A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
Active management: Actively managed mutual funds involve the fund manager's selecting individual securities. This approach is in contrast to the approach taken in index funds.
Asset allocation: Spreading investment assets among stock, bond, and cash funds, usually based on investment goal and personal comfort with various types of investment risk.
Average maturity: The average of maturity dates of all the individual bonds in a bond fund.
Back-end load: A fee paid by an investor when taking money out of an investment.
Balanced fund: A mutual fund that seeks both growth and income, generally through a combination of stock and bond investments.
Basis point: One one-hundredth of one percent. A basis point = 0.01%.
Bear Market: a period during which security prices are generally falling.
Benchmark: A point of comparison used to evaluate investment performance. Mutual fund benchmarks are often indexes (for example, the S&P 500 Index or the Russell 2000.)
Blue chip stock: The stock of a well-known, usually very large company that has been in business for a long time.
Bottom-up investing: An investment strategy that emphasizes searching for outstanding individual companies rather than basing choices on market trends. This is the opposite of top-down investing.
Bond: a debt security issued by a company, municipality, or government agency. As a bond purchaser, you're lending money to the issuer. In exchange, the issuer promises to repay the amount of the loan on a specified maturity date. The issuer is also obligated to pay the bondholder periodic fixed-interest payments over the life of the loan.
Bull Market: a period during which security prices are generally rising.
Capital Gain Distributions: payments to shareholders of profits (long-term gains) realized on the sale of the mutual fund's portfolio securities. Generally, these amounts are paid once a year.
Capitalization: (Often shortened to "cap") The value of all outstanding shares in a particular company. (See large-cap, mid-cap, and small-cap)
Cash equivalent: An investment that offers liquidity and safety of principal. Common cash equivalents are money market mutual funds and Treasury bills.
Certificate of Deposits (CD): a negotiable certificate for a timed deposit of funds with a bank. Typically, a CD is backed by the Federal Deposit Insurance Corporation (FDIC) to a maximum of $100,000 per person at any single institution. Always confirm that a CD in which you invest is insured by the FDIC.
Common stock: A stock that represents ownership and, generally, voting rights in a company. Dividends, if any, are paid first to owners of preferred stock.
Compounding: A geometric process in which interest is paid not only on principal but also on any interest the principal has earned.
Consumer Price Index (CPI): a measure of inflation or deflation based on price changes in consumer goods and services.
Coupon rate: Another term for the interest rate to be paid on a bond or other debt security.
Cost Basis: in most cases, the original cost of property or securities to the taxpayer.
Credit Risk: A measure of how secure your investment principal may be. In connection with bonds, the term refers to the possibility that the bond issuer may default in paying either principal or interest.
Cyclicals: Industries -- like housing and automobiles -- in which earnings tend to rise when the economy becomes stronger and to fall when the economy becomes weaker.
Debt security: Bonds, bills, notes, and money market mutual funds are all examples of debt securities, which are "IOUs" for money to be repaid to a lender.
Defined contribution plan: An employer-sponsored retirement plan to which the employee, and sometimes the employer, contributes. No payout, or benefit, is promised.
Defined benefit plan: An employer-sponsored pension plan, in which the employer promises payout of a regular benefit at the employee's retirement.
Discount rate: The rate the Federal Reserve charges member banks for borrowing.
Diversification: Spreading investment assets among stock, bond, and cash funds.
Dividend: Payment to a shareholder of a portion of company profits.
Dollar Cost Averaging: the strategy of investing equal amounts of money at regular intervals regardless of whether securities markets are moving up or down. The strategy reduces average share costs to the investor, who acquires more shares in periods of lower securities prices and fewer shares in periods of higher prices.
Dow Jones Industrial Average: the most widely used stock market indicator, composed of thirty large, actively traded companies.
Duration: Expressed in years, duration is a measure of how sensitive a bond or bond fund's price is to interest-rate changes. Generally, the shorter the duration, the less sensitivity to changes.
Emerging markets: Financial markets of developing nations.
Equity: the ownership interest of common and preferred stockholders in a corporation.
Expense ratio: The percentage of total assets that shareholders pay for mutual fund operation and management.
