Financial Glossary
Adjusted Gross Income (AGI)
An interim calculation in the computation of income tax liability, calculated by subtracting allowable adjustments from gross income.
Administrator
A person appointed by the court to settle an estate when there is no will.
After-Tax Return
The return from an investment after income taxes are subtracted.
Aggressive Growth Fund
A mutual fund with the primary investment objective of generating a large amount of appreciation, with proportionately high risk.
Alternative Minimum Tax (AMT)
A method of calculating federal income tax that disallows certain deductions, credits, and exclusions. The method was created to ensure that individuals, trusts, and estates that benefit from tax preferences do not avoid all federal income tax liability. Each year, taxpayers must pay the higher tax that results from either the “regular way” calculation or the AMT calculation.
Annuity
A contract issued by an insurance company that provides an option to receive steady income starting at a point in the present or future, such as at the start of retirement. The income may continue for one lifetime, the longer of two lifetimes, or a certain period of years.
Asset
Anything owned with monetary value.
Asset Allocation
A process of arranging assets in a portfolio so that percentage weightings (of the total portfolio) are assigned to various asset classes. The process usually attempts to maintain the portfolio structure and percentage weightings over time, by making rebalancing adjustments to correct for price changes in asset classes. Asset allocation is a method used to help diversify assets and manage investment risk, but it does not eliminate or guarantee against the risk of investment loss.
Asset Class
A category of investments with similar characteristics.
Audit
An examination of the operations, finances, records and systems of a business entity by a qualified professional. Audits usually are performed to assure that financial statements are accurate, consistent, and conform to legal and accounting principles, and they are accompanied by an auditor’s attestation and report.
Balanced Mutual Fund
A mutual fund that maintains a balance of stocks and bonds. Balanced funds tend to be less volatile than stock-only funds.
Bear Market
An extended period in which the stock market as a whole is experiencing declining values. A bear market normally is declared when major stock market indexes decline 20% or more from a peak.
Beneficiary
An entity named in a life insurance policy, annuity, brokerage account, bank account, will, trust, or other agreement to receive a financial benefit or assets upon the death of the owner. A beneficiary can be an individual, corporation, trust or other type of entities.
Blue Chip Stock
The common stock of a company with a consistent record of steady growth, profitability and dividend payments.
Bond
A debt in which the issuer promises to pay the holders a specified amount of interest and to repay the principal at maturity. Bonds are usually issued in denominations of $1,000.
Book Value
The value of a company's assets, less its liabilities and the value of any preferred shares.
Brokerage Account
An account established for the purposes of holding securities in custody, trading securities and clearing trades. Brokerage accounts also include services such as securities quotes and research, cash management, margin lending and reporting.
Bull Market
An extended period in which the stock market as a whole is experiencing rising values. A bull market normally is declared when major stock market indexes increase 20% or more from a low (trough).
Business Insurance
Insurance purchased by a business to cover its needs, and perhaps also the needs of its owner(s) and key executives. Business insurance can include life, health, disability income, property and casualty and other types of coverage.
Buy-Sell Agreement
An arrangement between two or more parties that obligates one party to buy out a business interest, and another party to sell a business interest, upon the death, disability or retirement of one of a business owner.
Business Planning
A process of prioritizing needs, addressing goals and implementing solutions for a business and its owner(s).
Capital Gain or Loss
A calculation to determine the income tax owed on the disposition of a capital asset – such as a security, home or business. The gain or loss is determined as the difference between the sales price (less costs of sale) and the adjusted cost basis of the asset sold. 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 Alternatives
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 of money that a life insurance policyholder is entitled to receive when he or she discontinues coverage or cancels the policy. It usually is the difference between the policy’s cash value and any surrender charges imposed.
CERTIFIED FINANCIAL PLANNER® Practitioner A designation granted by the Certified Financial Planner Board of Standards, Inc. (Denver, CO) to individuals who complete a comprehensive curriculum in financial planning and ethics. CFP®,CERTIFIED FINANCIAL PLANNER® and federally registered CFP (with flame logo)® are certification marks owned by the Certified Financial Planner Board of Standards. The designation may be used by individuals who successfully complete the CFP Board's initial and ongoing certification requirements.
