Financial Terms & Definitions

Retirement savings account provided by employers. Contributions may come from the individual and/or the employer. In a traditional 401(k), contributions and any gains on investments are not taxed until funds are withdrawn. Some plans also allow Roth contributions. 401(k) funds are accessible when the owner is 59 1/2 or meets other criteria as decided by the IRS. If funds are withdrawn prior, they are assessed a 10% penalty tax in addition to the other tax owed.

A type of defined contribution plan that is designed for certain employees of public schools and other tax-exempt organizations. Examples of 403(b) plan participants may include teachers, school administrators, professors, government employees, nurses, doctors, and librarians. This type of plan allows participants to save money for retirement through payroll contributions, as well as for the employer to match part of the employee's contribution. It is very similar to a 401(k) plan.

The trading of securities to take advantage of market opportunities. Contrary to passive management, active management relies on the manager's technical, fundamental, or quantitative analysis to select securities.

Referred to as AGI. It is calculated by subtracting certain adjustments from gross income. This figure is part of the process of calculating an individual's taxable income for IRS purposes. AGI is also used to determine eligibility for various IRS benefits and government programs.

A court-appointed individual to manage the assets and liabilities of someone who died without a valid will in place.

A legal document put in place to provide instructions about an individual's healthcare decisions ahead of time.

Someone designated to make medical decisions for an individual when/if the individual is unable.

An investment’s return in excess of the market’s return over a specific period of time. Quantifies the investment’s ability to beat the market, as measured by a particular index or benchmark. Alpha can be positive, indicating that the investment added value on top of the market’s return, or negative, indicating that the strategy detracted value from the market’s return. Simply calculated by subtracting the market’s return (as proxied by an index) from the investment’s return over the applicable period of time. More complex measures of alpha that adjust for the riskiness of the investment relative to the riskiness of the market can also be calculated.

The process of reducing the value of a loan or an intangible asset, including patents, trademarks, and copyrights, that is listed on the accounting books. For example, your mortgage loan is amortized, and the loan principal is reduced as you make your payments over time.

The maximum amount of money that may be transferred to someone else as a gift without gift tax considerations. This limit is set by the IRS and updated every year.

Calculated by dividing the amount of money gained or lost at the end of the year by the initial investment at the beginning of the year.

A yearly report detailing the financial positions of a company, including its balance sheet, income statement, and cash flow statement. Often called a 10K.

A type of insurance contract that allows for the incremental or lump sum investment of funds and yields a future source of regular payments. They are generally used to fund retirement income to prevent an individual from outliving their assets. Common types of annuities include fixed, indexed, and variable annuities.

A process used to determine the value of an asset.

When an investment increases in value.

The simultaneous purchase and sale of the same asset in order to profit from slight price discrepancies in different markets.

A standard that typically relates to a beneficiary’s health, education, maintenance, or support (HEMS), which defines the reasons for and magnitude of distributions from a trust to a beneficiary.

Anything with a value that is owned by a business, institution, or individual. Examples include cash, real estate, and investments in securities.

Spreading your investments across asset categories (e.g., stocks, bonds, cash or cash equivalents) to help minimize risk. Different asset classes are affected differently by changing financial and economic conditions. Allocating assets across different categories does not eliminate risk entirely but does have the potential to mitigate losses.

A group of investments with similar characteristics that react in similar ways to changing market conditions.

A person who has been granted authority to act on behalf of another person.

Calculated by dividing each annual return over a particular time period by the number of years within that period. Common time periods include three, five, and ten years.

A statement that shows what an individual owns in the form of assets and liabilities. The statement subtracts total liabilities from total assets to calculate net worth. Also referred to as the Net Worth Statement.

An investment fund that seeks long term growth and income through allocation to both equities and bonds.

An unmanaged market value-weighted index of investment grade, fixed-rate debt issues (including government, corporate, asset-backed, and mortgage-backed securities with maturities of one year or more) that is generally representative of the bond market as a whole.

One-hundredth of one percent, or 0.01%. For example, 20 basis points equals 0.20%. Investment expenses, interest rates, and yield differences between different bonds are often expressed in basis points.

An unmanaged group of securities whose performance is used as a standard to measure investment performance. Some well-known benchmarks are the Dow Jones Industrial Average and the S&P 500 Index.

In financial planning, a beneficiary refers to an individual or entity who is entitled to distributions from an account. Examples include retirement accounts, trusts, life insurance policies, or wills.

Gifts given through a will or trust.

A measure of an investment's sensitivity to market movements. The beta of the market is 1.00 by definition. Calculated by comparing the investment's excess return over Treasury bills (deemed a risk-free asset for purposes of this calculation) to the market's excess return over Treasury bills. When calculating beta, the market is often represented by different indices depending on how an investment manager benchmarks the investment in question. A beta of 1.10 indicates that the investment is more sensitive to market movements, whereas a beta of 0.85 indicates that the investment is less sensitive than the market.

A tradeable fixed income security where the borrower (e.g, corporation, government, or municipality) pays the investor a fixed amount of money over the life of the loan, plus interest.

