This glossary of investment and retirement related terms provides simple definitions of terms that you may need to know.

A

(Future) Allocations

To distribute a percentage of money to one or more funds.

B

Back End Load

A sales charge or commission paid when an individual sells an investment, such as a mutual funds or an annuity. Intended to discourage withdrawals. Also called redemption fee or deferred sales charge.

Bear Market

A prolonged period in which investment prices fall, accompanied by widespread pessimism. If the period of falling stock prices is short and immediately follows a period of rising stock prices, it is instead called a correction. Bear markets usually occur when the economy is in a recession and unemployment is high, or when inflation is rising quickly. The most famous bear market in U.S. history was the Great Depression of the 1930s. A bear market is the opposite of a bull market.

Benefits Administration

The implementation and coordination of an employee benefits plan.

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Capital Gain

The amount by which an asset's selling price exceeds its initial purchase price. A realized capital gain is an investment that has been sold at a profit. An unrealized capital gain is an investment that hasn't been sold yet but would result in a profit if sold. Capital gain is often used to mean realized capital gain. For most investments sold at a profit, including mutual funds, bonds, options, collectibles, homes, and businesses, the IRS is owed money called capital gains tax. Opposite of capital loss.

Closing Price

The price of the last transaction for a given security at the end of a given trading session.

Confirmation

A letter sent to an employee / participant confirming their transaction ( e.g. Loan, Transfers).

Contribution Type

The transfer of funds or property by either and employer or an employee to an employee retirement plan. Transamerica has identified eight contribution types relating to employee or employer contribution.

Contributions (Saving Rate)

A portion of an employee / participant's current salary that is invested in a retirement plan.

D

Defined Contribution Plan

A company retirement plan, such as a 401(k) or 403(b) plan, in which the employee elects to defer some amount of his/her salary into the plan.

Defined Benefit Plan

A company retirement plan, such as a pension plan, in which a retired employee receives a specific amount based on salary history and years of service, and in which the employer bears the investment risk. Contributions may be made by the employee, the employer, or both.

Diversification

Diversification simply means not putting all your investment 'eggs in one basket.' The key to diversification is that each chosen investment exhibits a low correlation, or dissimilar volatility and price movement, in order to achieve the optimal risk / return tradeoff. The goal of diversification is to reduce overall portfolio risk given a desired level of return.

E

Employee Stock Ownership Plan

A trust established by a corporation which acts as a tax-qualified, defined-contribution retirement plan by making the corporation's employees partial owners. Contributions are made by the sponsoring employer, and can grow tax-deferred, just as with an IRA or 401(k). The benefits for the company include increased cash flow, tax savings, and increased productivity from highly motivated workers. The main benefit for the employees is the ability to share in the company's success. Due to the tax benefits, the administration of ESOPs is regulated, and numerous restrictions apply. Also called stock purchase plan.

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Fiduciary

An individual, corporation or association holding assets for another party, often with the legal authority and duty to make decisions regarding financial matters on behalf of the other party.

Front-End Load

A sales charge paid when an individual buys an investment, such as a mutual fund, limited partnership, annuity, or insurance policy. The load is clubbed with the first payment made by an investor, so the total initial payment is higher than the later payments. The purpose of a load is to cover administrative expenses and transaction costs and sometimes to discourage asset turnover. Opposite of back-end load.

G

General Obligation Bond

A municipal bond secured by the taxing and borrowing power of the municipality issuing it.

GIC

Guaranteed Investment Contract. A debt instrument issued by an insurance company, usually in a large denomination, and often bought for retirement plans. The interest rate paid is guaranteed, but the principal is not. Also called guaranteed interest contract.

H

High-Grade Bond

A bond with a rating of AAA or AA, the two highest ratings.

Hedge Fund

A fund, usually used by wealthy individuals and institutions, which is allowed to use aggressive strategies that are unavailable to mutual funds, including selling short, leverage, program trading, swaps, arbitrage, and derivatives. Hedge funds are exempt from many of the rules and regulations governing other mutual funds, which allows them to accomplish aggressive investing goals. They are restricted by law to no more than 100 investors per fund, and as a result most hedge funds set extremely high minimum investment amounts, ranging anywhere from $250,000 to over $1 million. As with traditional mutual funds, investors in hedge funds pay a management fee; however, hedge funds also collect a percentage of the profits (usually 20%).

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IRA

Individual Retirement Account- A retirement savings program for indiviuals to which yearly tax deductible contributions up to a specified limit can be made. The amounts contributed are not taxed until withdrawal. Withdrawal is not permitted, without penalty, until the individual reaches age 59 ½.

Investment Mix

The combination of all the funds in your investment portfolio.

