Investments

A contract sold by insurance companies that may provide income for the rest of the individual’s life in return for a lump-sum or periodic payment to the insurance company. Annuities, like IRAs, are tax-deferred vehicles. The taxation on annuities when they are distributed are different from IRAs for “non-qualified” annuities.

The placement of a certain amount of one’s investment capital within different types of asset classes (e.g., 50% stock, 30% bonds, and 20% cash).

Also known as “cost basis,” this is the value assigned to an asset, generally its purchase price plus the amount of subsequent deposits, that is used to determine a capital gain or capital loss for tax purposes.

The term used to describe a prolonged period of declining stock prices.

A “loanership” investment that pays a specific rate of interest that remains the same until maturity.

The term used to describe a prolonged period of rising stock prices.

An increase in the market value of an investment.

A decrease in the market value of an investment.

Long-term deposits with banks that pay higher rates of interest than savings or checking accounts IF the depositor agrees to leave the funds untouched for a while.

An individual retirement account where only the owner of the account may contribute. The contributions to the account are with pre-tax dollars and earnings accumulate tax free, but any withdrawals from the account are then taxed. Max annual contribution per year is $6,000, but individuals over 50 can make a “catch-up” contribution of an extra $1000. Once the owner reaches 72 years of age, they must make a Required Minimum Distribution (RMD) each year after this. This is a withdrawal that allows the government to collect taxes on a certain amount of the account value. The total withdrawal amount is a formula based on the estimated number of years left in one’s lifetime and the total value of the IRA account. The RMD can either be taken out in cash or transferred to a different non-retirement account.

Fee paid to a broker to trade securities, generally based on the number of shares trade or the dollar amount of the trade.

Can be used for any qualified education purposes – including elementary, secondary, and higher education purposes. Contributions to a Coverdell must stop on the beneficiary’s 18th birthday, and assets must be used or distributed to him/her by age 30. These accounts are funded with after-tax dollars, like in a 529 plan.

Custodial accounts are created for the benefit of minors, or as a product of a gift given to a minor by an adult. Any transfer of property to a custodial account is irrevocable. The minor will come into full ownership of any assets in the accounts whenever they turn 18. Earnings accumulate tax-free and withdrawals remain tax-free if they are used for higher education expenses for the beneficiary (minor). These types of accounts are often used for a child’s education.

A severe or long recession – 6 consecutive quarters

A distribution of income from investments to shareholders.

The process of selecting different investments to reduce investment risk.

The value of a bond at maturity. This value may vary significantly from what the bond was originally purchased for.

The amount that a sum of money today will be worth in the future with growth due to compound interest.

These are non-negotiable securities, which means that they cannot be bought and sold on the secondary market but only through the US government for payment. They share similar features to TIPS because they adjust for inflation and are default-free.

An unmanaged collection of securities whose overall performance is used as an indication of stock or bond market trends. An example of an index is the widely quoted Dow Jones Industrial Average (often referred to as the “DOW”). Another frequently reported index is the Standard & Poor’s 500 (often referred to as “the S&P”). The S&P, for instance, is merely a list of the largest 500 companies in the USA.

An individual securities account that is a taxable account, meaning that any capital gains are taxed at capital gains rates. Account holders can own any form of security in these accounts, and they are the simplest form of investment account.

The erosion of purchasing power over time through an increase in the cost of goods and services.

Any IRA that has been passed to a beneficiary upon the death of the original owner of the account. For non-spouse beneficiaries, the entire IRA must be distributed to the beneficiary after 10 years per the new SECURE Act.

The process of purchasing assets such as stocks, bonds, real estate, and mutual funds with the expectation of future income and/or capital gains (growth in value).

These accounts are owned by two or more individuals; there are several varieties of joint accounts that differ in ownership characteristics. Joint accounts are treated similarly in taxation as individual/brokerage accounts.

A person owns the account assets with one or more persons, and each person owns an equal and undivided interest in the account unless otherwise determined. Once one of the owners dies, his/her interest or percentage of the account is immediately divided and given to the other owner(s) of the accounts. This feature is called “survivorship”

In this type of joint account, the owners of the account each hold/own a different percentage share of the asset value. If one of the owners dies, however, they do not have the power to personally choose a beneficiary or give their assets to a surviving co-owner of the account; rather, the probate court determines who receives his/her interest in the account (NO survivorship feature).

These kinds of accounts are similar to a JT WROS, but are reserved exclusively to married couples. JT TBEs also have a survivorship feature, which means that if one of the spouses dies, the other spouse will receive 100% of the other spouse’s ownership percentage.

The ability to convert an asset to cash quickly without loss of value.

Risk that you are unable to quickly turn an investment into cash and at fair price (thinly traded securities would have a high liquidity risk.

