This comprehensive guide includes key investing and financial terms that every reader needs to know. With this knowledge at your fingertips, you'll be better equipped to navigate the world of finance and grow your wealth.
#
30-Year Treasury
A bond issued by the U.S. government that has a 30-year maturity and pays interest semiannually until maturity, when it pays the bond's face value.
401(a) Plan
An employer-sponsored retirement plan usually used by government and nonprofit organizations, allowing the employer, employee, or both to make dollar-based or percentage-based contributions.
401(k) Plan
An employer-sponsored retirement plan that allows employers to match contributions that employees make from their income as either pre-tax (traditional) or after-tax (Roth) payroll deductions.
403(b) Plan
An employer-sponsored retirement plan usually used by public schools and other tax-exempt organizations, allowing employers to match contributions that employees make as payroll deductions and offering specific tax benefits.
457 Plan
An employer-sponsored, tax-advantaged retirement plan usually used by state and local governments and some nonprofit organizations, allowing employees to make either pre-tax (traditional) or after-tax (Roth) payroll deductions that offer specific tax benefits.
529 Plan
State-run, tax-advantaged accounts available to taxpayers as educational savings plans or prepaid tuition plans to help cover educational expenses, but that can be rolled over into a Roth IRA account under certain circumstances if not used.
80-20 Rule
A general rule of action, but not a mathematical law, that says 80% of outcomes are derived from 20% of causes. This suggests businesses identify their 20% most productive assets and prioritize them to create maximum value.
A
Accounting Rate of Return (ARR)
A formula that compares an investment's or asset's average annual profit to its initial investment to identify the expected annual percentage rate of return — often used to compare multiple investments.
Accredited Investor
A term used by the Securities and Exchange Commission (SEC) to define a sophisticated individual or business that can trade securities without the protection of the regulatory disclosure filings required during registration with financial authorities.
American Depository Receipts (ADR)
A negotiable certificate — issued by a U.S. depository bank and priced in U.S. dollars — that represents a specified number of shares of foreign stock and is available to investors on American stock exchanges.
After-Hours Trading
Trading conducted through electronic communication networks (ECNs) after major U.S. stock exchanges close at 4:00 p.m. Eastern Time (ET), with trading volume thinning out well before sessions end around 8:00 p.m. ET.
Angel Investor
A high net-worth individual who provides capital to early-stage startups, typically in exchange for equity in the company.
Alternative Investments
Financial assets — such as venture capital, private equity, hedge funds, derivative contracts, or real estate — that do not fall in the conventional investment classes of stocks, bonds, and cash.
Annual Percentage Rate (APR)
The yearly rate earned by an investment or charged for a loan, expressed as a percentage. This includes any fees or costs associated with the transaction and provides consumers with a number they can use in making financial decisions. It does not include any compounding.
Applicable Federal Rate (AFR)
A minimum interest rate allowed for private loans by the IRS, published monthly. The IRS will tax any interest rate charged below the stated AFR for the particular term of the loan as foregone interest.
Arbitrage
The simultaneous purchase and sale of an asset such as a stock, commodity, or currency in different markets to benefit from minuscule pricing differences caused by market inefficiencies.
Asset
Any resource or good used by an individual, government, or business that has economic value and can generate cash flow, reduce expenses, or provide future economic benefit.
Asset Management
A service offered by financial institutions or individuals on behalf of their clients to maximize the value of client investments over time while remaining within client-defined levels of risk.
Assets Under Management (AUM)
The total market value of the client's investments being managed by a financial institution or individual, where the definition of included assets can vary.
B
Bankruptcy
A legal proceeding whose rules are outlined by the U.S. Bankruptcy Code to allow relief to individuals or businesses from financial obligations they cannot meet — while providing creditors a chance to recuperate some of their losses.
Bear Market
An economic environment in which prices in a securities market decline by 20% or more compared to recent highs, leading to negative investor sentiment in light of what is seen as declining economic prospects.
Blockchain
A shared database that differs from typical databases in how it stores digital information in blocks that are linked via cryptography to maintain a decentralized and secure record of transactions.
Blue Chip Stock
Shares of large companies — frequently associated with major brands — known for having dependable financials that allow them to pay reliable dividends to shareholders.