A pooled investment fund that invests primarily in bonds. (see bond)

A letter-based way to determine the credit quality of a bond. Higher rated bonds are considered less risky and are likely to have lower interest rates. Standard & Poor's, Moody's Investors and Fitch Ratings are the agencies that provide bond ratings.

A firm or person that acts as an intermediary between the buyer and seller of a security.

A contract put in place to define how ownership is determined in the event of the passing or other departure of current owners.

A strategy used by affluent married individuals to legally maximize their estate tax exemptions. The strategy involves creating two separate trusts after one spouse passes. Usually, the deceased spouse’s portion of the couple’s property, at least up to the applicable exclusion amount, is put into trust B (the bypass trust). This trust is irrevocable and will pass to the beneficiaries other than the surviving spouse.

When a capital asset is sold for more than the purchase price. The gain is determined by subtracting the purchase price (i.e., cost basis) from the sale proceeds. Capital gains apply to any type of asset, including investments and those purchased for personal use. The gain may be short-term (held for one year or less) or long-term (held for more than one year) and must be claimed on income taxes. (see capital loss)

When a capital asset is sold for less than the purchase price. The loss is determined by subtracting the purchase price (i.e. cost basis) from the sale proceeds. In calculating taxes, capital gains can be offset by capital losses, reducing taxable gains by the amount of capital losses. (see capital gain)

An investment strategy with a focus on keeping the original investment amount from losing value.

The combined outstanding equity of a company.

An investment that can be converted to cash quickly. It is typically lower risk, shorter term, and highly liquid.

A statement used by both individuals and companies to show cash inflows and outflows. For personal financial planning, the cash flow statement includes earnings and other sources of household income, as well as outlfows for taxes, liabilities, spending, gifting, and savings.

A contribution to one's retirement plan, IRA, or HSA that is only available to those who are older than 50 or 55 (depending on the plan type). This contribution limit allows the individual to contribute additional funds to the applicable account, over and above the standard contribution limit available to all ages.

A brief version of the trust document that allows certain details of the trust that you want to keep confidential to be omitted (such as the names of the beneficiaries). It is often used to provide proof of trust formation to financial organizations or other institutions without making certain key terms public. This condensed version of the trust is widely accepted in lieu of the entire trust document, as long as certain requirements are met.

Donations of money or assets to a charitable organization. These contributions can typically be deducted from an individual’s taxes.

An irrevocable trust that provides a potential income stream to charities for a stated period of time. Any value remaining in the trust after the income distribution period goes to the beneficiaries of the trust. This instrument does provide for potential charitable deductions on the grantor’s taxes. Considered the inverse of a charitable remainder trust.

An irrevocable trust that provides a potential income stream for beneficiaries for a stated period of time. Any value remaining in the trust after the income distribution period goes to the charity defined in the trust. This instrument does provide for potential charitable deductions on the grantor’s taxes. Considered the inverse of a charitable lead trust.

A trust made for the benefit of specific charitable purposes.

When an employee becomes fully vested in a company benefit on a single specified date, rather than becoming partially vested in increasing amounts of the benefit over a period of time.

An addition to an existing will used to amend the document.

A type of stock investment that represents ownership in a corporation.

In states where it applies, community property is property acquired during marriage and therefore owned jointly by a married couple.

A state which considers nearly all property acquired during marriage as jointly owned. (see community property)

The process of generating returns from earnings that already generated returns.

A person appointed to provide legal guardianship over an adult.

To argue against a claim or position.

An alternate person named to receive benefits from an account, policy, etc. if the primary beneficiaries are not eligible to accept the asset(s).

The maximum amount of money that an individual may contribute to certain plan types. These limits are usually dictated by the IRS and are specific to each account type.

Debt issued by a company in order to raise capital. Corporate bond ratings are based on a company's likelihood of repayment.

A department within a bank or investment firm that can be hired to manage trusts. Corporate trustees are often hired for their ability to be impartial and for their experience.

The original value of an asset. This is usually the purchase price, but may be adjusted up or down for additional investments, dividends, depreciation, or payouts.

An assessment of the likelihood of a loss due to the borrower's inability to repay a loan or meet the obligations agreed upon during issuance.

A person or institution that lends money with the intent of receiving the funds back.

Assets that are expected to be sold by a business over the course of the next year. These assets include cash, cash equivalents, inventory, accounts receivable, liquid assets, liquid securities, and pre-paid liabilities.

The short-term financial obligations of a company that must be paid back within one year. Current assets are typically used to pay off current liabilities, which include income taxes owed, short-term debt, accounts payable, dividends, and notes payable.

Calculated by dividing assets that are cash or will be turned into cash in a year or less by liabilities that will be paid in a year or less. The current ratio allows investors to understand better a company's ability to cover short-term debt. (see current assets and current liabilities)

Calculated by dividing the annual income generated by an investment (i.e., dividends or interest) by the investment's current price. This can be a measure of the rate of return on the investment.

A financial institution that houses a customer's securities or assets for safekeeping.

A common term for both estate taxes and inheritance taxes.

A person who has died.

A document that gives the holder of an asset legal ownership

The employee can contribute a fixed percentage or dollar amount to this plan through payroll, and the employer may match up to a certain percentage or dollar amount. A retirement plan where an employee and/or employer contribute to an employee's retirement account. While the contributions are fixed, the future benefits vary based upon investment performance.

