• Alternative Minimum Tax (AMT): A method of calculating income tax that disallows certain deductions, credits and exclusions. Preferential deductions are added back and then the AMT exemption is subtracted to get the AMT taxable income (AMTI). AMTI is then taxed at the current rate schedule to get the tentative minimum tax. Taxes must be calculated both ways and the taxpayer pays the greater of the two.
  • Annuity: An insurance based contract that provides future payments at regular intervals in exchange for current premiums. Annuities are primarily used as a means of securing a steady cash flow for an individual during their retirement years. Interest earned inside an annuity is income tax-deferred until it is paid out or withdrawn. Early withdrawals may be subject to surrender charges. Fixed annuities are not insured nor guaranteed by the FDIC.
  • Asset Allocation: The process of repositioning assets in a portfolio to balance risk and reward according to an individual’s goals, risk tolerance and investment horizon. Asset allocation does not guarantee against loss.


  • Beneficiary: Person or legal entity named to receive financial benefits in a will, trust, insurance policy or other contract. Beneficiaries are either named specifically in these documents or they have met the stipulations that make them eligible for whatever distribution is specified. A beneficiary can be an individual, company, organization, etc.
  • Bond: An investment in which the bond owner/purchaser has loaned money (the price of the bond) to an entity, either corporate or governmental. The entity borrows for a specified period of time and provides a fixed amount of interest to the bond holder, typically paid semi-annually.
  • Book Value: The value that belongs to a company’s owners or shareholders after total liabilities have been subtracted from total assets. Book value and market value are not always equivalent. By being compared to the company’s market value, the book value can indicate whether a stock is under or overpriced.
  • Broker: A broker is an individual or firm who executes orders on behalf of their clients by acting as an intermediary between the buyer and seller.


  • Certificate of Deposit (CD): A savings certificate entitling the bearer to receive interest. A CD bears a maturity rate, a specific interest rate and a duration of up to five years. CDs are generally issued by commercial banks and are insured by the FDIC. Traditional CDs typically feature a penalty for early withdrawal.
  • Collateral: Property or other assets offered to secure credit. If the borrower defaults on payment, the lender can seize collateral to recoup losses. Because collateral offers some security to the lender in case the borrower fails to pay back the loan, loans that are secured by collateral typically have lower interest rates than unsecured loans.
  • Convertible Bond: A bond that can be converted or exchanged into a preferred or common stock at the option of the holder at a preset ratio. These bonds tend to offer a lower rate of return in exchange for the value of the option to trade the bond into stock.


  • Diversification: Strategy aimed toward minimizing investment risks by investing in many different types of vehicles that are unlikely to move, price-wise, in the same direction at the same time. Diversification does not assure against market loss.
  • Dividends: Distributions to stockholders of cash or stock declared by the company’s board of directors. Most secure and stable companies offer dividends to their stockholders. High-growth companies rarely offer dividends because all of their profits are reinvested to help sustain higher-than-average growth.
  • Defined Benefit Plan: A retirement plan established by employers, whereby employee retirement benefits are fixed and determined based on a formula using such factors as salary history and length of employment. The employer controls the management of the entire portfolio.
  • Defined Contribution Plan: A retirement plan consisting of employer contributions subject to the rules of the plan itself. There are often restrictions as to when and how the funds can be accessed. The contributions are fixed, but the benefit received is not.


  • Employee Stock Ownership Plan (ESOP): A profit-sharing, stock bonus or money purchase pension plan in which the plan assets must be invested primarily in qualifying employer securities. The employee pays no tax on these contributions until they are distributed.
  • Equity: The ownership interest of stockholders in a company. In the context of margin trading, it is the excess of the market value of securities over debit balance. In the context of real estate, it is the difference between the current market value of the property and the amount the owner still owes on the mortgage.


  • Fiduciary: An executor, administrator or trustee with an obligation to act in the best interests of the client on issues within the scope of their relationship.


  • Growth Stock: The common equity of a company whose earnings are expected to grow at an above-average rate relative to the rest of their industry.


  • Hypothecation: Pledging of securities or other assets as collateral to secure a loan, such as a debit balance in a margin account. Also refers to securities in a margin account that an investor uses as collateral to borrow funds from a brokerage.


  • Income Statement A financial statement showing a company’s revenue, expenses and income. It also shows the net profit or loss incurred over a specific period of time. Also known as the profit and loss statement or statement of revenue and expense.
  • Inflation: A term used to describe the value of a currency decreasing as the price of goods and services increase over time. The government’s main measure of inflation is the Consumer Price Index.
  • Individual Retirement Account (IRA): An IRA is a non-forfeitable trust or custodial account established for the exclusive benefit of an individual and the individual’s beneficiaries. Generally, amounts in an IRA, including earnings and gains, are not taxed until distributed to the individual. Distributions from an IRA can begin at 59 1/2, and are assessed current income taxes at the time of distribution.


  • Jumbo Loan: A loan that is larger than the limits set for conventional loans by the Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC). They usually carry a higher interest rate than conforming loans.
  • Junk Bonds: A bond that offers investors higher yields in comparison to financially sound companies to compensate for a low credit rating. They have a higher default risk in relation to investment-grade bonds.


  • Liquidity: Liquidity is the measure of your ability to immediately turn assets or securities into cash without penalty or risk of loss. The liquidity of a stock is the ease with which the market can absorb volume buying or selling without dramatic fluctuation in pricing.