Bonds
Fixed-income instruments or IOUs between lenders and borrowers that define the details of the loan and its payment, with fixed or variable interest rates paid until the maturity date is reached and the principal is paid back.
Broker
An individual or firm that serves as a middleman between the investor and the securities exchange, providing differing levels of services based on the type of brokerage offered, such as discount or full-service.
Bull Market
An environment in which prices in financial markets rise by 20% over a minimum 2-month period. Bull markets often reflect optimistic investor sentiment and strong economic indicators.
C
Capital
The resources a business can use for investment purposes that build wealth, including financial and tangible assets or human and brand capital.
Capitulation
A moment, most easily spotted in hindsight, when a large number of investors simultaneously give up any hope of recuperating their recent losses after significant price downturns and sell, causing a dramatic snowball effect that plunges prices further.
Consumer Price Index (CPI)
A measure of the overall change in consumer prices — or inflation — calculated as a weighted-average cost of a basket of goods and services defined by the Bureau of Labor Statistics (BLS) as representing aggregate U.S. consumer spending.
Call Option
A financial contract that gives its owner the right, but not the obligation, to purchase a certain amount of its underlying security at a specific "strike price” up to the contract's expiration.
Cash Out Refinance
A mortgage refinancing option that lets a homeowner convert their home equity into cash, where the new mortgage is larger than the current mortgage balance, and the difference goes to the homeowner.
Cold Storage
A digital wallet holding cryptocurrency tokens stored on a platform not linked to the internet to protect it from vulnerabilities such as unauthorized access or cyber hacks.
Compound Interest
A means of calculating interest on a loan or deposit that generates "interest on interest," in other words, interest calculated on the initial principal and on all the interest already accrued.
Corporate Bond
A debt issued by a company and sold to investors to raise capital, where the investor is lending money in return for a series of pre-established interest payments at a fixed or variable interest rate until the bond expires and the original investment is returned.
Cost Basis
The original price at which an asset was acquired, with IRS-approved interim adjustments, and used for tax purposes to determine the gains or losses between the sale price and the original price.
Commodity
A basic good — often used as an input in the production of other goods and services — that can be interchanged with other goods of the same type.
- Cryptocurrency
A form of digital or virtual asset that is protected by cryptography and dispersed across decentralized networks based on blockchain technology, making it almost impossible to double-spend or counterfeit.
D
Deductible
An expense that an individual taxpayer or business can subtract from their adjusted gross income (AGI) during tax filing to reduce taxable income and the amount of taxes due.
Defined Outcome ETF
An exchange-traded fund (ETF) that tracks the return of a specific market index up to a cap while providing a measure of downside protection to buffer investors against losses during a specific period of three months or a year when the ETF resets.
Deflation
An overall decline in the nominal costs of capital, labor, goods, and services that benefits consumers and is usually due to a contracting money and credit supply — or possibly to increased productivity and technological advances.
Delta
A risk measurement that estimates the positive or negative change in the price of a derivative, such as an options contract, for every $1 change in its underlying security.
Debt Ratio
A financial ratio calculated by dividing a company's total debt (or total liabilities) by its total assets to measure the amount of leverage the company uses.
Dividends
A company's means of distributing earnings to its eligible shareholders as cash or reinvestment in additional stock, according to its board of directors.Dividend Aristocrats
A list of companies drawn from the S&P 500 index with track records of raising their dividends for at least 25 consecutive years, and minimums of $3 billion in float-adjusted market capitalization and $5 million in average daily trading volume.
- Dollar Cost Averaging
An investment strategy that lowers the average cost per share and reduces price volatility by investing the same amount of money in a specific security at regular intervals over time.
E
Elliott Wave Theory
A theory used in evaluating investments and identifying trading opportunities by analyzing wave-like movements in the financial market in stock prices and consumer behavior.
Equity
The shareholders' stake in a company calculated as its total assets minus total liabilities, or what would be available for distribution to shareholders if all assets were liquidated and all debts paid.
Estate
The economic valuation of an individual's investments, assets, and interests used in determining how they will be transferred to beneficiaries when the individual passes away.
Exempt Income
Certain types of income not subject to federal or state taxes, including from municipal bonds, distributions from Roth 401(k)s and IRAs, and some employer-sponsored benefits.