Certified Public Accountant (CPA)
A professional license granted by a state board of accountancy to an individual who has passed the Uniform CPA Examination (administered by the American Institute of Certified Public Accountants) and has fulfilled that state's educational and professional experience requirements for certification.
Charitable Giving
A program for making one or more gifts to charity, in a way designed to maximize the value of property or assets given to a charity and also take advantage of tax deductions.
Charitable Lead Trust
A trust established for the benefit of a charitable organization under which the charitable organization receives income from an asset for a set number of years or for the grantor's lifetime. Upon termination of the trust, remaining asset reverts to the grantor or to his or her designated heirs. This type of trust can reduce estate taxes and allows the grantor's heirs to retain control of the assets.
Charitable Remainder Trust
A trust established for the benefit of a charitable organization under which the grantor receives income from an asset for a set number of years or for the grantor's lifetime. Upon termination of the trust, remaining asset reverts to the charitable organization. The grantor receives a charitable contribution deduction in the year in which the trust is established, and any gains on assets placed in the trust are exempt from capital gains tax.
Chartered Financial Consultant (ChFC)
A professional financial planning designation granted by The American College (Bryn Mawr, PA) to individuals who complete a comprehensive curriculum in financial planning. Prerequisites include passing a series of written examinations, meeting specified experience requirements and maintaining ethical standards. The curriculum encompasses wealth accumulation, risk management, income taxation, planning for retirement needs, investments, estate and succession planning.
Chartered Life Underwriter (CLU)
A professional designation granted by The American College to individuals who complete a comprehensive curriculum focused primarily on risk management. Prerequisites include passing a series of written examinations, meeting specified experience requirements, and maintaining ethical standards. The curriculum encompasses insurance and financial planning, income taxation, individual life insurance, life insurance law, estate and succession planning, and planning for business owners and professionals.
COBRA
The Consolidated Omnibus Budget Reconciliation Act is a federal law requiring employers with more than 20 employees to offer terminated or retired employees the opportunity to continue group health insurance coverage for 18 months at the employee's expense. Coverage may be extended to the employee's dependents for 36 months in the case of divorce or death of the employee.
Coinsurance or Co-Payment
The amount an insured person must pay for a covered medical and/or dental expense if the insurance does not provide full coverage.
College Funding
A program for accumulating assets to pay for the cost of college education. College funding can make use of different types of accounts and investments including 529 savings plans, Coverdell Education Savings Accounts and life insurance. It often seeks to maximize tax advantages and coordinate with applications for financial aid.
Commodities
The generic term for goods such as grains, foodstuffs, livestock, oils, and metals that are traded on national exchanges. Commodities exchanges deal in both "spot" trading (for current delivery) and "futures" trading (for delivery in future months).
Common Stock
A unit of ownership in a corporation. Common stockholders participate in the corporation's profits or losses by receiving dividends and by capital gains or losses in the stock's share price.
Community Property
Generally, all property acquired during a marriage -- excluding property one spouse receives from a will, inheritance, or gift – as recognized by the laws of some states. Each partner is entitled to one half of any community property acquired, and each partner shares in any debt accumulated. There are nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
Compound Interest
Interest computed on principal and on previously accrued interest. Compound interest may be computed continuously, daily, monthly, quarterly, semiannually, or annually.
Consumer Price Index (CPI)
The U.S. Department of Labor's main indicator of inflation in consumer prices of the U.S. economy. The Consumer Price Index is calculated by the Bureau of Labor Statistics monthly to measure average costs of approximately 400 items commonly purchased by households, including housing, transportation, energy, healthcare and education.
Debt Elimination
A systematic program to pay off debts over time, often arranged with the help of a debt or credit counseling service.
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 receives a guaranteed retirement income or sum payable in installments. Annual contributions are made to the plan by the employer at the level needed to fund the benefit.