  • Margin: The amount of equity contributed by an investor as a percentage of the current market value of the securities held in a margin account. The remaining balance of the securities is purchased on credit extended by a broker/dealer.
  • Municipal Bonds: A debt security issues by a state, municipality or county to raise public funds to finance its capital expenditures. The principal value of these bonds fluctuate with market conditions. The interest received from municipal bonds is often exempt from certain income taxes.
  • Mutual Fund: An investment made up of a pool of funds, contributed by multiple investors, for the purpose of investing in securities such as bonds, money markets, stocks, etc. Mutual funds are overseen by money managers who are charged with investing the pool of funds. Their goal is to produce as much capital gains and income for the investors as possible.


  • Net Asset Value (NAV): The price per-share value of all the holdings of a mutual fund. Calculated by dividing the net market value of the fund’s assets by the number of outstanding shares.


  • Open-end Fund: A type of mutual fund that does not have restrictions on the amount of shares the fund will issue. They also redeem outstanding shares on demand when investors wish to sell.


  • Price-to-Earnings Ratio: Common measure of a stock’s price. The market price of a stock divided by the company’s annual earnings per share. Usually calculated using the latest year’s earnings.
  • Principal: The total amount of money being borrowed or loaned. In a security, the principal is the amount of money that is invested, excluding earnings. In a debt instrument such as a bond, it is the face amount.
  • Prospectus: A detailed statement prepared by an issuer and filed with the SEC prior to the sale of a new issue. A prospectus commonly provides investors with material information about mutual funds, stocks, bonds and other investments, such as a description of the company’s business, financial statements and any other material information.
  • Profit Sharing Plan: A plan or program for sharing company profits with the firm’s employees. It permits discretionary annual contributions that are generally allocated on the basis of compensation. The employer will determine the amount to be contributed each year depending on the cash-flow of the company. These funds usually accumulate tax deferred until the employee retires or leaves the company.


  • Qualified Retirement Plan: Qualified retirement plans offer tax-deferred benefits of some kind. For example, the IRA offers the benefit of not paying taxes on contributions until distribution at retirement. The Roth IRA offers the benefit of not paying taxes on distribution at retirement (since taxes were paid on the initial contribution already). Further examples of qualified plans include: 401(k), 401(a), 403(b), pensions and profit sharing accounts.



  • Security: A security is a fungible, negotiable financial instrument that represents some type of financial value. Stocks and bonds are typically referred to as securities. Specifically, stocks are often referred to as “equities” and bonds as “debt instruments.”
  • Stock: Ownership of a corporation, represented by shares, which in turn represent a piece of that corporation’s assets and earnings. Stockholders are often entitled to dividends, voting rights and financial participation in company growth.
  • Simplified Employee Pension (SEP): A retirement plan that an employer or self-employed individuals can establish. The employer is allowed a tax deduction for contributions made to the SEP plan and makes contributions to each eligible employee’s SEP IRA on a discretionary basis.


  • Tax-deferred Retirement Plans: A retirement plan in which taxes on the funds will be paid upon use at retirement. Examples of tax-deferred plans include: 401(k), 403(b), and Roth 401(k)s.
  • Term Life Insurance: Life insurance coverage that pays a death benefit only if the insured dies within a specified period of time. Term insurance does not accumulate cash value and ends after a certain number of years or at a certain age as dictated by the insurance contract.


  • Underwriter: A firm (usually an investment bank) that buys an issue of securities from a company and resells it to investors. In the context of banking, it refers to a person or group that guarantees to furnish a definite sum of money by a definite date in return for an issue of bonds or stock. In the context of insurance, it refers to a person who assesses the risk and establishes premium rates.
  • Universal Life Insurance: An adjustable Universal Life insurance policy provides both a death benefit and an investment component called a cash value. The cash value earns interest at rates dictated by the insurer. Universal variable life cash values are supported by the insurance company’s separate account based on the selection of the investment option. Variable life insurance is offered by prospectus only. The prospectus contains details including charges and expenses. Premiums are adjustable by the policy owner.


  • Whole Life Insurance: A type of life insurance with both insurance and investment components. It pays off a stated amount upon the insured’s death and also accumulates cash value tax deferred at fixed interest rates that the policyholder can redeem or borrow against. Premiums stay level and the death benefit is guaranteed. The policy is designed to remain in force for a lifetime. Over time, the cash value of the policy grows and helps keep the premium level.
  • Will: A legal document that specifies a person’s wishes regarding the disposition of property, the guardianship of his or her children and the administration of the estate after death.


  • Yield: The yield of an investment is the total proceeds paid from the investment and is calculated as a percentage of the amount invested. For stocks, the yield is calculated by dividing the total of the annual dividends by the current price. For bonds, the yield is calculated by dividing the annual interest by the current price.


  • Zero Coupon Bond: A zero-coupon bond is a bond sold without interest-paying coupons. Instead of paying periodic interest, the bond is sold at a discount and pays its entire face amount upon maturity. Their prices tend to be more volatile than bonds that pay interest regularly. Interest income is subject to ordinary income tax each year, even though the investor does not receive any income payments.


  • 1035 Exchange: A type of defined contribution plan in which employees may elect to make a pre-tax contribution to an employer-sponsored plan in lieu of receiving taxable income. Earnings accrue on a tax-deferred basis and penalties are assessed if withdrawn before retirement age (as defined by the plan).
  • 401(k) Plan: A type of defined contribution plan in which employees may elect to make a pre-tax contribution to an employer-sponsored plan in lieu of receiving taxable income. Earnings accrue on a tax-deferred basis and penalties are assessed if withdrawn before retirement age (as defined by the plan).
  • 403(b) Plan: A retirement account available to employees in the public school system, certain ministries and other tax-exempt organizations such as not-for-profit hospitals. This is a qualified plan that allows employees to make tax-deferred contributions (contributions made before taxes are taken from income) within the regulatory cap.