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Investment Glossary of Terms

C D E-F G-K L-M N-O P-R S-Z

ACH/Electronic Funds Transfer
Automated Clearing House (ACH) is the electronic funds transfer network in the U.S. that allows direct deposit of money between one account and another. Your banking institution must be a ACH participant to take advantage of such transfers.

American Stock Exchange
Called the Amex. More than 700 small to mid-size companies list here, with a heavy weighting to oil and oil-service companies.

Annual Report
Corporate document issued each year to detail to investors and others a company's financial performance and outlook.

Asset Allocation
Asset allocation is a strategy for reducing the risk associated with investing. It is dividing ones assets on a percentage basis among various broad categories of investments, such as, stocks, bonds and cash equivalents and where the allocation decisions are based on the investor's goals, risk tolerance and time horizon.

Economic events affect each asset category differently. Therefore when there is a downturn in any one market, other investments may perform better. In a diversified portfolio, fluctuations in asset value are often balanced out. An example would be that you may have a stock that has performed poorly, but bonds you hold that have a predictable income could counteract the loss.

Asset-Based Sales Charges
These fees are taken out of the mutual fund's assets to pay to market and distribute its shares. These charges could include compensation to a broker/dealer for the sale of mutual fund shares, for advertising, and for printing costs associated with the prospectus. Also known as 12b-1 fees.

Balance Sheet
Shows the company's financial condition at a specific point in time. When the asset side is equal to the side containing liabilities and equity, the sides balance.

Basis Point
One one-hundredth of a percent. Thus, if a bond's yield drops from 6.46 % to 6.41 %, it is said to have fallen by 5 basis points.

Bear
One who believes the outlook for a market or stock is down.

Bid And Ask Prices
Used mostly in the computer-based NASDAQ market:
· Bid is the selling price
· Ask is the buying price.
· The difference is the spread.

Big Board
Nickname for the New York Stock Exchange.

Blue Chip
The stocks of large, historically solid companies.

Bond
A loan to a corporation or government entity, usually paying a fixed rate of interest.

Broker
Individual or firm that acts as an intermediary between a buyer and a seller.

Bull
One who believes a market or stock is headed higher.

Buy-and-Hold
A strategy that is used to minimize transaction costs and avoid selling on temporary declines designed to hold securities for long periods of time believing that they will appreciate in value over the long term.
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Call
1. An option contract that permits the owner to purchase a specific amount of securities at a specified price until a specified date. Option contracts generally represent 100 shares of the same security
2. The right of the issuer to redeem a bond before its scheduled maturity.

Capital
1. Wealth in the form of money or property, owned, used or acquired in business by a corporation, individual or partnership.
2. Wealth that can be used to produce more wealth.

Capital Gain
Profit on the sale of a capital asset.

Cash Equivalents
Instruments such as certificates of deposit, Treasury bills, money market funds and commercial paper (IOUs of corporations with the highest credit ratings). Technically, a cash equivalent is a very short-term loan to a bank, government or corporation, but it's such a safe investment it's considered to be equivalent to cash in hand.

Cash Flow Statement
Shows where the cash came from, what it is spent on during the specified reporting period, and the net increase or decrease in cash owned by the company.

Certificate Of Deposit
A certificate made out in the owner's name that shows a specified amount of money is on deposit at a bank and the amount of interest it is earning.

Closing Price
The price paid at a stock's final trade of the day.

Commodities
Basic items or staple products (e.g. agriculture, fisheries, minerals, mining).

Common Stock / Preferred Stock
The two types of stock an investor can buy. Most is common stock and may or may not pay a dividend. Preferred stock usually does have a dividend, and usually it does not change as the price of the stock goes up and down. It is called preferred because if the company should liquidate or fail, preferred stockholders are paid first.

Compounding
A process where the money an investment earns stays invested in the account to earn more money.

Consumer Price Index (CPI)
The government's measure of inflation at the consumer level. For the past 30 years or so, the CPI has risen an average of about 4% per year.

Contingent Deferred Sales Charge
A fee that may be charged when you sell your mutual fund shares depending on the share class and/or rules imposed by the mutual fund company. The "CDSC" usually declines according to a schedule and is eventually eliminated after a number of years (typically in the 7th year).

Contribution
Money deducted from payroll and deposited into your retirement program account.

Corporation
A business and legal entity, chartered by State or Federal government, that has its own rights and obligations separate from that of the owners of the business.

Cost Basis
Is generally the amount paid for shares including all reinvested distributions. When you sell mutual fund shares from a taxable account you realize a capital gain or loss which must be reported on your income tax return. In order to calculate your gain or loss you must know the cost basis of the shares sold.

Coupon
The annual rate of interest paid on a debt security as calculated on the basis of the security's face value.

Current Yield
The annual rate of return on a security, calculated by dividing the interest or dividends paid by the market price, expressed as a percentage.
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Discount Broker
A brokerage firm that buys or sells securities for their customers at a lesser commission than what is charged by most full-service brokerage firms.