Defined Contribution Plan
A retirement plan under which contributions are made by the employer or employee into accounts established for each plan participant. The amount of retirement benefits is not guaranteed; rather, it depends upon the level of contributions and investment performance of each employee account.
Dental Insurance
An insurance plan that covers dental expenses and dentists’ bills. The coverage may be obtained on a group basis (at work) or on an individual basis. Normally, it pays for specified dental services after deductibles and coinsurance.
Disability Income Insurance
Disability Income Insurance - A type of insurance that pays a monthly benefit to help replace income lost in the event you become to sick or injured to work (totally disabled). Policy provisions vary based on carrier and should be reviewed carefully. If eligible, benefits will be paid once the elimination period (or waiting period) is satisifed and will continue for the maximum benefit period specified in the coverage.
Dividend
A portion of earnings that a corporation distributes (usually in cash) to its common and preferred stockholders. In the case of most large public companies, dividends are declared by the company’s board of directors and paid quarterly. For preferred stock, dividends are usually fixed. For common shares, dividends may vary with the profits of the company.
Dollar Cost Averaging
A systematic method of investing in which the investor buys a fixed dollar amount of securities at regular intervals. The fixed dollar amount buys more shares when the price is lower and fewer shares when the price is higher. As a result, the average cost per share acquired can be lower, over time, than the average share over the same period. Dollar cost averaging does not ensure a profit or prevent a loss. To be effective, the method requires continuous investments to be made, regardless of fluctuating or declining prices.
Efficient Frontier
An analysis of the risk and return for a given set of assets, so that all assets chosen for the efficient frontier represent the highest available expected returns for each discrete level of risk. For purposes of this analysis, expected return is usually represented by historic returns of asset classes or securities and risk usually is represented by standard deviation.
Employee Benefits
The benefits that employees receive through their place of work, whether or not they are paid for (in full or part) by the employer. Examples of employee benefits include critical illness coverage, dental insurance, disability income insurance, life insurance, group medical insurance and vision insurance.
Employee Retirement Income Security Act (ERISA)
A federal law designed to protect the rights of employees who participate in employer-provided retirement plans. ERISA requires covered plans to make public disclosures and provide information upon request to any plan participant. It also assures that employer-provided plans are made broadly available to workers, do not discriminate in favor of certain employees, are adequately funded and provide for vesting and survivor's rights.
Employee stock ownership plan (ESOP)
A defined contribution retirement plan in which company contributions must be invested primarily in qualifying employer securities.
Employer-Sponsored Retirement Plan
A tax-favored retirement plan sponsored by an employer. Among the more common employer-sponsored retirement plans are 401(k)s, 403(b)s, Simplified Employee Pensions, and profit-sharing plans.
Enrolled Agent (EA) is the only federally licensed tax practitioners who specialize in taxation and have unlimited rights to represent taxpayers before the IRS. An Enrolled Agent is a federally authorized tax practitioner empowered by the U.S. Department of the Treasury to represent taxpayers before the Internal Revenue Service (IRS). Enrolled agent status is the highest credential awarded by the IRS. The EA credential is recognized across all 50 U.S. states.
Equity
The value of an ownership interest in real property or securities; or the market value of a property or business, less all claims and liens against it.
Estate Conservation
Activities coordinated to provide for the orderly and cost-effective distribution of an individual's assets at the time of his or her death. Estate conservation strategies often include the use of wills and trusts.
Estate Planning
A process of coordinating personal property and assets so that it passes to others (such as a surviving spouse or heirs) efficiently, during the owner’s life or after death. Estate planning can include the use of trusts, lifetime gifts, and a will to transfer assets. It also can make provisions for minimizing taxes and costs that will be due at death, including federal estate tax, and for avoiding the public process and delays of probate.
Estate Tax
A tax imposed by federal and state governments upon the property and assets of a decedent.
Executive Bonus Plan
A type of non-qualified employee benefit plan in which participation may be made available selectively to owners, executives and highly paid employees. The employer pays a bonus to fund a benefit that is owned by the executive.