A trust that is operative during the grantor’s lifetime

The risk that an investment will lose its value due to market decline

A type of mutual fund that invests in short-term, liquid cash assets

A “loanership” agreement that an investor makes with a local government. Interest paid is tax-free.

A pool of stocks that are owned in pieces by investors; good for diversification to minimize unsystematic risk.

See face value

The combined holding of stocks, bonds, cash equivalents, or other assets (e.g., real estate) by an individual or household.

Periodically adjusting the holdings in an investment portfolio to maintain a certain asset allocation.

A trust that is established before death and allows estate assets to be added to it after death (good for wealthy individuals that want to add assets to the trust to avoid the probate/court process).

Today’s value of a sum of money that will be received at a future date.

An official booklet that describes a mutual fund, including its objectives, expenses, historical performance, purchase and redemption policies, and fees.

A company that owns a portfolio of properties and sells shares to investors. This is a real estate investment with liquidity.

A widespread decline in economic activity that lasts more than a few months.

An investment gain or loss

Exposure to investment loss.

A person’s capacity to emotionally and financially handle the risks associated with investing.

Designed to receive retirement funds from a qualified plan (ex. 401(k)s) or another IRA account or used to transfer funds from one IRA custodian to another (ex. from Schwab to Fidelity). Once the taxpayer/account owner has the funds from the account they are transferring, they generally have 60 days to place these funds into a rollover account. If it is rolled over after the 60-day mark, it is subject to income tax.

These IRAs differ from traditional IRAs because instead of contributions being made with pre-tax dollars, they are put in after they have been taxed normally as income. They still grow tax free, and any withdrawal after 59.5 years of age is NOT taxed.

An individual brokerage account on Schwab.

A unit of ownership in a company (common stock) or mutual fund. The value of a share will vary according to market conditions and other factors.

Essentially, a less expensive form of a 401k that allows employers to make contributions to employee’s retirement funds. Because they are less expensive to manage, these forms of qualified plans are great for small business employers to use. Only employers can contribute to the plans, NOT the employee. Contributions to the plan are deductible for the employer and excluded from income for the employee. Earnings on contributions grow tax-deferred. There is no set contribution that must be made by employers each year, so it allows flexibility for them on this end. NOTE: many self-employed business owners open a SEP for themselves because it allows greater contribution limits to their own retirement from their own business.

Only employers with fewer than 100 employees can open these plans and annual contributions are limited to $13,500. There is a $3,000 catch-up contribution allowed for workers over age 50. Unlike SEP IRAs, both employers AND employees can contribute to this plan. Employers will either contribute a flat 2% (regardless of an employee’s contribution) of the employee’s wages OR 3% matching contribution. The SIMPLE IRA works most like a 401k, but is less costly and easier to administer than a 401k.

Represents the owner’s claims on the profits of the company and can be easily transferred, gifted, sold, donated, etc.

Type of US government bond that is short-term (one year or less), fully secured, and insured by the government. This is the safest kind of bond.

T-notes mature in 2-10 years and T-bonds mature in 30 years. Both make semi-annual coupon/interest payments.

A trust that is created and funded only upon the grantor’s death.

The fact that a dollar received today is not worth the same as a dollar received at a previous or future time period, due to the interest that can be earned on the money.

One of the safest forms of government securities.

The combination of income and capital gains or losses on an investment.

Trust accounts involve three parties: the grantor, the trustee, and the beneficiary. The grantor gifts something of value to the beneficiary, but the trustee holds that gift until certain conditions are met.

A type of custodial account that allows gifts of only cash, securities, or life insurance, which can only be gifted to these accounts during the individual’s lifetime.

Type of bond that is safer than others because it carries very little default risk. Interest made on these bonds on non-taxable.

Type of custodial account that has no restrictions on the type of property that can be gifted. In contrast to UGMAs, gifts may be made inter vivos (during the lifetime) as well as testamentary (after death)

The degree of price fluctuation associated with a specific investment or market index. The more price fluctuation that is experienced, the greater the volatility.

A popular savings vehicle for college expenses, both deposits to and withdrawals from this account are tax-free if used for qualified higher education expenses. The beneficiary does not necessarily have to be a minor. Contributions are made after tax, but withdrawals used for qualified education expenses are tax free at the Federal level (may be subject to state taxes). If withdrawals are not used for education, they will be taxed at ordinary income rates AND with a 10% penalty (like early IRA withdrawals). There are no age limits for the contributions/distributions, and these often have no limits for contribution amounts (vary by state). Beneficiaries can be reassigned if the primary does not want/use the funds, and no penalty results if the contingent beneficiary is related to the first. Money in the account remains under the parent’s/owner’s control, and there is no requirement to release the funds to the beneficiaries like in a Coverdell or UGMA/UTMA. The owner of the plan has full withdrawal access.