When an asset loses value.

When someone rejects or refuses taking ownership of assets that they inherited from a decedent. This may occur for strategic tax purposes.

The ability and freedom to make a decision in a specific situation.

Preventing someone, generally a son or daughter, from receiving property from your estate.

Money that you withdrawal or take out of your financial account. In estate planning it is defined as cash or an asset that the beneficiary receives per direction from a will, trust, or legal document.

Investing across different asset classes, sectors, and securities in order to mitigate risk.

A payment made to stockholders from a company's earnings. It can be in the form of cash or stock.

A widely followed index that includes the 30 largest, publicly owned U.S. stocks.

A legal document put in place to assign someone else the ability to manage an individual's finances in case of incapacitation.

A legal document put in place to assign someone else the ability to manage an individual's health care decisions in case of incapacitation.

A legal document put in place to assign someone else the ability to make decisions on your behalf in case of incapacitation.

A way to measure a bond's price sensitivty to changes in interest rates. A higher duration bond is more sensitive to interest rate changes than a lower duration bond, and thus bears more interest rate risk than a lower duration bond.

The money gained from an investment.

The average tax rate of all sources of income in a given year. It is usually expressed as a percentage and is calculated by dividing total tax by total taxable income.

Cash that an individual sets aside for unplanned expenses or emergencies. Some common examples of "rainy day" scenarios include loss of income, car repairs, medical bills, or home repairs. This account is usually separate from the individual's day-to-day checking and savings accounts.

An economy that is in the process of industrialization and is developing rapidly. Current emerging markets include Brazil, China, Russia, India, and South Africa, amongst many others.

A fund that invests primarily in emerging market countries. (see emerging market)

A federal law that sets guidelines and standards for retirement and health plans to protect plan participants. ERISA requires that participants are provided the plan information, responsibilities for management of the plan, and legal protection, amongst other items. Examples of qualified plans that fall under ERISA are 401(k) plans, profit-sharing plans, deferred compensation plans, and pensions. IRAs and simplified employee pension plans do not fall under this law.

An employer's contribution to an employee's employer-sponsored benefit plan account. The amount is determined by the level of funding the employee contributes. Thus, the employer "matches" contributions based upon the employee's contributions.

A retirement plan that an employer provides to help employees save for retirement, usually in a tax advantaged way.

A security that represents a piece of ownership in a corporation.

An investment fund that invests primarily in stocks.

All assets and liabilities owned by an individual at the time of their death.

A strategic process of creating documents to detail the administration and future distribution of an individual's assets at the time of incapacity or death, as well as planning for healthcare needs near the end of their life. Some of these basic estate planning documents include, a will, trust, healthcare power of attorney, living will and durable power of attorney.

A tax imposed on the value of one's estate at the time of death.

Someone appointed to carry out the terms of an individual's estate after passing.

In the event of personal bankruptcy, this type of property is protected against seizure by creditors and often includes clothing, home furnishings, retirement plan savings, and portions of home or auto equity.

The cost associated with the purchase and ownership of an investment; includes any investment management fee and administrative expenses. This fee is typically deducted from the investment return over a particular period, commonly a year.

Characteristics academically and/or empirically linked to higher returns over a particular time horizon. Extensive in diversity and efficacy, factors fall within many categories, with the most common being macroeconomic, like inflation rate, GDP growth, and unemployment rate; fundamental, like style, size, and quality; and statistical, like momentum. Investment strategies that incorporate factors can focus on a specific factor or can capture a variety of factors to enhance diversification.

An agency run by the federal government that insures deposits within banks and thrift institutions.

A tax deducted from an individual's pay to contribute to Social Security and Medicare. The individual's employer contributes the same amount on the employee's behalf.

The primary central banking system of the United States. Often called the "Fed," it conducts U.S. monetary policy and supervises all financial institutions.

A fiduciary, by law, is required to act solely in the best interest of a client and fully disclose any conflict, or potential conflict, to the client prior to and throughout a business engagement.

Based upon household structure and determines an individual's tax rates, tax brackets, deductions, and eligibility for credits. The main categories include Single, Head of Household (for a single adult with legal dependents), Married Filing Joint, and Married Filing Separate.

A person legally designated to attend to the property of someone who cannot do so because of infancy, incapacity, or disability.

A financial statement is a blanket term for one of a number of sub-reports that convey the economic status and health of a company or individual. Some financial statements capture a specific moment in time, such as a balance sheet. Other financial statements model future financial expectations, such as a cash flow statement. Others aim to capture historical data over a specific period of time, such as an income statement. Analysis of multiple financial statements provides a more comprehensive picture of the financial wellbeing of the company or individual in question.

The age, as defined by the Social Security Administration, that you are eligible for the full amount of your calculated Social Security retirement benefit. For those born in 1960 and later, full retirement age (sometimes shortened to "FRA") is 67. Retirees born between 1954 and 1959 have a FRA somewhere between 66 years and 66.8 years.

In the context of estate planning, trusts, and estate documents: moving assets into the name of a trust, such that the trust and not the individual, is the legal owner of the assets. Some trusts are funded immediately after creation. Other trusts are created but are not funded until a triggering event (such as death or incapacity of the grantor).