Executive Benefits
Benefits offered through an employer that are designed primarily for senior executives or higher-paid employees. These benefits may be offered selectively and may include key person insurance, executive bonus programs, deferred compensation, and split-dollar life insurance.
Executor
An entity named by a will or the probate courts to carry out the directions and requests of the decedent in settling an estate, paying its debts and taxes and distributing its property. In some states, this entity is called the “administrator.”
529 Plans
An education savings plan that may be sponsored by a state or an institution of higher learning. The plan provides tax advantages to those who set aside savings and investments earmarked for college expenses.
Fixed Income
An asset class that includes investments that pay interest such as CDs, bonds, money market funds and annuities.
401(k) Plan
A type of employer-provided defined contribution retirement plan that permits voluntary employee salary deferrals to be made, along with employer contributions. All deferrals and contributions (within annual limits) are excluded from current income for federal income tax purposes. Any investment earnings compound on a tax-deferred basis. Employers often agree to “match” part or all of an employee’s deferrals.
403(b) Plan
A type of employer-provided defined retirement contribution plan that may be established by a nonprofit organization, school or college. Like a 401(k), the plan permits voluntary employee salary deferrals to be made, along with employer contributions. All deferrals and contributions (within annual limits) are excluded from current income for federal income tax purposes. Any investment earnings compound on a tax-deferred basis. Employers often agree to “match” part or all of an employee’s deferrals.
Fundamental Analysis
Investment research and evaluation that focuses on the strength and health of individual companies or industries, including data such as earnings per share, earnings growth, the price-to-earnings ratio, dividend yield, and return on equity. It is also called “bottom-up” research and analysis.
Gift Taxes
A federal tax levied on the transfer of property as a gift during a donor’s lifetime, and usually paid by the donor. Each person is entitled to a lifetime gift tax exemption (currently $1 million) and an annual gift tax exclusion (currently $13,000) before gift tax is levied. Many states also impose a gift tax.
Group Life Insurance
A life insurance program that covers a group of people – such as a plan provided by an employer, for the benefit of employees. By underwriting a group of people through a single contract, an insurance company can pool risk. As a result, individuals may obtain coverage through group insurance on better term than they would be available in an individual policy.
Group Short Term and Long Term Disability
A type of disability income insurance provided by an employer to a workplace group. Short-term disability typically covers a percentage of salary lost to illnesses or accidents over a few days or weeks. Long-term disability coverage usually covers lost salary over a period of up to several years, after a waiting period.
Holographic Will
A will entirely in the handwriting of the testator. Without witnesses, holographic wills may not be valid and enforceable under state law.
Individual Retirement Arrangement (IRA)
A type of tax-advantaged retirement plan designed to be set up and owned by individuals. Two types of IRAs are available -- Traditional and Roth – and each has different tax treatment. However, in both types, earnings accumulate on a tax-deferred basis until they are withdrawn.
Inflation
An increase in the price of products and services over time. The U.S. Government's measures inflation using several indexes, including the Consumer Price Index and the Producer Price Index.
Intestate
The legal status of an estate in which the decedent has left no valid will or other clear instructions for property disposition (such as trusts or beneficiary designations). State law then determines who inherits any property of the decedent’s estate.
Irrevocable Trust
A trust in which the most important terms may not be modified or terminated by the grantor after its creation.
Investment Advisory Services
Services provided by investment firms and professionals that fall under the Investment Advisers Act of 1940. The services usually are provided for an asset-based fee by firms or individuals that are registered with the Securities and Exchange Commission (SEC) as Registered Investment Advisers (RIAs). RIAs are required to disclose their methods and fees to clients, and submit to SEC audits.
Joint and Survivor Annuity
An annuity payout that provides guaranteed or promised income over the lifetime of two annuitants.
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 law.
Key Person Planning
Planning that aims to protect a business against the loss of a key owner or executive, usually by purchasing life insurance or disability income insurance payable directly to the business.
Liability
Any claim against the assets of a person or corporation including accounts payable, wages and salaries payable, dividends payable, accrued taxes payable, and fixed or long-term obligations such as mortgages, debentures, and bank loans.