Diversification
Dividing money among a variety of investments. Diversification generally reduces risk because overall performance doesn't depend on any one investment.

Dividend
A payment of cash or additional stock to stockholders, as approved by the board of directors.

Dollar Cost Averaging
Putting a certain pre-determined dollar amount into an investment at regular intervals.

Dow Jones Industrial Average
A price index of 30 large U.S. companies used to help predict trends in the stock market.
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Earnings Per Share
The net income, after taxes, divided by the number of common shares the company has outstanding.

Equity
Also called Net Worth. The interest that the shareholders own in the company.

Expense Ratio
The expense ratio of a mutual fund measures the fund's total annual expenses as a percentage of the funds assets. Included is the asset-based sales charge and other ongoing fees that are deducted from the fund's assets and pay for the fund's investment adviser or transfer agent or other expenses of the fund. Not included in the Expenses Ratio are front-end sales charges and Contingent Deferred Sales Charges.

Federal Reserve System
The central banking system of the U.S., comprised of the Federal Reserve Board, the 12 Federal Reserve Banks, and the national and state member banks. Its primary purpose is to regulate the flow of money and credit in the country.

Financial Statements
A portfolio's financial statement is an accountants semi-annual report that provides data detailing investments, assets and liabilities in your mutual fund portfolio; and also, the results fo the operations and net asset changes in the fund.

FINRA. Is the acronym of the Financial Industry Regulatory Authority. It is the largest self-regulatory organization (SRO) in the United States. It writes and enforces rules governing the securities industry, as well as, enforces federal securities laws.

Fiscal Year
An accounting term. A period of 12 consective month after which the accounting period is closed.

Float
That part of a company's stock held by the investing public, and/or traded on an exhange, as opposed to company insiders.

Front-End Sales Charge
A fee charged when the mutual fund shares you are purchasing impose a front-end sales charge. Discounts to this charge may be offered if you plan to make a large purchase, hold other mutual funds within the same fund family, or are committing to regularly purchasing a set dollar amount of the mutual fund's shares over a set period of time.

Futures
"Futures Contract"; an agreement to buy or sell a specific amount of a commodity at a particular price on a stipulated future date. A futures contract obligates the buyer to purchase the underlying commodity and the seller to sell it.
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Going Public
The initial sale of stock to the public by a privately held company. See IPO (Initial Public Offering).

Gross Domestic Product
GDP - is the total value of all final goods and services produced in a country over a particular time, usually one year.

Income Distributions
Are distributions to shareholders that result from income earned by the securities held by a mutual fund reduced by any fund expenses. Distributions may be paid to the shareholder or reinvested to purchase additional shares.

Income Statement
The company financial statement that summarizes sales, expenses and net income for the reporting period.

Inflation
Inflation is an increase in the amount of money and credit spent in relation to the supply of goods and services across the economy over a period of time.

Initial Public Offering (IPO)
The first offering of a company's stock to the public.

Institution
A large organization, such as a pension or mutual fund. Institutions account for more than half of all trading volume.

Issue
The first time that an organization's securities are sold in the primary market.
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Liability
Debt, legal obligation, claim on the assets of an organization that is owed and must be paid. Liquidity
Liquidity refers to how quickly and cheaply an asset can be converted into cash.

Load
Fee investors are charged when they purchase shares of a mutual fund.

Management Fee
The amount paid by a mutual fund to the investment advisor for their management and investment advisory services.

Margin
The amount of unencumbered money or collateral deposited by a client with his or her broker when borrowing from the broker in order to purchase or maintain a security position.

Market Maker
A firm that buys and sells stock for its own account, hoping to profit through quick turnarounds. Specialists on exchanges and NASDAQ dealers are market makers.

Market Price
The price at which a security trades in the secondary market.

Market Value or Market Capitalization
The total value of a company, determined by number of shares of stock outstanding multiplied by the stock price.

Maturity
The date on which a finanical obligation is to be paid.

Municipal Bond
A debt security issued by a state or local government, usually exempt from taxes on the interest it earns.

Mutual Fund
A popular type of investment that pools the money of many different investors and uses it to purchase a variety of stocks, bonds, money market instruments or some combination. Each investor then owns shares of the mutual fund. Every mutual fund is professionally managed toward a specific investment goal: long-term growth, current income, a balance of growth and income, etc.
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NASDAQ Composite Index
Tracks the NASDAQ market. As there are many high-tech companies on the NASDAQ, it has become a measure of the high-tech industry.

NASDAQ National Market System
National Association of Securities Dealers Automated Quotations. A computerized national trading system for more than 4,000 public companies.

Net Asset Value
The dollar value of each share of a mutual fund, based on the value of the underlying assets of the fund minus its liabilities, divided by the total number of outstanding shares. Calculated at the end of each business day.