Similar to an Estate Tax, this is applied to financial gifts transferred down more than one generation. The recipients are commonly referred to as a "Skip Person," since the money they receive skipped one generation. The purpose of the tax is to prevent families from utilizing multi-generational gifting strategies in order to avoid estate taxes. There is usually an exemption, and all gifts below this amount will not be subject to the GSTT. As of 2022, the GSTT exemption is the same amount as the Estate Tax exemption. GSTT is assessed in addition to any applicable Estate Taxes.

Transferring ownership of an asset from one person or entity to another for free, or in exchange for compensation valued lower than the fair market value (FMV) of the asset given.The difference between the FMV of the asset and the compensation recieved is considered a gift. Gifts can be in the form of cash, stock, real estate, equity ownership in a business, and more.

Government debt obligations, such as U.S. Treasury bonds.

A person (or multiple people) who place assets into a trust. When the grantor places the assets in the trust, they become the property of the trust and controlled by the trustee. Frequently, the grantor and the trustee are the same person during the grantor's life. A grantor may also place assets into an irrevocable trust; in that situation, the grantor is generally responsible for any gift taxes due as a result of the transfer of assets to the trust.

A calculation of the total amount of economic activity that happens during a specific time period (usually one financial quarter or one calendar year) within the geographical borders of a country. This includes goods produced, services rendered, and the net value of international trades (exports minus imports). A decrease in GDP for two consecutive quarters is the technical definition of an economic recession. A related calculation is GDP per capita, which measures the economic activity of a country divided by the number of people living within the country's borders and provides an idea of how much economic activity is happening per person.

The full amount of property and assets owned by an individual on the date of their death. This is the beginning figure of the estate calculation, which is subject to a few adjustments before ultimately determining if the individual will owe any Estate Tax.

A fund that invests primarily in stocks of companies that are expected to grow at a higher rate than market average. These stocks are typically more volatile than value stocks, do not pay a dividend, and have a higher P/E.

A person appointed by an outside party to manage "the personal affairs of the child, elderly person, or incapacitated individual such as medical needs, nutrition, rent, and transportation." Guardians are usually named in the will(s) of a parent or other current guardian. Some guardians are named or appointed by a court if a close family member or next of kin is unavailable or has not previously been designated in writing. Designating a Guardian you approve of is important because they may be responsibile for making decisions around medical procedures, education, or where to live.

A distribution taken from a qualified retirement plan when the account owner is not otherwise eligible to take a distribution due to an unforeseen and costly life event. The plan must allow hardship distributions, and only the amounts that the employee originally contributed (excluding any earnings) and employer match and profit-sharing contributions may be withdrawn. The funds may not be re-contributed to the plan in the future, will be subject to income tax, and may be subject to a 10% penalty tax on early distributions. A few readily acknowledged hardships include medical expenses, funeral expenses, the purchase of a primary residence, and the repair of a primary residence.

A person selected in advance, and named in a written legal document, empowered to make medical decisions on behalf of another individual if that individual is incapable of making medical decisions on their own. Their incapacity could be due to physical constraints or a declaration of being mentally unfit.

A strategy for reducing risk by taking a position counter to a related asset.

A physical or mental inability to manage ones affairs in a legal capacity.

The date initiating the investment period, which is used when measuring performance for the life of the investment.

Within Estate Planning, Income refers to money generated by the assets of the estate. This often occurs in the form of interest, dividends, and the net gain or loss from the operation or sale of a business or real property.

A fund that has a goal of providing income (income = dividends + interest).

A type of benchmark that investors can use to compare the performance of an investment. Prevalent examples include the Dow Jones Industrial Average and the Standard & Poor's (S&P) 500 Index.

A fund that seeks to match the performance of a specific index (such as a stock market index or a bond index).

The average change in prices that consumers pay for a set basket of goods and services. Inflation is considered a risk to investors with longer time horizons because it reduces the purchasing power of their money.

Property received as a result of the death of an individual. A probate court will interpret the will and determines inheritance based on each state's unique laws. Inheritance may also be passed by way of trusts or beneficiary designations.

Also called a legacy or succession tax, this type of tax must be paid by the beneficiary of an estate, i.e., by someone who inherits property from the estate of someone who passed away. (see inheritance)

An irrevocable trust set up to hold a life insurance policy which allows the grantor (and previous owner of the policy) to exempt the value of the life insurane policy from their taxable estate.

Amount charged on a bond by the lender or the annual payment amount paid by the borrower.

The potential that a bond or bond fund will decrease in value when interest rates are rising.

A security that invests primarily in international companies (companies outside of the United States).

The state of dying without a will. Each state will have its own set of laws to determine the distribution of the decedents assets

A legal designation for someone who passes away without a valid will.

A person or organization that recommends, implements, and performs ongoing reviews of client portfolios based on each of the client's unique situations.

A corporation or trust that invests the shareholder's money based on the objective of the fund. Mutual fund companies are the most common type of investment company.

The goal an investor or investment fund identifies for their portfolio or fund. This helps determine the investment strategy.

An agreement between a client and portfolio manager that outlines how the client's portfolio will be managed. IPS agreements include the client's objectives, risk tolerance, liquidity constraints, and asset allocation.