Life Insurance
An insurance program that pays a death benefit to a beneficiary on the death of the insured person. In the United States, the sale of life insurance and operations of life insurance companies are regulated under state law.
Life and Disability Income Protection
Insurance (life or disability income) designed to replace an insured person’s income, in the event of a death or long-term disability. Life insurance coverage typically is enough to provide ongoing income to dependents or a beneficiary, so they can maintain their lifestyles.
Limited Partnership
Partnerships formed by investors to develop or purchase assets or properties. The partnership is managed by one or more general partners who bear full responsibility for its debts and liabilities. Passive investors are limited partners, with liability usually limited to the amounts they invest. Any income, gains or losses earned by the partnership usually passes through to investors and is taxable to them.
Liquidity
The ease with which an asset or security can be converted into cash without loss of principal.
Living Trust
A trust created by a person during his or her lifetime.
Long Term Care Insurance
A type of insurance policy designed to reimburse the costs of an extended stay in a nursing home or a need for in-home care. The insurance usually pays a daily indemnity (after a waiting period) for custodial levels of care such as help with eating, dressing or bathing. These costs normally are not reimbursed by health insurance, including Medicare for the elderly.
Lump-Sum Distribution
Disbursement of the entire value of an employer-sponsored retirement plan, pension plan, annuity, or similar account to the account owner or beneficiary. In retirement plans, lump-sum distributions usually may be transferred or rolled over to another tax-deferred account.
Major Medical Insurance
Health insurance that covers serious medical expenses such as for hospitals and surgeries. The insurance usually includes deductibles and coinsurance amounts.
Marginal Tax Bracket
The highest income tax rate paid by a given taxpayer in a given year. U.S. federal income tax rates are graduated – i.e., they increase with income. The marginal tax bracket measures the rate assessed on the “last dollar of income.”
Marital Deduction
A provision of U.S. federal law that allows all assets of a deceased spouse to pass to a surviving U.S. citizen spouse free of federal estate taxes. This provision is also referred to as the "unlimited marital deduction.
Money Management
Investment management of a portfolio or fund, usually on an ongoing basis. To provide money management services for a fee, professionals must be registered as Investment Advisers with the Securities and Exchange Commission (SEC).
Money Market Fund
A type of mutual fund that must invest in high-quality, short-term securities, and seeks to maintain a constant net asset value of $1 per share. Money-market funds are neither insured nor guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any government agency. Although money market funds seek to preserve the value of your investment at $1 per share, it is possible to lose money when investing in a money market fund. Under federal regulations, money market funds must invest at least 95% of assets in securities rated in the top two ratings categories.
Municipal Bond
A debt security issued by states, state agencies and municipalities. The income from municipal bonds usually is exempt from federal income taxes. It may also be exempt from state income taxes in the state in which the municipal bond is issued.
Municipal Bond Fund
A type of mutual fund that invests in a variety of municipal bonds. The bonds may be selected among issuers nationally or within a given state.
Mutual Fund
An open-end investment company that pools funds from many investors to provide professional management of a diversified portfolio of stocks, bonds, or other securities. The fund’s assets are managed for a fee by an investment adviser. Because the fund typically holds many different types of securities, it offers greater diversification than most investors can achieve on their own. Most mutual funds have a particular objective such as income, growth and income and growth, or appreciation. In the U.S., a mutual fund must be offered to investors with a disclosure document called a prospectus, which describes the fund’s investment objectives, risks, charges, and expenses.
Net Asset Value
The per-share value of a fund's current holdings, net of accrued expenses. Net asset value is calculated by dividing the net market value of the fund's assets by the number of outstanding shares.
Pension Design and Administration
A service that helps companies create and operate customized pension plans. Professionals who offer the service may package several disciplines including legal advice, accounting, actuarial services and investment advice. Plan administration includes compliance, filing of required forms, maintenance of records, and communications with plan participants and government entities.
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. The trust is managed by the charitable organization, and contributions are partially tax-deductible.