J

January Effect

Tendency of the stock market to rise between December 31 and the end of the first week in January. The January Effect occurs because many investors choose to sell some of their stock right before the end of the year in order to claim a capital loss for tax purposes. Once the tax calendar rolls over to a new year on January 1st these same investors quickly reinvest their money in the market, causing stock prices to rise. Although the January Effect has been observed numerous times throughout history, it is difficult for investors to profit from it since the market as a whole expects it to happen and therefore adjusts its prices accordingly.

Joint Life Annuity

An annuity issued on two individuals under which payments continue in whole or in part until both individuals die. Also called joint and survivor annuity.

Junk Bond

A high-risk, non-investment-grade bond with a low credit rating, usually BB or lower; as a consequence, it usually has a high yield . Opposite of investment-grade bond.

K

Kappa

A value representing the expected change in the price of an option in response to a 1% change in the volatility of the underlying stock.

Keogh Plan

A tax-deferred qualified retirement plan for self-empoyed individuals and unincorporated businesses. Also called self-employed pension.

Key Person Insurance

Life insurance purchased by a company or investor on the life of a key executive. Usually the company is the policy's beneficiary. Also called business life insurance.

Krugerrand

Gold coin minted by the Republic of South Africa.

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Loan Note

A form of vendor finance or deferred payment, in which the purchaser acts as a borrower, agreeing to make payments to the holder of the transferable loan note at a specified future date.

Loan Schedule

A listing of the amounts of principal and interest, due dates, and balance after payment for a given loan.

M

Matching Funds

A type of employer contribution to an employee retirement fund in which employee contributions up to a maximum limit are accompanied by identical, or at least proportional, contributions by the employer.

Money Market Fund

A mutual fund that seeks maximum current income through Investment in securities may include bank CD, bankers acceptances, T-bills, repurchase agreements (repos), and commercial paper.

Mutual Funds

Type of investment vehicle in which many investors / employee money is pooled for specific investment purposes. Participants own shares in an investment portfolio, rather than individual securities.

N

Nasdaq Composite Index

A market-value weighted index of all common stocks listed on Nasdaq. The Nasdaq Composite dates back to 1971, which is when the Nasdaq exchange was first formalized. The index is used mainly to track technology stocks, and thus it is not a good indicator of the market as a whole. Unlike the Dow Jones Industrial Average (DJIA), the Nasdaq is market value-weighted, so it takes into account the total market capitalization of the companies it tracks and not just their share prices.

Net Asset Value (NAV)

The value of a mutual fund share determined by deducting the fund's liabilities from the total assets of the portfolio and dividing this amount by the number of shares outstanding. This is calculated once a day, based on the closing market price for each security in the fund portfolio.

New York Stock Exchange (NYSE)

The oldest and largest stock exchange in the U.S., located on Wall Street in New York City. The NYSE is responsible for setting policy, supervising member activities, listing securities, overseeing the transfer of member seats, and evaluating applicants. It traces its origins back to 1792, when a group of brokers met under a tree at the tip of Manhattan and signed an agreement to trade securities. Unlike some of the newer exchanges , the NYSE still uses a large trading floor in order to conduct its transactions. It is here that the representatives of buyers and sellers, professionals known as brokers, meet and shout out prices at one another in order to strike a deal. This is called the open outcry system and it usually produces fair market pricing. In order to facilitate the exchange of stocks, the NYSE employs individuals called specialists who are assigned to manage the buying and selling of specific stocks and to buy those stocks when no one else will. Of the exchanges, the NYSE has the most stringent set of requirements in place for the companies whose stocks it lists, and even meeting these requirements is not a guarantee that the NYSE will list the company. The NYSE is also called Big Board.

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Obligation Bond

Mortgage bond whose face value exceeds the value of the underlying property, and for which a personal obligation is created to compensate the lender for any costs that may exceed the value of the mortgage.

Offering

The making available of a new securities to the public through an underwriting. Also called public offering.

Online Trading

The increasingly popular activity of buying and selling securities over the Internet, or to a lesser extent, through a broker's proprietary software.

