Glossary of financial terms to make understanding wealth management easier.


Accrued Interest– The amount credited to a bond or other fixed-income security between the date of the last payment and the date when the security is sold, or any intermediate date.  The buyer usually pays the seller the security’s price plus the accrued interest.

Asset Allocation– In finance, choosing or rejecting certain investments based on an underlying strategy, such as aggressive growth, income, tax relief etc.

Adjustable Rate Mortgage- A mortgage whose interest rate changes periodically based on the upward or downward movement of a specified benchmark- for example, six- month or one- year Treasury Bills.

Balanced Portfolio– A set of investments balanced between riskier and more conservative holdings ie. Between stocks and bonds, or between new bond issues and blue chips.

Basis Point– The smallest measure used in quoting yields on mortgages, bonds, stock, notes, etc.  One basis point equals one hundredth of a percent of an asset’s value.  For example, the difference between a yield of 6.25% and 6.50% is 25 basis points.

Beneficiary– The person(s), institution, trustee, or estate named to receive death benefits.

Bear Market– A period of declining prices in a financial market.

Blue Chip Stocks- Equity ownership in highly regarded investment-quality companies.  These companies tend to be well established, older, and have the ability to pay dividends in good and bad years. The Dow Jones Industrial Average is based on 30 stocks which are primarily blue-chip stocks.

Bond– A formal certificate of debt, usually issued by corporations or units of government.

Bull Market– A period of rising prices in a financial market.

Compound Interest– Interest credited daily, monthly, quarterly, semiannually or annually on both principal and previously credited interest.

Conservative Growth Portfolio– A portfolio aimed at long-term capital appreciation with low risk, it will likely contain a high percentage of “blue chip” companies with low turnover, infrequent trading.

Custodian– An organization that holds in safekeeping the securities and other assets of an investment company.

Diversification– A risk-reduction strategy that involves spreading assets across a mix of companies, investments, industries, geographic areas, maturities, and/or investment categories.

Dow Jones Industrial Average (DJIA) A widely recognized stock market index based on the prices of 30 of the largest New York Stock Exchange (NYSE) listed stocks as published by Dow Jones and Company.

Emerging Growth Stock– Equity ownership in growth companies that are typically smaller and younger.  These stocks have survived their early years and are beginning to grow and expand.  These stocks usually involve higher risk.

Equity– A synonym for ownership or a share of ownership (stock or real estate holdings). In finance, equity is synonymous with stock and real estate.

Financial Planning– A comprehensive strategy to integrate an individual’s or family’s financial goals, including risk management, investment, tax planning, retirement planning and estate planning.

Fixed Income Investment– A security, such as a bond, that pays a specific rate of interest.

401(k) A tax deferred retirement plan that lets employees contribute pretax dollars to an account in the company plan until the employee retires or leaves the company.

403(b) A plan similar to a 401(k), a tax deferred retirement plan that lets employees of tax-exempt education or research organizations and public schools contribute pretax dollars to an investment pool until the employee retires or terminates employment.

Growth Fund– A fund that invests in the stocks of companies whose growing earnings are reinvested for the purpose of expansion, research or development.

Growth Portfolio– A portfolio that invests in higher risk investments with strong potential for Capital Appreciation.

Growth Stock– Stock in corporations with higher than average sales and earnings.  To maintain growth, they reinvest earnings in the company rather than pay dividends. The share prices of these stocks often outpace the market.  The appreciation goes untaxed until the stock is sold.  This acts as an income tax deferral and allows for higher compounding returns.  Long-term capital gains are taxed at a lower maximum rate than ordinary income.

Income Portfolio– A portfolio that concentrates on securities that produce steady, regular income, usually as dividends and interest.

Income Stock– A stock that pays regular and steady income.  These stocks should appreciate enough to keep up with inflation.  Income stocks are those of well-established companies, such as utilities, some telephone companies, and some blue -chip companies.

Index– A measure of market performance (The Dow Jones Industrial Average, Standard and Poor’s 500 Stock Price Index or the Russell 3000 Index).

Individual Retirement Account (IRA)– A savings device that permits individuals to set aside assets each year, with earnings tax deferred.  There are several types of IRAs, each with its own special features.

Initial Public Offering– The first offering of stock by a company.

Investment– The purchasing of stocks, bonds, mutual funds, options, real estate etc. made with the expectations of future income or capital gains.

Investment Advisor– An individual or organization entrusted with conserving and managing assets.

Investment Risk– A type of risk incurred when making investments.  Examples include Financial Risk, Market Risk, Interest Rate Risk, and Inflation Risk.