Portfolio
A group of investments managed to achieve a stated objective.
Preferred Stock
A class of stock with claim to a company's earnings, through dividend payments, before dividends can be paid on the same company’s common stock. Preferred stock usually is entitled to priority over common stock if the company liquidates. Generally, preferred stock pay dividends at a fixed rate.
Prenuptial Agreement
A legal agreement arranged before marriage defining property acquired before marriage and during marriage and how income, liabilities, assets and property will be divided in the event of divorce.
Price/Earnings Ratio (P/E Ratio)
The market price of a stock divided by the company's annual earnings per share. Because the P/E ratio is a widely regarded yardstick for investors, it often appears with stock price quotations.
Principal
In a security, the principal is the amount of money invested, excluding earnings. In a debt instrument such as a bond, it is the face amount.
Probate
The court-supervised process in which a decedent's estate is settled and distributed.
Profit-Sharing Plan
A type of defined contribution retirement plan in which the company makes annual contributions to each eligible employee’s account. Funds usually accumulate tax-deferred until the employee retires or leaves the company.
Prospectus
A document provided by securities issuers (including mutual funds) to prospective investors. The prospectus provides information investors need to make informed decisions prior to investing in a newly issued security, mutual fund, variable annuity, or variable universal life insurance program.
Qualified Domestic Relations Order (QDRO)
An order issued by a state domestic relations court (usually pursuant to a divorce order or settlement), specifying division of property, assets and income. QDROs often specify how an employee's ERISA retirement plan accrued benefits be shared between the employee and the spouse.
Qualified Retirement Plan
A pension, profit-sharing, or qualified savings plan established by an employer for the benefit of the employees. Qualified plans must conform to IRS rules and provisions of ERISA. They may not discriminate in favor of selected employees.
Retirement Planning
A process through which individuals set aside assets that will be used to achieve a secure retirement. Retirement planning also can coordinate other decisions and services that will be valuable in retirement, such as insurance, retirement plans, pensions and Social Security benefits.
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. In insurance policies, risk of loss is transferred from the policy owner to an insurance company.
Risk-Averse
A theory that rational investors will choose investments with the least risk if they are given a choice between investments with the same potential for return. Risk-averse investors may not be inclined to accept any amount of large or concentrated investment risk.
Rollover
A method by which an individual can receive assets or cash from one retirement program and move it to another, without the recognition of income for tax purposes. The requirements for a tax-free rollover depend on the type of program from which the distribution is made and the type of program receiving the distribution.
Roth IRA
A nondeductible IRA that allows tax-free withdrawals when certain conditions are met. Income and contribution limits apply.
Security
Evidence of an investment, either through equity ownership (as with stocks), ownership of debt (as with bonds), or indirect ownership (as with options).
Self-Employed Retirement Plans
Types of retirement plans designed for self-employed individuals. They include Simplified Employee Pensions and special versions of 401(k) plans.
Simplified Employee Pensions (SEP)
A type of retirement plan under which the employer contributes to an employee's IRA. Self-employed people use SEPs to provide for their own retirement programs.
Single-Life Annuity
An insurance company contract that pays income over the life of one annuitant.
Special Needs
A planning discipline for individuals with disabilities. The planning aims to provide financial support for disabled individuals without disrupting government benefits that are means-tested or asset-tested.
Split-Dollar Arrangement
A plan under which two parties (usually a corporation and its employee) share the cost of a life insurance policy and split the proceeds.
Spousal IRA
An IRA designed for a couple when one spouse has little or no earned income. The maximum combined contribution that can be made each year to a worker’s IRA and a spousal IRA currently is $10,000 or 100 percent of earned income, whichever is less. The total may be split between the two IRAs as the couple wishes, provided that the contribution to either IRA does not exceed the maximum annual contribution limit ($5,000).
Succession Planning
A process that focuses on helping business owners make arrangements for transferring ownership and/or management to others, upon a death, disability or retirement.
Supplemental Life and Disability Income Protection
Life and disability income insurance offered through the workplace, usually as an addition to basic group benefits. In most cases, employees choose to add supplemental coverage and pay for it themselves.