Option

The right, but not the obligation, to buy (for a call option) or sell (for a put option) a specific amount of a given stock, commodity, currency,index, or debt, at a specified price (the strike price) during a specified period of time. For stock options, the amount is usually 100 shares. Each option has a buyer, called the holder, and a seller, known as the writer. If the option contract is exercised, the writer is responsible for fulfilling the terms of the contract by delivering the shares to the appropriate party. In the case of a security that cannot be delivered such as an index, the contract is settled in cash. For the holder, the potential loss is limited to the price paid to acquire the option. When an option is not exercised, it expires. No shares change hands and the money spent to purchase the option is lost. For the buyer, the upside is unlimited. Options, like stocks, are therefore said to have an asymmetrical payoff pattern. For the writer, the potential loss is unlimited unless the contract is covered, meaning that the writer already owns the security underlying the option. Options are most frequently as either leverage or protection. As leverage, options allow the holder to control equity in a limited capacity for a fraction of what the shares would cost. The difference can be invested elsewhere until the option is exercised. As protection, options can guard against price fluctuations in the near term because they provide the right acquire the underlying stock at a fixed price for a limited time. risk is limited to the option premium (except when writing options for a security that is not already owned). However, the costs of trading options (including both commissions and the bid/ask spread) is higher on a percentage basis than trading the underlying stock. In addition, options are very complex and require a great deal of observation and maintenance. Aso called option contract.

P

PCRA

Charles Schwab Personal Choice Retirement Account® (PRCA) is not a fund but rather a participant self-directed brokerage account maintained at Charles Schwab & Co., Inc. and offered through their retirement plan. Participants must individually apply for PCRA and are solely responsible for their fund selections made under the PCRA.

Pending Transfer

A pending transfer is a transfer that has not been processed. This transfer will be valued using today's market closing unit values provided the transaction is completed prior to 4:00 PM ET. Transfer requests completed after 4:00 PM ET will be valued using the market closing unit values for the following business day.

Q

Qualified Retirement Plan

A plan that meets the requirements of Internal Revenue Code Section 401(a) and the Employee Retirement Income Security Act of 1974(ERISA) and is thus eligible for favorable tax treatment. These plans offer several tax benefits: they allow employers to deduct annual allowable contributions for each participant; contributions and earnings on those contributions are tax-deferred until withdrawn for each participant; and some of the taxes can be deferred even further through a transfer into an IRA.

Quarterly Report

Unaudited document required by the SEC for all U.S. public companies, reporting the financial results for the quarter and noting any significant changes or events in the quarter. Quarterly reports contain financial statements, a discussion from the management, and a list of “material events” that have occurred with the company (such as a stock split or acquisition). Also called Form 10-Q.

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Rate of Return

The rate of return on an investment, expressed as a percent of the total amount invested.

Rebalance (Investment Mix)

The process of changing your current investment mix to a new Investment Mix.

Rollover

A tax-free reinvestment of a distribution from a qualified retirement plan into a IRA or other qualified plan within a specific time frame, usually 60 days.

S

Savings Bond

A registered, non-callable, non-transferable bond issued by the U.S. Government, and backed by its full faith and credit. Savings bonds differ from other treasury securities in several ways. Savings bonds are non-marketable, meaning that they cannot be bought and sold after they are purchased from the government; therefore, there is no secondary market for savings bonds. The tax benefits associated with savings bonds are significant. Like all treasury securities, they are exempt from state and local taxes, but in the specific case of savings bonds, all federal taxes may be deferred until the bond is redeemed. Therefore, even though interest will accrue, no taxes will be due until that money can be accessed. Additionally, if the money received at redemption is used to pay tuition expenses for the holder, a spouse or a dependent in the same year, the interest earned may be exempt from federal taxes as well. Face values range from $50 to $10,000. Also called U.S. Savings bond.

Sector Fund

A mutual fund which invests entirely or predominantly in a single sector of the stock market. A sector funds tend to be riskier and more volatile than the broad market because they are less diversified, although the risk level depends on the specific sector. Some investors choose sector funds when they believe that a specific sector will outperform the overall market, while others choose sector funds to hedge against other holdings in a portfolio. Some common sector funds include financial services funds, gold and precious metals funds, health care funds, and real estate funds, but sector funds exist for just about every sector.

Strategic Allocation Fund (Multi asset class)

A “fund of funds” that invests in an array of mutual funds to obtain a stated investment objective. Also known as “lifestyle funds”.

T

Tender Offer

A take over bid in the form of a public invitation to shareholders to sell their stock, generally at a price above the market price.

Time Horizon

The length of time a sum of money is expected to be invested. Also called investment horizon or horizon.

Transfer

A function that moves account balances between various funds.

Transreferance Number

A number assigned to each transaction, consisting of a current date and a sequential number within that date.

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Undervalued

Something whose price is below its perceived value.

Unrealized Loss

Loss which has occurred but has not yet been realized through a transaction, such as a stock which has fallen in value but is still being held. also called paper loss.