Exchange Traded Fund (ETF)
A basket of securities that functions much like a mutual fund but trades on an exchange like a stock and can track a particular index, sector, commodity, or other asset.
- Expense Ratio
A measure of a mutual fund's administrative and other operating costs relative to assets, determined by dividing the fund's total operating expenses by the average dollar value of its assets under management.
F
Fannie Mae
A publicly traded, government-sponsored enterprise (GSE) that makes mortgages more affordable to moderate- and low-income borrowers by buying residential mortgages from larger, commercial banks, packaging and selling them to investors as securities. Also known as the Federal National Mortgage Association (FNMA).
Federal Funds Rate
The target interest rate set by the Federal Open Market Committee (FOMC) as part of its monetary policy. This rate is what commercial banks use to borrow and lend their excess reserves to one another overnight.
Fiduciary
Anyone with the legal obligation of putting their client's best interests ahead of their own when making financial decisions for that client.
Filing Status
One of five categories a taxpayer falls into when preparing their taxes for filing: single, married filing jointly, married filing separately, head of household, and qualifying widow(er) with dependent children.Financial Advisor
A professional who is paid to help clients with money-related tasks, including managing investments, buying or selling stocks, or creating tax or comprehensive estate plans.
Financial Planner
A professional who is paid to help individuals and organizations develop strategies to meet their long-term financial goals, including plans for budgeting, saving, investment, and retirement planning.
Freddie Mac
A publicly traded, government-sponsored enterprise (GSE) that supports homeownership for middle-income Americans by buying residential mortgages from smaller banks, packaging and selling them as mortgage-backed securities. Also known as the Federal Home Loan Mortgage Corporation (FLHMC).
- Futures
A derivative financial contract used for hedging or trade speculation that obliges the buyer to buy — or the seller to sell — an asset at a set price on a set future date.
G
Gap Insurance
A type of auto insurance available to car owners to cover the shortfall when the balance owed on a car loan or lease is greater than the book value of the car paid out in the case of total loss.
Going Private
A transaction by which a publicly traded company is converted into private ownership, where the assets and cash flows of the acquired company are used to pay for the significant amounts of debt incurred in the acquisition.
Going Public
The process of selling shares that had been privately held and have become available to new investors through an initial public offering (IPO) under the watchful eye of the Securities and Exchange Commission (SEC).
Government Bond
A debt security that a government issues and sells to investors to support government spending and that may pay periodic interest payments or be sold at a discount.
Group Life Insurance
An inexpensive life insurance offered by an employer or entity — such as an association or labor organization — to workers or members, providing a low coverage amount as part of a benefits package.Growth Investing
A stock-buying strategy that targets companies expected to grow faster than the average for their industry or the broader market in order to increase an investor's capital.
- Growth Stock
A share in a company expected to grow significantly faster than the average for its market, partly by reinvesting earnings rather than paying dividends, leaving the investor to earn money as capital gains received when selling the share in the future.
H
Hard Inquiry
A type of credit information request used by lenders and creditors considering extending credit that may lower the applicant's credit score because it requires a full credit report.
Health Savings Account (HSA)
A tax-advantaged account that helps people covered by high-deductible health plans (HDHPs) pay for qualified medical expenses not reimbursed because of the plan's high deductible.
Hedge
A trading strategy that aims to limit risk exposure in one financial asset by taking an offsetting position in another.
Hedge Fund
A limited partnership of accredited private investors whose money is actively managed by professionals using risky investment strategies with the goal of earning above-average returns (though not guaranteed).
Hostile Takeover
The acquisition of one company by another — against the wishes of the targeted company's management — by purchasing stock directly from shareholders or fighting to remove the objecting management through a proxy vote.
- Hyperinflation
Rapid and unrestrained price increases for goods and services in an economy, typically at monthly rates above 50% that, while rare, can lead to prices spiraling out of control.
I
Implied Volatility (IV)
A forward-looking measurement — often used to price options contracts — that reflects the market's expectations of price movement in a security over time, based on assumptions about volatility in the future.
In the Money (ITM)
An option that has intrinsic value because it presents a profit opportunity based on how the strike price at which the option can be exercised compares to the underlying asset's current market price.