The amount gained or lost on an investment in a given time period. This metric is expressed as a percentage.

The potential for an investment to lose all or some of its value.

An individual retirement account in which contributions are made with after-tax dollars. Investment growth and future withdrawals will be tax-free.

An individual retirement account in which the contributions are made with pre-tax dollars. Earnings are tax-deferred and distributions are taxed in the year they occur.

A type of trust that generally cannot be amended or changed after it is created. This is in contrast to a revocable trust which as the name implies, can be 'revoked' by the grantor at any time. Irrevocable trusts remove assets from the estate of the grantor and can be very strategic in estate planning proceedings.

Another term for descendants, including children, grandchildren, great-grandchildren, etc.

Utilized to lower a taxpayer's income that will be subject to tax, if the sum of itemized deductions surpasses the minimum threshold as established by the standard deduction. Categories of deductions include medical expenses, charitable contributions, taxes paid (state and local income taxes, real estate, property), and mortgage interest. The sum of these expenses in one tax year must be higher than the taxpayer's available standard deduction to provide a tax benefit. (see standard deduction)

An asset that is owned by two or more people together with equal rights to the asset.

A method of titling an asset wher two or more owner's share equal interests in the asset. If one owner dies, their interest is automatically passed equally to the remaining owner(s).

A fund that invests primarily in large-cap stocks. (see large-cap stocks)

The stock of a company considered to have a relatively large market capitalization. These companies typically have a market capitalization greater than $10 billion.

A debt that an individual or company owes to another person or entity. These debts typically include loans, accounts payable, mortgages, and accrued expenses.

The person designated to receive income distributions from a trust for their lifetime. This includes interest, dividends, and other periodic payments made on a regular basis, but does not necessarily qualify the person to sell or access the underlying assets of the trust.

Liquid assets of an individual or company that are easily convertible to cash in a short period of time. Examples include cash, money market instruments, and easily marketable securities.

A legal document (the Trust) put into place by an individual or group of individuals. This individual or group of individuals is referred to as the Grantor. A Living Trust (as opposed to an Irrevocable Trust) can be changed and updated by the grantor throughout their lifetime. A Living Trust allows assets (investments, real estate, business interests) to pass to pre-determined people ("Beneficiaries") upon the Grantor's death. Similar to a Revocable Trust.

A legal document containing wishes prepared during a person's life that indicate desires as to medical treatment, particularly life-sustaining measures, should the person be incapacitated to the point of being unable to provide consent or refusal.

The risk that you will live longer than expected and run out of retirement money. This may be applicable to an individual's financial planning or for pension and annuity plans.

A fee to compensate for the work performed by the investment manager.

The tax rate, expressed as a percentage, that applies to the final dollar of a taxpayer's income. This varies based on income due to the progressive nature of U.S. tax brackets. This differs from the effective tax rate and cannot be used to quantify the amount of tax paid on every dollar of taxable income. (see effective tax rate)

A deduction allowing assets to be passed to a spouse free of gift or estate taxes. Assets not taxed in passing to the spouse would be taxed when the spouse passes them to a non-spouse recipient, either by gift or through their estate upon death.

The value of a publicly owned company. Calculated by multiplying the number of outstanding shares by the company's share price.

The potential for an investment to lose all or some of its value due to a decline in the value of broad financial markets.

The date when the principal amount of a loan, bond or any other debt becomes due and is to be repaid in full.

See Durable Healthcare Power of Attorney.

A fund that invests primarily in mid-cap stocks. (see mid-cap stocks)

The stock of a company considered to have a medium-sized market capitalization. These companies typically have a market capitalization between $2 and $10 billion.

A person who has not yet reached the legal age of majority or legally recognized age of adulthood, 18 in most states, sometimes 21 or older in specific situations.

A mutual fund that primarily aims to preserve capital while earning income. Money market funds typically invest in short-term, high-quality fixed income securities. Purchased money market funds are directly bought by the investor, often as a place to store cash while maintaining some yield. Sweep money market accounts are provided by brokerage firms by default to hold proceeds from the sale of securities, as well as dividends and interest, and can also earn income.

A company that pools money from many investors and invests the money in securities such as stocks, bonds, and short-term debt. The combined holdings of the mutual fund are known as its portfolio. Investors buy shares in mutual funds at the current NAV (Net Asset Value) and can sell back the shares to the mututal fund at NAV.

A market-cap weighted index that tracks the performance of more than 3,700 global companies.

This represents a mutual fund's share price on a given day. It is the value of a fund's or company's assets minus its liabilities.This value is calculated by the fund on a daily basis.

The balance of value left in an estate after all debts and expenses, including probate administration and funeral expenses, have been paid. This is the amount distributed to beneficiaries or kept in trust.

A statement that subtracts a client's liabilities from the client's assets, providing a picture of the client's overall wealth. (see balance sheet)

The NYSE, located in New York City, is the largest stock exchange based on total market cap in the investment world.

A clause that discourages a beneficiary from challenging the terms of the will. This is usually done by stating that a beneficiary who challenges the document and loses will be entitled to nothing. Various states are more or less likely to enforce no-contest clauses

A retirement plan that does not adhere to ERISA (Employee Retirement Income Security Act) guidelines and in which contributions are not tax deductible. Often used for highly compensated executives.