Irrevocable Beneficiary– A beneficiary designation that cannot be changed without the beneficiary’s consent.

Market Risk– Risk coming from price fluctuations in a whole market, in an industrial group, or economic conditions.

Market Value– The price that an investment instrument can command on the open financial markets.

Maturity Date– The date on which a loan, bond, mortgage or other debt security is due to be repaid.

Money Market Fund– A fund or annuity that invest in short-term debt instruments.  Interest rates change daily, but the New Asset Value of one share generally stays at $1.

Municipal Bond– Debt issued by a state or local government body.  The interest is usually exempt from federal (and sometimes state and local) taxation.

Mutual Fund– An investment company that pools funds from individuals to buy securities selected to meet specific criteria and goals.

NASDAQ- the NASD-owned computer system that provides brokers and dealers with price quotes for stocks sold Over-the Counter.

New York Stock Exchange-(NYSE) The largest and oldest security exchange in the United States, generally representing stocks of older, more established companies.

Pretax Investment– Certain types of tax-sheltered investments, such as 403(b) annuities, 401(k) plans, and Keogh plans, in which income can be invested before it has been subjected to taxes.

Price-Earnings (P/E) Ratio– A popular measure of the value of common stock; it is the market price of a share of stock divided by its annual earnings per share.

Rate of Return– For stocks, the annual dividend divided by the purchase price. For bonds, the rate of return is the current yield.

Real Estate Investment Trusts (REITs)- Pools of real properties usually marketed to groups of individual investors, similar to a closed-end mutual fund.

Registered Investment Adviser– Title created by the Investment Advisers Act of 1949.  Any individual who sells advice to 15 or more interstate clients during a 12-month period must register with the SEC and file educational and background information.

Risk– The possibility of losing or not gaining value.  In investments, there are many kinds of risk including: Inflation Risk, Economic Risk, Financial Risk, Market Risk, etc.

Risk/Reward– An investment theory that correlates increased risk-taking with greater return on an investment. (Lower-risk investments typically yield smaller returns.)

Rollover– An employee’s transfer of retirement funds from one retirement plan to another plan of the same type or to an IRA (without incurring a tax liability).

Securities– Investment instruments issued by corporations, government bodies, or other entities that offer investors shares of ownership or a creditor relationship.

Securities and Exchange Commission (SEC) An agency established by the Securities Exchange Act of 1934.  The federal agency that administers the laws governing the securities industry.

Share– A unit representing a measure of ownership in a corporation.

Simplified Employee Pension Plan (SEP)- A retirement plan that allows employers to contribute to their employee’s IRA plans rather than establishing a pension plan.

Simple Plan for Small Businesses- Savings Incentive Match Plan for Employees (SIMPLE).  Plans can be adopted by employers with 100 or fewer employees. May be organized as an IRA or 401(k).  Income and contribution rules apply.  Employee contributions are immediately vested and are deductible for AGI (adjusted gross income).

Sole Proprietor– A business in which the individual proprietor and the company are considered one entity for tax purposes.

Standard & Poor’s Rating– A classification of bonds according to risk. S&P’s four top grades, AAA, AA, A, and BBB are called Investment Grade because they are low-risk investments.

Stockholder– The owner of one or more shares of corporate stock.  A preferred stockholder has first claim to: proportionate voting rights, dividends when issued, a proportionate share of the company’s undivided assets, and often, an opportunity to buy new stock issues before public offerings.  Common stockholders have claims subordinate to preferred stockholders.

Stock Split– An increase in the number of shares in a corporation without changing the number of shareholders, usually designed to make the stock more marketable. For example, if a stockholder had one share of XYZ stock with a market value of $100 and the stock split 2-1, the stockholder would then own two shares, each worth $50.  Under a reverse stock split, one new share of stock is exchanged for two or more old shares.

Taxable Income– The amount of income subject to income taxes after deductions and other items are subtracted from Adjusted Gross Income.

Treasury Bills– Government-baked securities issued on a discount basis in denominations of $10,000.  Maturities range from three months to one year.

Treasury Notes– Government-backed securities with maturities of one to ten years, with interest paid every six months.

Trust– A legal entity in which one person or institution holds the right to manage property or assets for the benefit of someone else.

Trustee– A person to whom property is committed so that it can be administered on behalf of a beneficiary.

Will– A legally enforceable declaration of a person’s wishes regarding the disposal of his or her property after death.  Wills can be changed or revoked before the author dies.

Yield to Maturity (YTM)- Calculation of yield on a bond from the current date until the date on which it is scheduled to be retired; it takes into account the gain on a discount or loss on a premium.