Income Stock
A security that offers sustainable, higher-than-average dividend yields over time with lower volatility than the overall stock market.
Index
A collection of stocks that represent a sample of the stock market as a whole — or a particular industry or segment of the market — with values going up and down with the weighted-average price movements of component companies.Index Fund
A portfolio of stocks or bonds designed to reflect the composition and performance of a particular market index and used as a passive investment strategy that matches the risk and return of that market.
Inflation
The overall impact on an economy of increasing prices for goods and services over time, resulting in a loss in the public's purchasing power.
Inflation Hedge
An investment in an asset that is expected to maintain or increase its value over a predetermined period to offset the anticipated drop in a currency's purchasing power resulting from rising prices.
- Initial Public Offering (IPO)
A process that allows a company to raise equity capital from public investors through an offering of shares after meeting the requirements of exchanges and the Securities and Exchange Commission (SEC), most commonly referred to as an IPO.
J
Joint Credit
A credit facility issued to two or more people, where one has limited credit, or the credit needed is larger than accessible individually, making them equally responsible for repaying the lender.
Joint Venture
A business arrangement where two or more entities combine resources to meet a cited goal, and each participant is responsible for profits, losses, and associated costs.
Jumbo Loan
A type of mortgage financing that exceeds the Federal Housing Finance Agency (FHFA) limit in value, has unique underwriting requirements and tax implications, and falls outside the purview of Fannie Mae or Freddie Mac.
- Junk Bond
A debt with below-investment-grade credit that compensates investors for taking the higher default risk by offering a higher interest rate yield.
L
Leverage
An investment strategy in which companies invest in business operations using debt instead of issuing stock in order to magnify the investment's returns and increase shareholder value.
Leveraged ETF
A marketable security that uses debt and financial derivatives to magnify the returns of an underlying index — such as the Nasdaq 100 — beyond a 1:1 ratio, leading to significant gains and losses.
Liability
Something owed by one person or company to another, whether as money or as a legal or regulatory obligation.
Lien
A claim or legal right against stated assets that serve as collateral to guarantee the satisfaction of an underlying obligation, such as a loan.
Life Insurance
A legally binding contract that, in exchange for the premiums paid, guarantees the insurer will pay a death benefit to the policy's beneficiaries when the insured person dies.
Liquid Asset
An asset that can be converted readily into cash, such as cash equivalents, short-term bonds, and marketable securities.
Living Trust
A written legal arrangement used by an individual in estate planning to designate a trustee and provide explicit directions for the trustee to distribute the individual's assets upon death without having to go through the probate process.
Living Will
A legal document that appoints a healthcare proxy to make medical care decisions if the individual is unable to do so and that specifies the type and level of care the proxy should pursue.
- Long-Term Capital Gains or Loss
The result of the sale of an investment held for 12 months or longer, usually enjoying more favorable tax treatment than a shorter-term investment.
M
Managed Account
An investment account owned by an institutional investor or an individual retail investor who pays a professional money manager with discretionary authority over the account to make investment decisions.
Management Fee
The charge an investment manager commands for managing an investment fund professionally, usually calculated as a percentage of the assets under management, to cover the manager's time, expertise, investor relations, and administrative costs.
Margin Account
A brokerage account that allows a trader to borrow funds from a broker at a predetermined interest rate, where the account and the included securities serve as callable collateral for the loan.
Margin Call
A broker's demand for additional capital or securities to restore a margin account to the required maintenance level where the account holder has borrowed money from the broker.
Marginal Tax Rate
The tax rate paid on the next dollar of income under the United States' progressive federal income tax system, in which the marginal tax rate increases as income increases.
Market Cap
The amount a company is worth according to the stock market calculated by multiplying the number of outstanding shares by the current market value of one share.
- Mutual Funds
A type of investment vehicle consisting of stocks, bonds, or other securities that pools assets from shareholders to give small or individual investors affordable access to diversified, professionally managed portfolios.
N
Naked Call
An options strategy where an investor who does not own the underlying security sells a call option on the open market without any offsetting positions.
Naked Put
An options strategy where an investor sells a put option without having a short position in its underlying security, hoping to capture the option's premium on the security that is expected to go higher.