Also known as an "oral will" or "deathbed" will, this type of will is delivered verbally - generally in front of a sufficient number of witnesses and must be written down as soon as possible. Many jurisdictions do not recognize nuncupative wills except in "emergency" cases. A nuncupative will would never supersede a written will.

The equity remaining in a business after subtracting all liabilities from assets. Represents the owners' and/or shareholders' right to those assets. (see shareholder equity)

An investment strategy that does not actively trade the portfolio or fund. Index funds are considered passively managed strategies.

Also known as "Transfer on Death" or "Totten Trust". This term refers to a designation on bank, credit union or investment accounts allowing the immediate transfer of assets to the noted beneficiaries upon the clients death. Payable on Death or Transfer on Death arrangements take precedent over beneficiaries listed in a will.

A method of distributing the estate so that the estate assets are equally distributed among each surviving heir in the same generation. Should one heir pass away prior to the decedent's passing, the estate assets should be split among remaining heirs in the same generation.

A method of distributing assets "by branch" of the family. Should any original heir pass prior to the decedent's passing, their share of the estate then passes down to their heirs which ensures the assets stay within his or her "branch" of the family.

A type of property that includes all assets except real estate (land or buildings). Personal property can be tangible (i.e. furniture) or intangible (i.e. stocks and bonds).

See executor

In most cases, a third party who manages a retirement or pension plan for a company and its employees. The administrator's main responsibility is to make sure a retirement plan complies with the IRS requirements for a plan sponsor, including communications, plan maintenance, and disclosures.

An individual contributing to or receiving benefits from an employer-provided retirement plan, pension, HSA plan, or other benefit.

An entity that sponsors and oversees a retirement and/or health plan for its employees.

A group of investments owned by the same person or entity. A portfolio can be comprised of stocks, bonds, and/or other specialized investment instruments.

A person or team that is responsible for making the investment decisions for a client or fund.

A type of will that ensures any remaining assets will transfer to a previously established trust upon an individuals passing. This helps avoid probate on any assets that were not previously granted to the trust.

A ratio that can provide insight into whether a company is overvalued or undervalued. The P/E ratio is calculated by dividing a security's current share price by earnings per share.

Money an individual has personally contributed to their financial account, such as an IRA.

The real property and personal property in a trust to be used for the benefit of trust beneficiaries, either through distribution or income generation In the trust, the grantor specifies how and when the trustee can use the principal.

Legal proceedings that verify a will as valid upon death of the will's testator. The probate court distributes the testator's assets, often according to the will if present and valid.

A portion of an individual's estate that is administered and divided by probate court, typically as indicated in the individual's will. Does not include elements of the person's estate that transferred title during the person's lifetime or that are bound by other legal provisions. (see probate)

Various fees applied during the probate process (when an individual dies without a will) including court fees, executor fees, attorny fees, accounting fees and more. In order to fund these - the estate is often frozen until the court can establish the distribution of the property

A type of retirement plan sponsored by the employer that gives employees a percentage of the company's profit based on how well the company performs. The percentage may be in stock or cash. This plan is often combined with a 401(k) plan.

A distribution from a qualified retirement plan after age 59 1/2. Distributions of this sort will be penalty free, though ordinary income taxes will still apply for tax deferred accounts like traditional IRAs or 401(k) plans.

A retirement plan recognized by the IRS under section 401(a) in which investments can accumulate and grow tax deferred. These are often, but not always, sponsored by employers in the form of 401(k) plans, IRAs, 403(b) plans, and pension plans.

The amount gained or lost on an investment over a specific period of time. This is usually expressed as a percentage. RoR = ((current value - initial value) / initial value) X 100.

A type of property that is immovable, including land and anything attached to the land, such as natural resources that are on or under it and man-made structures that are permanently attached to it. This is in contrast to personal property that is movable (like vehicles).

A rate of return that adjusts for inflation to provide a more accurate representation of performance.

Trading (buying or selling securities) to bring a portfolio's current asset allocation back in line with the portfolio's targets.

See beneficiary

A redemption occurs when an investor sells their shares back to the fund company.

A minimum withdrawal that must be made from a qualified retirement plan. IRS rules dictate the timing of such withdrawals, which are based on birth year. The distribution amount is calculated according to tables set by the IRS, with withdrawal percentages increasing each year. 

The balance of an estate after taking into account any gifts, distributions and estate expenses. Also used to referr to assets of any estate not accounted for specifically through trust, beneficiaries, or other assigments that may become part of the probate process.

A company's net earnings or profits after accounting for all costs, taxes, and dividends to shareholders.

Money that is contributed to a retirement plan. These contributions can be pre-tax, Roth, or after-tax, depending on the unique plan provisions.

The money gained (positive return) or lost (negative return) on a given investment.

A type of trust in which the title of property is transferred to the trustee during the lifetime of the person who established the trust (typically the donor), but can also be revoked by the donor at any point. The assets in the trust are not transferred to the beneficiary of the trust until the death of the donor.

The possibility of losses on an investment relative to its expected return.