Net Worth
"Net worth" at any given date is the difference between total assets and total liabilities on that date. It is the difference between what is owned and what is owed (measuring the value of what is owned by its cost rather than unrealized increases in market value).

New York Stock Exchange (NYSE)
Founded in 1792, it now lists more than 3,000 companies. Each company must meet stringent requirements for size and profitability in order to be listed.

No-Load Fund
A mutual fund sold without a sales charge.

Option
A contract that allows an investor to purchase or sell a specific amount of securities at a specified price during a fixed and certain term.

Over The Counter Market
Refers to a security which is not traded on an exchange as they often do not meet the listing requirements. Research about these stocks is more difficult to obtain and OTC stocks are typically very risky as they are stocks that are not considered large or stable enough to trade on a major exchange, thus broker/dealers negotiate directly with one another over computer networks and by phone. Their activities are monitored by the NASD. As such, they tend to trade infrequently, making the bid-ask spread larger.
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Par Value
The stated value of a security printed on the security's certificate.

Point
Used to track a stock. "Up a point," means up $1 a share.

Portfolio
All the various stocks and/or bonds held by one investor or institution.

Preferred Stock
A security that represents prior claim to common stock on a firm's earnings and assets. Preferred stockholders receive a fixed dividend that takes precedence over payment of dividends to common stockholders. Preferred stockholders usually forego voting rights.

Price Earnings Ratio
Current market value of a stock divided by the firm's earnings per share.

Primary Market
The first time a company's shares are sold, they are sold into the primary market which is made up of the first owners of the shares. When the shares are resold, this then is called the secondary market.

Principal
The sum of money you invest, as distinguished from the earnings that the money produces. Your regular plan contributions comprise the principal in your account. Oftentimes called "capital."

Profit
The financial gain realized (after all costs are deducted) from the use of capital in a transaction or series of transactions in a given period of time in relation to amount of capital invested.

Prospectus
The formal document that discloses the terms of a securities offering or a mutual fund. Strict rules govern the information that must be disclosed to investors in the prospectus.

Proxy
Written authorization to act for a stockholder.

Public Offering Price ("POP")
The price of a fund share is the net aset value per share plus any applicable initial sales charge.

Put
An option contract which gives the buyer of the Put the right to sell an asset at a specified price until a specified date. Contracts generally represent 100 shares.

Record Date
As of this date, any shareholder on record will receive dividends.

Redemption
Repayment of a debt security or preferred stock issue, at or before maturity, at par or at a premium price by the security's issuer.

Return On Investment
The amount of profit earned from an investment. Typically expressed as a percentage: profit divided by capital invested and multiplied by 100 = % of return on investment.
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Secondary Market
Where an investor purchases a security from another investor rather than the issuer, subsequent to the original issuance in the primary market.

Securities
Stocks and bonds.

Securities and Exchange Commission (SEC)
Federal regulator of securities and securities markets.

Security
A stock or bond. A stock certificate shows partial ownership of a company, whereas with a bond the security shows the issuer's promise to repay the amount of the bond at a stated interest rate.

Short Sale
Sale of a security not owned by the seller,who hopes to buy them back later at a lower price to realize a profit.

Signature Guarantee
Assures that a signature is genuine and protects shareholders from unauthorized account transactions.

Standard & Poor's 500 Stock Index
A comprehensive stock index, used by professionals, calculated using the market values of the common stock of 500 of the largest publicly held companies.

Stock
Shares of ownership in a corporation. A stock's market value fluctuates depending on the company's current performance and future prospects.

Stock Symbol
Letters by which companies are recognized for stock trading. NYSE symbols normally are one, two or three letters. Amex symbols are usually three. NASDAQ symbols are usually four.

Systematic Risk
This type of risk affects all companies in your portfolio at the same time. Rising interest rates, inflation, wars, and political changes influence the whole economy, not just one company, and are virtually impossible to avoid.

Total Return
Expressed as a percentage, this value represents the change in the value of a portfolio share. It includes reinvested distributions and any expenses, and/or sales charges from the beginning of a specific period of time to the end of a specific period of time.

Treasury Bill
A short-term, one year or less, debt security issued and guaranteed by the United States Treasury.

Treasury Bond
A longer term debt security, over 10 years, issued and guranteed by the United States Treasu

Unsystematic Risk
Risk that applies to a specific company. This could relate to poor sales or be as dramatic as the building being destroyed by a natural disaster. This is just one of the reasons why a diversified portfolio is important, as it is highly unlikely that all the companies you are invested in would have the same kind of loss at the same time.

Variable Annuity
A contract issued by an insurance company that offers you a tax-deferred way to build assets for the future. A variable annuity gives you the freedom to allocate your plan contributions among one or more investment portfolios. Your return depends upon the performance of the underlying investments in the portfolios.

Yield
The rate of return of an investment.

Yield to Maturity
The annual rate of return that is to be earned from purchasing a debt secrity at the current market price assuming that the security will be held until its scheduled maturity.
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