Federal funds rate: The Fed funds rate is the interest rate charged on overnight loans by one bank to another. The Federal Reserve Open Market Committee sets this rate to help control consumer interest rates.
Federal Reserve: The U.S. central bank, which has 12 member banks and is regulated by a Board of Governors.
Fixed-income security: A security, like a bond or money market, that pays an investor a fixed rate of interest.
401(k), 403(b): Employer-sponsored defined contribution plans that permit employees to save and invest for retirement.
Front-end load: A fee paid by an investor when investing money in a mutual fund.
Fundamental analysis: Analysis of a company's financial and business situation, it is used to project future ups and downs in stock price.
General Obligation Bond: a type of municipal bond backed by the full faith and credit and taxing power of the issuer for payment of interest and principal.
Gross domestic product: GDP is the total value of all services and goods produced by a country in a given year.
Growth Fund: a type of common stock fund that has capital appreciation as its primary goal. To reach this goal, growth funds typically invest in fat-growing companies. Generally the value of a growth fund fluctuates more than does the value of the overall stock market.
Growth investing: An investment strategy that seeks companies whose earnings and dividends, if any, are expected to grow more rapidly than the overall economy.
Income Fund: a type of mutual fund that seeks to provide a stable current income from investment by investing in securities that pay interest, such as bonds.
Index: A group of securities in a particular industry or market-capitalization category whose average value may be used as a benchmark for other securities in that industry or category.
Index investing: An investment strategy which seeks to mirror the performance of a particular index or benchmark by investing in all or a representative sample of the securities in the index.
Inflation: A rise in prices, measured by the Consumer Price Index, which reflects the cost of a particular group of services and goods.
Interest Rate Risk: a measure of how sensitive an investment's value is to the ups and downs of interest rates. Although all investments are to some degree affected by interest-rate movements, bonds are more directly affected. Generally, shorter-term bonds (one to three years) are less sensitive to interest-rate changes than are longer-term bonds.
International fund: A mutual fund that invests in stocks or bonds or both of non-US companies.
Investment grade: Bonds designated by Moody's Investors Service or Standard & Poors in their top four categories.
Junk bond: A non-investment grade bond, rated below the top four categories by Moody's or S&P.
Large-cap stock: Stock of a company that has a total market capitalization of at least $1 billion.
LIBOR: London Inter-Bank Offer Rate, which is the interest rate large international banks charge each other for loans.
Liquidity: the ability to cash in all or part of your mutual fund shares on any business day and receive their current value (which may be more or less than your original cost).
Load (sales load or charge): an amount charged on the purchase of fund shares sold by brokers or other members of a sales force. The sales charge may not exceed 8.5 % of the initial investment (The charge may vary, depending on the amount invested.) The charge is added to the net asset value per share when determining the offering price.
Market timing: A risky investment strategy that involves buying and selling securities on the basis of changes that may take place in the future.
Maturity: The date when a fixed-income investment like a bond is due. Short-term bonds mature in less than five years, intermediate-term bonds in five to 10 years, and long-term bonds in a period longer than 10 years.
Mid-cap stock: Stock of a company that has a total market capitalization of between $250 million and $1 billion.
Monetary Policy: the policies and actions of the Federal Reserve Board that impact the rate of growth and size of the money supply.
Money Market Fund: a a type of mutual fund that invests in securities that mature in less than one year.
Morningstar ratings: Morningstar, Inc.'s system of ranking mutual funds by stars based on their risk-adjusted performance over various time periods. (Five stars is best, one star worst.)
Municipal Bond: a debt security issued by a state or a municipality to raise money to finance capital expenditures.
Mutual Fund: a pooled fund of assets from many investors invested in individual securities, like stocks and bonds.
National Association of Securities Dealers, Inc. (NASD): a self-regulatory organization for member securities brokerage firms with authority over the distribution of mutual fund shares.
Net Asset Value (NAV): the market worth of one share of a mutual fund. This figure is calculated by taking a fund's total assets -- securities, cash, and any accrued earnings -- deducting liabilities, and dividing by the number of shares outstanding.