An assessment of an investor's ability to handle a decline in their portfolio during down markets. This is one of the core variables in determining a client's asset allocation. (see asset allocation)

A rollover, such as a retirement plan rollover, often happens when an individual switches jobs or leaves employment. One can transfer the assets of one retirement plan to a new retirement plan and maintain the tax-deferred status of the account. Rollovers are either direct (in which the assets are moved directly to the new account from the original account) or indirect (in which the assets are transferred to the employee, who then has 60 days to deposit them to a new account).

A passive, market capitalization-weighted index of 500 stocks comprised of large U.S. companies in leading industries. This index provides a broad look at the large U.S. equity market and its aggregated stock performance.

A 401(k) plan in which the employer's contributions meet specific minimum requirements applicable to all eligible employees. In exchange, the employer can bypass annual nondiscrimination testing on the 401(k) plan.

SALT taxes are State And Local Taxes (for example, property taxes, sales taxes, state and local income taxes) that can be deducted from federal taxable income if an individual itemizes their deductions. These are currently capped at $10,000 per year.

An industry whose companies have similar business products or services. For example, the Financials sector includes various companies involved in banking, insurance, and other financial-related business lines.

A government agency created by Congress in 1934 to regulate the securities industry and to help protect investors. The SEC is responsible for ensuring that the securities markets operate fairly and honestly. It also has a role in governing the financial services industry.

Another name for an investment asset that indicates underlying monetary value. Securities include stocks, bonds, and mutual funds, among others. Personal tangible assets, like cars and houses, are not classified as securities, despite holding monetary value.

Property owned exclusively by one spouse that is not divisible between the two spouses in the event of a divorce. The definition of separate vs. community property varies by state, but separate property often includes property obtained prior to the marriage, inheritances, or gifts to only one spouse.

The opposite of a community property state or a state that reconizes property obtained or owned prior to our outside of the marriage. Upon divorce, these assets may return to the individual who originally brought them into the marriage in a fair and equitable manner.

A trust established by an individual. In the case of a married couple - separate trusts allow the surviving spouse to made amendments and revocations to their separate trust while ensuring their spouses trust remains unchanged. This is espeically useful for couples who were previously married or came into a marriage with property.

The administration of an estate after a person dies. This inscludes executing the decedents will, resolving disputes, paying debts and taxes and distributing inheritances

The creator of a trust, typically the entity that has funded the trust. The settlor may also be the trustee that administers the trust or the beneficiary of the trust.

A piece of ownership in a company or investment fund.

Some investment funds and companies offer more than one type or group of shares, each of which is considered a class. Examples include “class A,” “Advisor,” or “Institutional” shares. Each class has different fees and expenses, but all of the classes invest in the same pool of securities and share the same investment objectives.

An entity that owns shares in a stock or investment fund.

The equity remaining in a business after subtracting all liabilities from assets. Represents the owners' and/or shareholders' right to those assets. (see ownership equity)

A measure of the return of a fund relative to the return of a risk-free investment, adjusted for the risk of the fund. Utilized to compare different funds' performance given each fund's unique level of risk. Generally, a higher Sharpe ratio indicates stronger risk-adjusted performance. Calculated by subtracting the annualized return of a risk-free asset (typically proxied by the 3-month U.S. Treasury Bill) from the annualized return of a fund, then dividing the result by the risk of the fund (represented by standard deviation).

A qualified plan that allows an employer, including a self-employed employer, to contribute to both the employer and employee retirement accounts. The contribution percentages must be the same for both employer and employee. SEP IRAs are subject to required minimum distributions. This plan type allows the employer to avoid certain annual administrative burdens.

The stock of a company considered to have a small-sized market capitalization. These companies typically have a market capitalization of less than $2 billion.

A social insurance program that provides retirement, disability, and survivor benefits to qualified individuals. Qualification for benefits is determined differently per benefit, but is often predicated on years worked and/or annual earnings over an individual's entire career.

Funds that offer principal preservation, predictable returns, and a risk-adjusted rate higher than similar options. Each fund is structured in its own unique way, but in general, the investment strategy tends to focus on high-quality, diversified fixed income holdings that are protected against interest rate volatility by contracts from banks and insurance companies.

Every taxpayer is allocated a minimum amount of annual earnings that will not be subject to tax. This amount is deducted from the taxpayer's Adjusted Gross Income prior to calculating taxes due. The deduction fluctuates with filing status, age, and whether or not the taxpayer is blind.

A measure of market volatilty representing the difference in the rate of return for a security compared to the market average.

A security that represents a piece of ownership in a corporation.

A fund that invests primarily in stocks (also called an equity fund). (see stock)

An abbreviation using letters and numbers assigned to equity securities to identify them for trading purposes. Each stock symbol is unique and is usually 2-4 letters. (see ticker symbol)

A person or institution designated to manage the assets of a trust when the original trustee is no longer capable or willing, either through resignation, death or incapacitation.

A document required by ERISA to be given to employees who participate in employer-provided retirement or health plans. This document details who is eligible under the plan, benefit coverage, and vesting schedules. (see ERISA)

A short-form prospectus that mutual funds may use with investors. A summary prospectus can be used if a long-form prospectus and additional information are available online or on paper, upon request by investors.

