Adjusted Gross Income (AGI): An interim calculation in the computation
of income tax liability. It is computed by subtracting certain allowable
adjustments from gross income.
Administrator: A person appointed by the court to settle an estate when
there is no will.
Asset Class: A category of investments with similar characteristics. Balanced Mutual Fund: A mutual fund whose objective is a balance of
stocks and bonds. Such funds tend to be less volatile than stock-only
funds.
Bear Market: When the stock market appears to be declining overall,
it is said to be a bear market.
Beneficiary: A person named in a life insurance policy, annuity, will,
trust, or other agreement to receive a financial benefit upon the death
of the owner. A beneficiary can be an individual, company, organization,
and so on.
Capital Gain or Loss: The difference between the sales price and the
purchase price of a capital asset. When that difference is positive,
the difference is referred to as a capital gain. When the difference
is negative, it is a capital loss.
Cash Equivalents: Short-term investments, such as U.S. Treasury securities,
certificates of deposit, and money market fund shares, that can be readily
converted into cash.
Cash Surrender Value: The amount that an insurance policyholder is entitled
to receive when he or she discontinues coverage. Policyholders are usually
able to borrow against the surrender value of a policy from the insurance
company. Loans that are not repaid will reduce the policy's death benefit.
Deduction: An amount that can be subtracted from gross income, from
a gross estate, or from a gift, thereby lowering the amount on which
tax is assessed.
Defined Benefit Plan: A qualified retirement plan under which a retiring
employee will receive a guaranteed retirement fund, usually payable in
installments. Annual contributions may be made to the plan by the employer
at the level needed to fund the benefit.
Defined Contribution Plan: A retirement plan under which the annual
contributions made by the employer or employee are generally stated as
a fixed percentage of the employee's compensation or company profits.
Equity: The value of a person's ownership in real property or securities;
the market value of a property or business, less all claims and liens
upon it.
ERISA: The Employee Retirement Income Security Act is a federal law
covering all aspects of employee retirement plans. If employers provide
plans, they must be adequately funded and provide for vesting, survivor's
rights, and disclosures.
ESOP (employee stock ownership plan): A defined contribution retirement
plan in which company contributions must be invested primarily in qualifying
employer securities.
Fixed Income: Income from investments such as CDs, Social Security benefits,
pension benefits, some annuities, or most bonds that is the same every
month.
401(k) Plan: A defined contribution plan that may be established by
a company for retirement. Employees may allocate a portion of their salaries
into this plan, and contributions are excluded from their income for
tax purposes (with limitations).
403(b) Plan: A defined contribution plan that may be established by
a nonprofit organization or school for retirement. Employees may allocate
a portion of their salaries into this plan, and contributions are excluded
from their income for tax purposes (with limitations).
Fundamental Analysis: An approach to the stock market in which specific
factors - such as the price-to-earnings ratio, yield, or return on equity
- are used to determine what stock may be favorable for investment.
Gift Taxes: A federal tax levied on the transfer of
property as a gift. This tax is paid by the donor. The first $12,000
a year from a donor to each recipient is exempt from tax.
Holographic Will: A will entirely in the handwriting
of the testator. Without witnesses, holographic wills are valid and enforceable
only in some states.
Index: A calculation that uses a selection of stocks or bonds to gauge
a certain market. The Dow Jones Industrial Average, for example, is an
index of 30 large industrial companies on the New York Stock Exchange.
Individual Retirement Account (IRA): Contributions to a traditional
IRA are deductible from earned income in the calculation of federal and
state income taxes if the taxpayer meets certain requirements.
Inflation: An increase in the price of products and services over time.
The government's main measure of inflation is the Consumer Price Index.
Intestate: The condition of an estate left by a decedent without a valid
will. State law then determines who inherits the property or serves as
guardian for any minor children.
Joint Tenancy: Co-ownership of property by two or more people in which
the survivor(s) automatically assumes ownership of a decedent's interest.