U.S. Treasury Securities

Negotiable U.S. Government debt obligations, backed by its full faith and credit. Exempt from state and local taxes. U.S. Treasury Securities are issued by the U.S. government in order to pay for government projects. The money paid out for a Treasury bond is essentially a loan to the government. As with any loan, repayment of principal is accompanied by a specified interest rate. These bonds are guaranteed by the “full faith and credit” of the U.S. government, meaning that they are extremely low risk (since the government can simply print money to pay back the loan). Additionally, interest earned on U.S. Treasury Securities is exempt from state and local taxes. Federal taxes, however, are still due on the earned interest. The government sells U.S. Treasury Securities by auction in the primary market, but they are marketable securities and therefore can be purchased through a broker in the very active secondary market. A broker will charge a fee for such a transaction, but the government charges no fee to participate in auctions. Prices on the secondary market and at auction are determined by interest rates. U.S. Treasury Securities issued today are not callable, so they will continue to accrue interest until the maturity date. One possible downside to U.S. Treasury Securities is that if interest rates increase during the term of the bond, the money invested will be earning less interest than it could earn elsewhere. Accordingly, the resale value of the bond will decrease as well. Because there is almost no risk of default by the government, the return on Treasury bonds is relatively low, and a high inflation rate can erase most of the gains by reducing the value of the principal and interest payments. There are three types of securities issued by the U.S. Treasury (bonds, bills,and notes), which are distinguished by the amount of time from the initial sale of the bond to maturity. Also called Treasuries.

V

Value Fund

A mutual fund that invests in companies which it determines to be underpriced by fundamental measures. Assuming that a company's share price will not remain undervalue indefinitely, the fund looks to make money by buying before the expected upturn. Value funds tend to focus on safety rather than growth, and often choose investments providing dividends as well as capital appreciation. They invest in companies that have low P/E ratio, and stocks that have fallen out of favor with mainstream investors, either due to changing investor preferences, a poor quarterly earnings report, or hard times in a particular industry. Value stocks are often mature companies that have stopped growing and that use their earnigs to pay dividends. Thus value funds produce current income (from the dividends) as well as long-term growth (from capital appreciation once the stocks become popular again).

Vesting

Represents the percent of ownership of employer contribution to a participant / employee account in a retirement saving plan. This is based on various eligibility factors.

W

Weak Dollar

Dollar that can be exchanged for only a small or decreasing amount of foreign currency. A weak dollar means that the U.S. dollar cannot buy very much of another currency. The strength of the dollar has an impact on imports and exports because goods and services from a foreign nation are usually purchased in the currency of the producing nation. A weak dollar usually leads to high exports and low imports. Opposite of strong dollar.

Windfall

Money received which was not expected and not a direct result of something the recipient did.

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X or XD

A symbol used by newspapers to signify that a stock is trading ex-dividend, or that a bond is trading without interest, or that a mutual fund recently paid a capital gain or dividend.

XR

A symbol used by newspapers to signify that a stock is trading without rights attached. Those rights remain with the seller.

XW

A symbol used by newspapers to signify that a stock is ex-warrants.

Y

Yield to Maturity

Yield that would be realized on a bond or other fixed income security if the bond was held until the maturity date. It is greater than the current yield if the bond is selling at a discount and less than the current yield if the bond is selling at a premium.

Yankee Bond Market

Market for dollar-denominated bonds issued in the U.S. by foreign corporations, banks and governments.

Z

Zero-Coupon Bond

A bond which pays no coupons , is sold at a deep discount to its face value, and matures at its face value. A zero-coupon bond has the important advantage of being free of reinvestment risk, though the downside is that there is no opportunity to enjoy the effects of a rise in market interest rates. Also, such bonds tend to be very sensitive to changes in interest rates, since there are no coupon payments to reduce the impact of interest rate changes. In addition, markets for zero-coupon bonds are relatively illiquid. Under U.S. tax law, the imputed interest on a zero-coupon bond is taxable as it accrues, even though there is no cash flow.

Zero-Coupon Convertible

A zero-coupon issued by a corporation which can be converted into that corporation's common stock at a certain price, or a zero-coupon bond issued by a municipality which can be converted into an interest-bearing bond under certain circumstances. Also called split coupon bond.

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401(k) Plan

A defined contribution plan, established by an employer. It enables employees to make pretax contributions by salary reduction agreements structured within the format of a cash or deferred plan.

403(b) Plan

A defined contribution plan established by certain tax exempt organizations and public schools for their employees.

457 Plan

A tax-exempt deferred compensation program made available to employees of state and federal governments and agencies. A 457 plan is similar to a 401(k) plan, except there are never employer matching contributions and the IRS does not consider it a qualified retirement plan. Participants can defer some of their annual income (up to an annual limit), and contributions and earnings are tax-deferred until withdrawal. Distributions start at retirement age but participants can also take distributions if they change jobs or in certain emergencies. Participants can choose to take distributions as a lump sum, annual installments or as an annuity. Distributions are subject to ordinary income taxes and the amounts cannot be transferred into an IRA.