| Glossary
A to E
|
| 401(k) Plan |
|
A company-managed
retirement plan that allows employees to save for retirement
on a tax deferred basis. |
A |
| Absolute Return
|
|
The increase
or decrease in the value of an investment over a specific
period of time. |
| Active Management
|
|
An investment
strategy where a portfolio manager uses skill and expertise
to try to outperform a passively managed stock index. |
| Annualized Return |
|
The average rate
of return per year, taking into account the effects of compounding.
|
| Annuity |
|
An investment
that pays a fixed amount per month for a fixed number of years
or until the investor dies. |
| Asset |
|
An item of value
that is owned by an individual or corporation. Stock, bonds,
and other securities are financial assets, which can be traded
and sold to obtain cash. Other assets include real estate, and
other forms of property (e.g., automobiles, furniture, clothes,
etc.) |
| Asset Allocation
|
|
The process of
investing in multiple types of investments to achieve diversification
and control risk. |
| Asset Allocation
Fund |
|
A type of hybrid
fund that actively changes the ratio stocks and bonds in an
effort to achieve superior returns. |
| |
|
|
B |
| Balanced Funds |
|
A type of hybrid
fund that invests in stocks and bonds to control risk. |
| Bank Investment
Contracts (BICs) |
|
A benefit responsive
investment contract purchased by stable value funds. |
| Bankruptcy |
|
The condition
in which an individual or corporation no longer has enough income
or assets to pay its liabilities or bills. |
| Bear Market |
|
A period of months
or years when prices in a particular market decline. Stocks,
bonds, and real estate all experience bear markets. |
| Benchmark |
|
An standard basket
of securities that are used to measure the performance of a
market or sector of the market. Benchmark is usually used interchangeably
with Index. |
| Blackout |
|
A period of time
when a 401(k) plan administrator declares that no changes can
be made so that computer programs or other system changes can
be made. Frequently blackouts occur when the company switches
plan administration from one provider to another. |
| Bond |
|
A debt security
where an investor lends a borrower a fixed amount of capital
in exchange for regular interest payments and a return of the
capital at some point in the future. |
| Broker Window
|
|
A 401(k) plan
investment option that allows the participant to invest in any
stock, bond or mutual fund. |
| Bubble |
|
A period when
a large number of securities in a market achieve high price
levels that have no relation to the worth of the underlying
financial assets. |
| Bull Market |
|
A period
of months or years when prices in a particular market rise
with few declines or corrections. |
| |
|
|
C |
| Capital
Appreciation |
|
Increase
in the value of an asset. |
| Capitalization
|
|
The
value of all the shares of a company that are traded on the
stock market. |
| Catch
Up Contributions |
|
A
provision of the Economic Growth and Tax Reconciliation Act
of 2001 (EGTRRA) that allows 401(k) investors age 50 and older
to contribute additional dollars to their plan above the amount
normally allowed. |
| Certificates
of Deposit |
|
Certificates
of Deposit or CDs are interest paying bank accounts that require
an investment for a specific period of time, with a penalty
for early withdrawal. CDs are issued to mature over three month
to six year periods and generally pay higher interest the longer
the time to maturity. |
| Company
Match |
|
An
optional 401(k) plan feature where the company matches all or
a portion of the employee's contribution with its own contribution.
|
| Compounding |
|
The
process where an interest, dividends, or other payments are
reinvested in the investment. In effect, the investor is earning
an additional return on each payment over the life of the investment.
|
| Conduit
IRA |
|
An
Individual Retirement Account (IRA) that is set up to receive
a rollover distribution from a 401(k) plan. Later, the assets
in the conduit IRA can be transferred to a new employer's 401(k)
plan. |
| Consumer
Price Index |
|
The
Consumer Price Index or CPI is published each month by the U.S.
government to indicate how much prices for the products and
services most people buy are increasing or decreasing. The index
is a measure of inflation (the increase in prices) or deflation
(the decline in prices). Sometimes the CPI is called the cost-of-living
index. |
| Core
Fund |
|
A
portfolio that invests in many securities in multiple industries
or market sectors so that a financial or economic problem in
one company or a single industry will have a small effect on
the entire fund. A core fund will be well diversified and seek
to control risk. |
| Corporate
Bond |
|
Securities
issued by companies that pay interest on a periodic basis. A
company's credit rating determines the amount of interest the
bonds will pay relative to U.S. Treasury bonds with a similar
maturity. Corporate bonds may be issued for periods of one year
to 30 years. |
| Crashes |
|
A
sudden decline in stock or bond prices in a particular market.
Crashes are the opposite of bubbles. |
| Currency
Risk |
|
The
risk that changes in the value of a country's currency will
help or hurt the value of an investment. |
| |
|
|
D |
| Deferred
Taxes |
|
The
feature of 401(k) plans and IRAs that allow investors to avoid
paying taxes until the funds are withdrawn from the account.
|
| Defined
Benefit Plan |
|
A
retirement plan that pays a monthly fixed benefit based on an
employee's years of service and final salary. |
| Defined
Contribution Plan |
|
A
retirement plan where the employee and/or company contributes
money to an investment account. Retirement payments are based
on the performance of the assets held in the account. |
| Derivative |
|
A
financial security the price of which is based on another the
price or actions of another security. |
| Developed
Stock Markets |
|
Countries
with active stock markets with few, if any, restrictions on
the flow of money in and out of the country. For the most part,
companies within developed markets are subject to similar (but
not identical) accounting rules and their governments follow
economic policies comparable to those of the United States,
United Kingdom, Germany, France and Japan. |
| Disability |
|
A
condition that prevents an employee from going to work each
day. |
| Distribution |
|
A
withdrawal or removal of funds from an account. |
| Diversification |
|
An
investment strategy that combines stocks and bonds or equity
and fixed income mutual funds to reduce risk. |
| Dividend
|
|
Cash
payments paid to a company's stock holders. Occasionally, a
company will pay a dividend with shares of stock (a stock dividend)
in lieu of cash. |
| Dollar
Cost Averaging |
|
An
investment strategy where a fixed amount is invested each month
no matter what the market is doing. With dollar cost averaging,
investors are assured of never investing all of their funds
at the top or the bottom of the market cycle. |
| Dow
Jones Industrial Average |
|
One
of the oldest stock market indexes that represents the average
price of 30 large companies. The index is published by the Dow
Jones Company, which also publishes the Wall Street Journal.
|
| |
|
|
E |
| Early
Withdrawal Penalty |
|
A
10 percent income tax that is charged on funds withdrawn from
a 401(k) account or IRA before age 59½. The penalty tax
is charged in addition to the normal income taxes that are charged
on withdrawals from 401(k) accounts and IRAs. |
| Employee
Benefits Security Administration |
|
An
agency of the U.S. Department of Labor that oversees pension,
health, and other employee benefit programs offered by corporations
doing business in the United States. (Formerly called the Pension
and Welfare Benefits Administration.) |
| Emerging
Markets |
|
Countries
with stock markets that are in transition. Generally, these
are countries where stock markets are new, accounting rules
are developing and governments may open and close the markets
to foreigners. As a result, emerging markets are more risky
than developed markets. |
| Equities |
|
Another
word for stock—an ownership interest in a company. |
| Event
Risk |
|
The
chance that something happens to a company that is unforeseen
and it affects the stock or bond price of the organization.
|
| Expense
Ratio |
|
All
the operating costs of a mutual fund divided by the average
assets of the fund. |