Nasdaq
An online global electronic marketplace that enables the trading of stocks, derivatives, fixed income, and commodities and where most of the technology giants are listed.
- Negative Equity
The situation when the current value of a real estate property falls below the outstanding balance on the financing used to purchase it — also referred to as an “underwater mortgage.”
O
Opportunity Cost
The potential benefit missed out on by choosing one option over another and calculated as the difference between the expected returns of each option.
Option
A financial derivative that offers the investor the opportunity — but not the requirement — to buy or sell the underlying asset, depending on the type of contract held, at a predetermined strike price and maturity date.
Option Premium
The current market price of an option contract — quoted as a dollar amount per share, where most contracts represent a commitment of 100 shares — which represents the income received by the seller of the contract to another party.
Over-Collateralization
The provision of collateral that more than covers potential losses in the case of default, often used as a strategy to obtain better loan terms or to enhance the credit rating of the debt's borrower or issuer.
Over-Leveraged
The situation when a company has too much debt to make principal and interest payments while covering operating expenses comfortably, so it borrows more, which worsens the situation and leads to a downward spiral that can end with debt restructuring or bankruptcy protection.
- Overvalued
A stock that trades at a market price that cannot be justified by its forecasted earnings, often measured by its price-earnings or P/E ratio, thereby allowing investors to short the stock and benefit from future price declines.
P
P/E Ratio
Also referred to as the price-earnings ratio, a measure that investors and analysts use to compare one company against similar companies or against itself over time, calculated by comparing its share price to its earnings per share.
Passive Investing
An investment strategy that entails buying and holding a portfolio for the long term, thus maximizing returns by minimizing the number of transactions, best exemplified by index investing, where investors buy and hold a representative benchmark like the S&P 500.
Penny Stock
A small company's stock that most often trades over the counter on the OTC Bulletin Board (OTCBB) at less than $5 per share.
Poison Pill
A defense strategy the directors or management of a listed company can use to prevent would-be acquirers from taking control of the company against its will.
Portfolio Management
The task of maximizing the expected return of a client's full gamut of investments to meet long-term financial goals at a comfortable level of risk by weighing strengths, weaknesses, opportunities, and threats.
Private Equity
An alternative investment in partnerships that buy primarily private companies to overhaul them and earn a profit when reselling them.
Preferred Stock
A type of equity that grants a higher claim on distributions such as dividends and on assets in the case of liquidation than would be ascribed to common shares.
Premium (Insurance)
The amount paid or payable to an insurance company in exchange for coverage, usually in regular installments.
Premium (Securities)
Either the cost to buy an insurance policy or options contract or the market price of a bond or other security that exceeds its issuance price.
Principal-Agent Relationship
An arrangement where one entity (an investor) appoints another (a fund manager) to act on its behalf and in its best interest, as expressed clearly in a written contract or implied through actions.
- Put Option
A financial contract that gives the owner the right, but not the obligation, to sell a certain amount of its underlying security at a specific strike price up to the contract's expiration.
Q
Qualified Annuity
A form of retirement savings plan purchased with pre-tax dollars from income, offering an immediate tax benefit and allowing investments to grow tax-deferred until withdrawals begin after retirement.
Qualified Retirement Plan
An employer-sponsored plan — whether defined-benefit or defined-contribution — that offers tax benefits to employees and employers, such as tax deductions for contributions and tax-deferral of investment gains until withdrawals are made.
- Qualified Trust
A tax-advantaged fiduciary relationship between employers and employees regarding a pension, stock bonus, or profit-sharing plan in which employees' life expectancy can determine benefits, but not any other factor.
R
Real Estate Investment Trust (REIT)
A company that pools investor funds into a diverse portfolio of real estate investments that generate income. REITs must legally distribute 90% of their income to shareholders in the form of dividends. Due to their diverse nature and pooled investor capital, REITs tend to be more liquid than individually owned real estate properties.
Recession
A significant, pervasive decline in an economy's activity sometimes defined as two consecutive quarters of gross domestic product (GDP) decline but also defined using more complex formulas.
Refinance
The process of revising the terms of an existing credit agreement, such as a loan or mortgage, in pursuit of more favorable interest rates, payment schedules, or other contract terms.
