement Plan

A retirement plan that meets the requirements of Section 401(a) of the Internal Revenue Code and receives favorable tax treatment.

R

Rate of Return

A measure of an investment’s performance, calculated by dividing any gain or loss by the investment’s initial cost and accounting for any income received from the investment.

Real Estate Investment Trust (REIT)

An investment vehicle that pools money to invest primarily in real estate, with shares trading like stocks on major exchanges.

Redemption

The return of an investor’s principal in a debt security upon maturity or cancellation, or the sale of units in a mutual fund.

Required Minimum Distribution (RMD)

The minimum amount that must be withdrawn annually from a qualified retirement plan starting at age 72.

Revenue

The total amount of money a company earns from its business activities before expenses and taxes are subtracted.

Revocable Trust

A trust that can be changed or canceled by the grantor during their lifetime, with income distributed to the grantor and assets transferred to beneficiaries upon the grantor’s death.

Risk

The potential for loss or lower-than-expected returns on an investment.

Risk Tolerance

An investor’s willingness or ability to handle potential investment losses.

Rollover

A tax-free transfer of assets from one qualified retirement plan to another, subject to specific requirements.

Roth IRA

A type of qualified retirement plan where contributions are made with after-tax dollars, earnings grow tax-deferred, and qualified distributions are tax-free. There are income and contribution limits for Roth IRA contributions.

Roth IRA Conversion

The process of transferring assets from a traditional, SEP, or SIMPLE IRA to a Roth IRA, subject to specific requirements and potential tax implications.

S

Securities and Exchange Commission (SEC)

A federal agency responsible for protecting investors, maintaining fair and efficient markets, and facilitating capital formation.

Self-Directed IRA

An individual retirement account where the account holder has control over the investment of funds, subject to certain conditions and limits.

Share

A unit of ownership in a corporation or financial asset.

Savings Incentive Match Plan for Employees (SIMPLE)

A type of qualified retirement plan for small businesses that allows employees and employers to contribute to traditional IRAs set up for employees.

Split-Dollar Plan

An arrangement where an employer and employee share the costs and benefits of a life insurance policy.

Split-Dollar Life Insurance

A life insurance policy where the premiums, cash values, and death benefit are split between two parties, typically an employer and a key employee or executive.

Spousal IRA

An individual retirement account established for a non-working spouse and funded with contributions from the working spouse, subject to combined annual contribution limits and certain requirements.

Standard & Poor’s 500 Index (S&P 500)

A stock market index that tracks the performance of 500 large publicly-traded companies in the United States.

Stock

An equity investment that represents ownership in a company, entitling the stockholder to a share of the company’s profits and voting rights.

Stock Certificate

A document that certifies ownership of a specific number of shares of stock in a corporation.

Stock Purchase Plan

A program offered by an employer that allows employees to purchase company stock at a favorable price, often through payroll deduction.

Stock Split

An increase in the number of outstanding shares of a company’s stock, where current shareholders receive additional shares, and the price per share is adjusted accordingly.

T

Tax Credit

A dollar-for-dollar reduction in tax liability, subtracted from the amount of taxes owed.

Tax Deduction

An expense that can be subtracted from a taxpayer’s income before calculating their tax liability.

Tax Deferred

A condition where taxes on investment earnings are deferred until the funds are withdrawn.

Tax-Exempt Bonds

Debt securities issued by state or local government entities that generate income exempt from federal income tax and potentially state income tax in the state where the bond is issued.

Taxable Income

A taxpayer’s gross income minus any adjustments, deductions, and exemptions, used to calculate their tax liability.

Technical Analysis

A method of evaluating securities by analyzing past price movements and trends to identify patterns that may suggest future activity.

Tenancy in Common

A form of property ownership where two or more individuals have an undivided interest in the property, and the interest of a deceased owner passes to their beneficiaries rather than to the surviving owners.

Term Insurance

A type of life insurance that provides coverage for a specific period of time, where the policyholder’s beneficiaries receive the death benefit if the policyholder dies during the term of the policy.

Testamentary Trust

A trust created upon the death of the trustor, usually by a will or another trust.

Time Horizon

The length of time an investor plans to hold an investment or portfolio.

Title

A legal document that serves as evidence of ownership of an asset.

Total Return

The total earnings from an investment, including capital appreciation and any income received.

Treasuries

Debt securities issued by the United States government with varying maturities, guaranteed by the federal government for timely payment of principal and interest.

Trust

A legal arrangement where property is held and managed by a trustee for the benefit of a beneficiary. A living trust is created during the grantor’s lifetime, while a testamentary trust is created upon the grantor’s death.

Trustee

An individual or entity responsible for managing property held in a trust.

Trustee-to-Trustee Transfer

A transfer of assets from one qualified retirement plan to another without triggering a taxable event.

U

Uniform Gift to Minors Act (UGMA)

A law that allows assets to be held in a custodian’s name for the benefit of a minor without establishing a trust, where the assets become the property of the minor upon reaching the age of majority.

Universal Life Insurance

A type of permanent life insurance that allows flexible premiums and death benefits, with a cash value component that grows tax-deferred.

Unlimited Marital Deduction

A tax provision that allows an individual to transfer unlimited assets to their spouse without incurring tax liability.

V

Variable Interest Rate

An interest rate that fluctuates based on a specific measure or index.

Variable Universal Life Insurance

A type of permanent life insurance that allows flexible premiums and death benefits, with a cash value component that grows tax-deferred and can be allocated among subaccounts offered within the policy.

Volatility

A measure of the potential range of fluctuations in the value of a security, where higher volatility indicates a wider range of potential outcomes.

W

Whole Life Insurance

A type of permanent life insurance with fixed premiums and death benefit, and a cash value component that grows tax-deferred.

Will

A legal document that specifies an individual’s wishes for the distribution of their assets and guardianship of minor children after their death.

Withholding

The process where an employer deducts an employee’s income, Social Security, and Medicare taxes from their compensation and pays them to the IRS on the employee’s behalf.

Y

Yield

A measure of an investment’s performance, calculated by dividing the income received from the investment by its initial cost, accounting only for income and not for changes in the investment’s value.

Z

Zero-Coupon Bond

A bond that does not pay interest during its term but is sold at a discount from its face value, with the investor receiving the face value upon maturity.