New York Stock Exchange (NYSE): a corporation operated by a board of directors responsible for setting policy, supervising NYSE Exchange and member activities, listing securities, overseeing the transfer of members' seats on the Exchange.
No-Load: a mutual fund selling its shares at net asset value without any front- or back-end sales charge. Also, no load funds must limit their annual 12b-1 fees/service fees to 0.25% or less.
Offering Price: the price of a security, like an individual stock or bond, or a mutual fund share.
Over-the-counter: The OTC securities market in which trades take place by phone or computer, not on an organized, physical stock exchange.
Par value: The face value of a stock or bond.
Preferred stock: Dividend payments on preferred stock are fixed and are distributed before any dividends may be paid to holders of common stock.
Premium bond: A fixed-income investment the market price of which is higher than its face or par value.
Price/earnings ratio: P/E ratio is calculated by dividing a stock's price by its current earnings per share. A high P/E suggests the market is optimistic about future prospects for the company.
Prime Rate: the interest rate that commercial banks charge their prime (most creditworthy) customers (generally large corporations).
Prospectus: a legal document that must be given to every investor who purchases registered securities in an offering. It describes the details of the company, fund, and the particular offering or investment objective, charges and expenses.
Quantitative analysis: Using mathematical models to predict and evaluate future risk and return of portfolio asset allocations.
Recession: Generally defined as two consecutive quarters of negative or no growth in the economy accompanied by a rise in unemployment.
Redeem: to cash in your shares by selling them back to the mutual fund. Mutual fund shares may be redeemed on any business day.
Return: A percentage reached by dividing the initial value of an investment into its ending value plus any reinvested distributions.
Revenue Bond: a bond whose interest and principal are payable only from specific earnings of an income-producing enterprise.
Risk/reward relationship: Generally, the higher the potential for investment reward (growth), the greater the investment risk (loss of investment principal at any given time), and vice versa.
S&P 500: The Standard & Poor's 500 Index of 500 companies in major US industries, weighted by capitalization.
Sales Charge: (sales load or charge): an amount charged on the purchase of fund shares sold by brokers or other members of a sales force. The sales charge may not exceed 8.5 % of the initial investment (sales charges may vary depending on the amount invested). The charge is added to the net asset value per share when determining the offering price.
Sector weighting: In an investment portfolio, the percentage of assets invested in each of the major industry classifications (Utilities, Consumer Durables, Health, etc.)
Securities and Exchange Commission (SEC): the primary US federal agency that regulates registration and distribution of securities, including mutual fund shares.
SEP-IRA: A type of IRA that permits but does not require a small business to contribute to its employees' retirement saving plan accounts.
Small-cap stock: Stock of a company that has a total market capitalization of below $250 million.
Specialized (sector) Fund: a type of mutual fund that tries to achieve its investment objectives by concentrating its investments within a single industry or group of related industries.
Standard deviation: An absolute measure of portfolio volatility. Generally, the higher the standard deviation, the higher the volatility of the portfolio.
Technical analysis: Analysis of supply and demand, it is used to predict price trends.
Top-down investing: An investment strategy that analyzes general economic trends and then seeking industries and companies that can be expected to benefit from the trends. This is the opposite of bottom-up investing.
Total Return: a measure of an investment's performance that takes into account all three components of earnings per share: dividends, capital gain distributions, and price appreciation and the sales charge paid.
Treasury Bills (T-bill): a marketable, short-term (90 days to one year) US government debt security issued through competitive bidding process at discount from face value. T-Bills are backed by the full faith and credit of the US government.
12-b-1 fee: Assessed against fund assets by a mutual fund for advertising and promotional expenses.
Value investing: An investment strategy that seeks companies currently out of favor with the markets and therefore priced below what the investor believes the companies are worth.
Yield: the income per share paid to a shareholder over a specified period of time. Yield is expressed as a percent of the fund's current price per share. For example, if your fund distributed $1.00 per share over a year and, at the end of the year, its price was $20.00 per share, its yield would be 5 %: $1/$20=5%.
Yield spread: In bond investing, the difference in yield between bond types, which is determined by credit rating, supply and demand, and interest-ate changes.
#3372 (11/04)
|