The spouse who outlives the other spouse, commonly discussed in matters of estate planning, taxation, and law.

A diversified mix of investments following an asset allocation appropriate for the length of time until the money will be needed to pay for the projected goal. Common examples are retirement target date funds and education target date funds. The asset allocation changes over time as the "target date" gets closer. Often, these funds take advantage of larger growth opportunities in the earlier years, favoring riskier investments like stocks and real estate, while the goal is still many years away. As the goal, or "target date," approaches, the asset allocation tends to shift towards less risky investments like cash and bonds.

Tax deferral occurs when taxes are delayed from being paid in the current year and are paid at a future point in time, typically when distributions occur. A common tax deferral scenario takes place when an individual makes qualified contributions to and investments grow within a traditional IRA. The individual will not pay taxes upon contribution or on any gains while invested, but will have to pay taxes upon withdrawal/distribution.

The amount of money earned in a year that is actually subject to tax, after accounting for adjustments and deductions. Tax brackets are applied to taxable income when determining total tax liability for the year.

An asset owned by more than one party in which one owner's share of the property does not pass to the other owner(s) upon death; rather, the share passes to the beneficary as designated in the owner's will.

Connected to a will or testament.

A trust that is established in a person's will based upon how they choose to distribute their estate upon death. The trust becomes active when the person passes away. (see testator)

A person who has written a valid will.

An abbreviation using letters and numbers assigned to securities and indexes to identify them for trading purposes. (see stock symbol)

How long you expect to hold on to an investment before selling it.

A legal indicator of a person's absolute ownership of a property, typically pertaining to real estate.

Designation indicating whom a property owner wishes to receive specific assets upon the property owner's death, which allows the beneficiary to receive the assets without having to go through probate court.

A type of tax on assets when they are transferred to another person. Taxes in this category include: estate taxes, gift taxes, and generation skipping transfer taxes.

A tool used in estate planning strategies, a Trust is a fiduciary relationship between the trustor (who made the trust), the trustee (who will manage the trust) and the beneficiary (who will receive benefits from the trust). Trusts provide legal protection of assets and ensure assets are distributed according to the wishes of the Trustor (or grantor).

An institution that takes on some legal obligation to manage a trust in a fiduciary capacity. Often a segment of a commercial bank.

A person or institution who is responsible for managing any property or assets a grantor transfers into and titles in the name of the trust. The trustee has fiduciary duties to be loyal, be prudent, be impartial, and to inform the beneficiaries of the trust. The trustee can be the grantor and/ or a beneficiary of a trust in addition to the trustee role.

See grantor

See grantor

Debt securities issued by the United States government and secured by its full faith and credit. U.S. Treasury securities are the debt-financing instruments of the U.S. government. Often referred to as Treasuries.

Income people receive from sources other than earnings or payroll. Can include things like children’s allowances, stock dividends, bond interest, capital gains, and financial gifts. Some unearned income is included in an individual's taxable income.

A living trust that has not yet been funded with assets (investment accounts, real estate etc.)

A legal act that allows the transfer of property to a minor at a certain age without the need to create a trust.

A representation of ownership in an investment that doesn’t issue shares. Most collective investment funds are divided into units instead of shares. (see share)

Investment funds are divided into units, instead of shares. Collective investment funds and other funds may offer more than one type or group of units, each of which is considered a class, such as “Class A.” For most investment funds, each class has different fees and expenses, but all of the classes invest in the same pool of securities and share the same investment objectives. (see unit)

The dollar value of each unit of ownership in an investment on a given date.

An owner of units in an investment. (see shareholder)

Occurs when a capital asset has appreciated in value from its original purchase price, but has not yet been sold. This gain is not taxed until the asset is sold (i.e., realized).

Occurs when a capital asset has depreciated in value from its original purchase price, but has not yet been sold. This loss is not tax deductible until the asset is sold (i.e., realized).

A fund that invests primarily in stocks that are trading at prices materially below their "intrinsic value," which is the present value of all future cash flows for each company.

The process of earning rights to assets or benefits (such as employer contributions or stock options) by meeting certain criteria. These criteria may be time based, performance based, or a combination of factors. Vesting is used by employers to encourage employee loyalty for longer periods of time or to incentivize positive employee performance.

How much variation there is in the price of a given stock or index of stocks. In other words, volatility describes how widely a price can swing up or down. It is generally considered to be a measure of the level of risk in an investment.

Individuals whom a court deems unfit to care for themselves autonomously, often due to age or lack of legal competence. As a result, the court appoints a guardian to take responsibility for the ward.

A legal document detailing how an individual's estate is to be managed.

Also called a distribution, a withdrawal is the money you take from any financial account. In the case of a qualified retirement account, such as an IRA, you must be over the age of 59 1/2 to take a withdrawal without penalty.

The difference between a company's current assets and current liabilities.

Expressed as a percentage, yield is the calculation of an investment's return over a period of time and includes earnings from dividends or interest, as well as price increases.

A bond that derives its return solely from the difference between its purchase price and its face value at maturity. Because the debt does not pay interest, it typically trades significantly cheaper than its face value, so that the investor has the opportunity to profit when the bond matures at face value.