Retail Investor
Non-professional market participants who buy and sell stocks in significantly smaller increments than institutional investors would, using brokerage firms, online trading, and robo advisors.
Retirement Planning
Financial strategies aimed at saving, investing, and eventually distributing money needed in retirement, using vehicles such as IRAs and 401(k)s that let savings grow with certain tax advantages.
Retirement Savings Accounts
Tax-advantaged accounts that are the building blocks of a well-funded retirement — either as traditional 401(k)s or IRAs that reduce the investor's tax burden in the year pre-tax dollars are contributed, or as Roth 401(k)s or IRAs funded with after-tax income that allow withdrawals in retirement without being taxed.
Robo Advisor
Digital platforms readily available to retail investors that typically enjoy low fees and minimal opening-balance requirements. Robo advisors offer straightforward, algorithm-driven investing strategies that require minimal human supervision.
Roth 401(k)
An employer-sponsored retirement plan funded with after-tax payroll deductions from an employee's income, thus providing no immediate tax benefit but allowing earnings and withdrawals after retirement to be made tax-free.
- Roth IRA
A tax-advantaged individual retirement savings account that is funded with after-tax income, provides no immediate tax benefit but allows earnings and withdrawals after retirement to be made tax-free.
S
S&P 500
A float-weighted index of the 500 leading U.S. publicly traded companies in which the market capitalizations of participating companies are adjusted by the number of shares available for public trading and considered one of the best gauges of the entire equities market.
Securities
Fungible and tradable financial instruments in the form of equity, debt, or hybrids that the Securities and Exchange Commission (SEC) regulates and that are used to raise capital in both public and private markets.
Series I Bond
A non-marketable U.S. government savings bond that is considered low-risk and that gives investors a return at a fixed interest rate for the life of the bond and a variable inflation rate adjusted each May and November.
Series EE Bond
An interest-bearing U.S. government savings bond with a minimum $25 investment requirement guaranteed to double in value over the typical 20-year initial term and pay interest for up to 30 years from issuance.
Short Selling
An investment activity with a high risk/reward ratio where an investor borrows a security and sells it on the open market, betting on making a profit by repurchasing it after a drop in the security's price.
Short Squeeze
An unusual market condition in which many investors are betting against a stock through short selling and its price unexpectedly rises instead of falling, causing investors to buy the stock to cut their losses and exit their positions, which drives the price up even further.
Small Cap Stock
The stock of a company whose total market capitalization is between $300 million and $2 billion. Small cap stocks typically appeal to investors seeking faster yet riskier and more volatile growth opportunities.
Stagflation
An economic cycle once thought impossible by economists where simultaneous slow growth, high unemployment, and high inflation make the condition hard to fight since policies that correct one factor can exacerbate another.
Stock
A form of security issued by companies to raise capital and sold chiefly on stock exchanges, each share indicating that the holder owns part of the issuing corporation.
Stock Options
A financial contract that gives its owner the right — but not the obligation — to buy or sell a particular stock at a specific strike price up to the contract's expiration.Strike Price
A predetermined price at which an investor can exercise the right to buy or sell an option contract’s underlying security.
- Subprime Loans
A type of loan offered to individuals with lower credit ratings who do not qualify for prime-rate loans, charging interest rates above prime to compensate the lender for taking the higher risk of default on debt repayment.
T
Tax Advantaged
Any type of investment, savings plan, or financial account that benefits from tax exemption, tax deferment, or other favorable tax status.
Tax Deferred
Investment earnings in the form of interest, capital gains, or dividends that accumulate tax-free until the investor takes action to access the profits, which causes taxes to be assessed.
Tax Haven
A politically and economically stable country that offers preferential tax treatment to foreign individuals and businesses in the form of little or no tax liability on bank deposits, as well as confidentiality regarding financial transactions.
Tax Loss Harvesting
A strategy that offsets the taxes owed on capital gains and some personal income with capital losses.
Time Value of Money
A fundamental financial concept that the value of a dollar today is worth more than the value of a dollar in the future, because today's dollar can be invested and potentially grow into a larger amount in the future.
Traditional IRA
A tax-advantaged individual retirement savings account that is funded with pre-tax income, thus providing an immediate tax benefit, and allows investments to grow tax-deferred until retirement when withdrawals are taxed at the account holder's current income tax rate.