Jointly Held Property: Property owned by two or more persons under joint
tenancy, tenancy in common, or, in some states, community property.
Keogh Plan: This retirement plan, named for Eugene
Keogh, is designed for self-employed individuals. Up to $44,000 of self-employed
income may be deducted from compensation and set aside into the plan.
Liability: Any claim against the assets of a person or corporation:
accounts payable, wages, and salaries payable, dividends declared payable,
accrued taxes payable, and fixed or long-term obligations such as mortgages,
debentures, and bank loans.
Limited Partnership: Limited partnerships pool the money of investors
to develop or purchase income-producing properties.
Liquidity: The ease with which an asset or security can be converted
into cash without loss of principal.
Marginal Tax Bracket: The range of taxable income that is taxable at
a certain rate. Currently, there are six marginal tax brackets: 10 percent,
15 percent, 25 percent, 28 percent, 33 percent, and 35 percent.
Marital Deduction: A provision of the tax codes that allows all assets
of a deceased spouse to pass to the surviving spouse free of estate taxes.
This provision is also referred to as the unlimited marital deduction.
Money Market Fund: A mutual fund that specializes in investing in short-term
securities and that tries to maintain a constant net asset value of $1.
Net Asset Value: The price at which a mutual fund sells or redeems its
shares. The net asset value is calculated by dividing the net market
value of the fund's assets by the number of outstanding shares.
Pooled Income Fund: A trust created by a charitable organization that
combines the contributions of several donors and distributes income to
those donors based on the earnings of the trust.
Portfolio: All the investments held by an individual or a mutual fund.
Preferred Stock: A class of stock with claim to a company's earnings,
before payment can be made on the common stock, and that is usually entitled
to priority over common stock if the company liquidates.
Qualified Domestic Relations Order (QDRO): At the time of divorce, this
order would be issued by a state domestic relations court and would require
that an employee's ERISA retirement plan accrued benefits be divided
between the employee and the spouse.
Qualified Retirement Plan: A pension, profit-sharing, or qualified savings
plan that is established by an employer for the benefit of the employees.
Revocable Trust: A trust in which the creator reserves the right to
modify or terminate the trust.
Risk: The chance that an investor will lose all or part of an investment.
Risk-Averse: Refers to the assumption that rational investors will choose
the security with the least risk if they can maintain the same return.
Security: Evidence of an investment, either in direct ownership (as
with stocks), creditorship (as with bonds), or indirect ownership (as
with options).
Simplified Employee Pension Plan (SEP): A type of plan under which the
employer contributes to an employee's IRA. Contributions may be made
up to a certain limit and are immediately vested.
Single-Life Annuity: An insurance-based contract that provides future
payments at regular intervals in exchange for current premiums.
Tax Bracket: The range of taxable income that is taxed at a certain
rate. Brackets are expressed by their marginal rate.
Tax Credit: Tax credits, the most appealing type of tax deductions,
are subtracted directly, dollar for dollar, from your income tax bill.
Tax Deferred: Interest, dividends, or capital gains that grow untaxed
in certain accounts or plans until they are withdrawn.
Variable Universal Life Insurance: A type of life insurance that combines
a death benefit with a savings element that accumulates tax deferred
at current interest rates.
Volatility: The range of price swings of a security or market over time.
Welfare Benefit Plan: An employee benefit plan that provides such benefits
as medical, sickness, accident, disability, death, or unemployment benefits.
Whole Life Insurance: A type of life insurance that offers a death benefit
and also accumulates cash value, tax deferred at fixed interest rates.
Whole life insurance policies generally have a fixed annual premium that
does not rise over the duration of the policy.
Will: A legal document that declares a person's wishes
concerning the disposition of property, the guardianship of his or her
children, and the administration of the estate after his or her death.
Yield: In general, the yield is the amount of current
income provided by an investment. For stocks, the yield is calculated
by dividing the total of the annual dividends by the current price.
Zero-Coupon Bond: This type of bond makes no periodic interest payments
but instead is sold at a steep discount from its face value.
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