Tax Bracket
A range of taxable income that is taxed at a certain rate.
Tax Credit
Incentives that provide a direct dollar-for-dollar offset of tax liabilities. A $1,000 federal income tax credit will reduce federal tax liabilities by $1,000.
Tax-Deferred
Interest, dividends, or capital gains that grow untaxed in certain accounts or plans until withdrawn.
Tax-Exempt Bonds
Municipal bonds issued by states, agencies and municipalities that qualify for federal tax-exemption of interest income. In many states, the interest from tax-exempt bonds is also exempt from state and local income taxes.
Taxable Income
The amount of income used to compute tax liability. For federal income tax purposes, it is determined by subtracting adjustments, itemized deductions (or the standard deduction), and personal exemptions from gross income.
Technical Analysis
Stock market research and evaluation in which market trading data, including prices and volume, are charted. Technical analysts study the charts to identify familiar patterns, as an indicator of potential market or stock-specific performance in the future.
Tenancy in Common
A form of co-ownership. Upon the death of a property owner, his or her interest passes to designated beneficiaries and not to a surviving owner or co-owners.
Term Insurance
A type of life insurance that provides a death benefit if the insured dies. Term insurance does not accumulate cash value, and coverage usually ends after a certain number of years, or at a specified age.
Testamentary Trust
A trust established by a will that takes effect upon death.
Testator
One who has made a will or who dies having left a will.
Total Return
The total of all earnings from a given investment, including dividends, interest, and any capital gain. Usually, total return is expressed as a percentage, with the numerator being all earnings and the denominator being average share price.
Trust
A legal entity created by an individual in which one person or institution holds the right to manage property or assets for the benefit of another (or others).
Trustee
An individual or institution appointed to administer a trust for its beneficiaries.
Trustee-to-Trustee Transfer
A method of transferring retirement plan assets from one plan to another on a tax-free basis. Plan assets pass directly between two plan trustees, with no receipt by the owner.
Universal Life Insurance
A type of life insurance that combines a death benefit with a savings element that accumulates interest on a tax-deferred basis. Under a universal life insurance policy, the policyholder can increase or decrease his or her coverage, with limitations, without purchasing a new policy. Premium payments also may be flexible.
Variable Universal Life Insurance (VUL)
A type of life insurance that combines a death benefit with an investment element that accumulates on a tax-deferred basis. The account value can be allocated into a variety of investment subaccounts. The investment return and principal value of the variable subaccounts will fluctuate. Thus, the policy's account value is determined by the performance of the chosen subaccounts and is not guaranteed. In the U.S., VUL is a security and must be sold by prospectus.
Volatility
The range of price swings in a security or market over time.
Voluntary Benefits
Benefits that employees can choose to take, offered through a workplace or employer. Typically, these benefits are above a basic benefits package that includes group health insurance and a retirement plan. They often are paid for by employees, through salary deduction. Some common types of voluntary benefits include accident and sickness insurance, personal life insurance, dental/vision insurance and long-term care insurance.
Wealth Accumulation
A process or phase in which resources and assets grow toward a future goal, such as retirement. The wealth accumulation phase usually leads to a “distribution phase” during which assets are used to fulfill a personal goal.
Wealth Distribution
A process during which personal assets, property and resources are distributed to fulfill personal goals or provide for others, such as a surviving spouse or heirs. Wealth distribution can occur during the lifetime of a property owner or after death. The process often is coordinated to reduce federal estate taxes.
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. Whole life insurance is also referred to as "ordinary" or "straight" life insurance. Policy loans will reduce the cash value by the amount of any outstanding loan balance plus interest.
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
The amount of current income provided by an investment, divided by the investment’s face value or current price. For stocks, dividend yield is calculated by dividing the total of the annual dividends by the current share price.
Zero-Coupon Bond
A bond that makes no periodic interest payments but rather is issued at a steep discount to its face value. Bondholders receive the face value when bonds mature. The difference between the discounted issue price and the maturity value is accrued interest.