Treasury Bill
A low-risk, short-term debt obligation backed by the U.S. Treasury Department — sold in denominations ranging from $1,000 to $5 million — with a typical maturity from a few days to up to one year.
Treasury Bond
A virtually risk-free, fixed-rate U.S. government debt security that pays semiannual interest payments until maturity — ranging between 20 and 30 years — at which time the owner is paid the face value of the bond.
Trust Document
An agreement used by an individual in estate planning to provide explicit directions regarding the property held in trust for beneficiaries in order to reduce the estate tax liability, protect the property in the estate, and avoid probate.
- Trust Fund
A particular type of legal entity used as an estate planning tool to hold property for the benefit of another person, group, or organization and set the rules for how assets can be passed on to beneficiaries while minimizing taxes and avoiding probate.
U
Underlying Asset
The financial asset from which a derivative derives its value — often a stock, commodity, or any asset that provides value.
Undervalued
An asset, such as a security or other investment, that sells in the market for a price presumed to be below its actual intrinsic value.
- Universal Life Insurance
A form of permanent life insurance that lasts the insured's lifetime and includes an investment savings element — or cash value — from which policyholders can borrow without tax implications, and charges low premiums, often in the form of a flexible-premium option.
V
Value Investing
A conservative approach to investing that involves finding stocks that the market seems to be underestimating and that are trading for less than their intrinsic or book value.
Value Stock
A share of a company that appears to trade at a lower price than suggested by its fundamentals, such as earnings, sales, cash flow, and price/earnings ratio, which tends to gradually gain in price and hold its value over the long-term.
Variable Death Benefit
The amount paid from a variable universal life insurance policy to a decedent's beneficiary based on the performance of an investment account embedded in the policy and paid in addition to the guaranteed death benefit, which is a constant.
Venture Capital (VC)
A type of equity financing provided to companies and entrepreneurs that seem to have high growth potential but that, in the early stages of their evolution, lack access to capital markets, bank loans, and other debt instruments. These types of early stage investments are risky; however, if they succeed, the attractive payoff can enjoy above-average returns.
Voluntary Life Insurance
A financial protection plan provided by employers that offers a cash benefit to a beneficiary upon the death of the insured who has paid (as a payroll deduction) a smaller monthly premium than a retail market policy would cost. The benefit ceases when the employee is terminated or quits.
- Volatility Index (VIX)
A real-time market index that reflects the expectation of price volatility in the S&P 500 index over the next 30 days. The VIX is often used by investors when gauging market sentiment and the degree of fear amongst market participants.
W
Whole Life Annuity
A financial product sold to investors by insurance companies that provides an income stream starting at an agreed-upon age as a monthly, quarterly, semi-annual, annual fixed, or variable payment for as long as the investor lives.
Whole Life Insurance
A type of life insurance that covers the insured for life and that, in addition to the death benefit paid to designated beneficiaries upon the insured's death, contains a savings component in which cash value can accrue tax-deferred with a fixed interest rate.
Will
An essential component of estate planning that is a legally enforceable declaration of how a person wants their property and assets distributed after death. Without a will, the decedent’s property will be distributed by the government and may become the property of the state.
Withholding
The portion of an employee's wages that is deducted from a paycheck and remitted directly to the federal, state, or local tax authorities, based on the employee's income, marital status, and the number of declared dependents.
- Write-Offs
A business accounting expense that reduces taxable income on the income statement by the value of unreceived payments or losses on assets.
Y
- Yield
A measure of the return on an investment over a specific period, expressed as a percentage, generated by price increases and paid dividends, and calculated as the net realized return divided by the amount invested.
Z
Z-Bonds
A mortgage-backed security that represents the last tranche of a collateralized mortgage obligation and is considered a speculative investment because investors receive no cash payments for a lengthy period and are at high risk if the underlying mortgages default.
Zero Balance Account
An account used by companies where a $0 balance is maintained by transferring funds to and from a master account as needed.
- Zombie ETF
A basket of securities with low trading volume and low assets that has failed to attract investors and is not making money for the issuing asset manager. A Zombie ETF runs the risk of delisting and a shut down, at which time any investors are cashed out and may face higher taxes if the investment was held for less than one year.
