bobbrinker.com Investment Glossary
This glossary of investment and related terms
provides simple definitions of terms that you may need to know.
---------- Index ----------
A B C D
E F G H
I J K L
M N O P
Q R S T
U V W X
--- A ---
The amount credited to a bond or other
fixed-income security between the last payment and when the security is
sold, or any intermediate date. The buyer usually pays the seller the
security's price plus the accrued interest.
A contract by which an insurance company
agrees to make regular payments to someone for life or for a fixed
Increase in the value of an investment over
The price a seller is willing to accept for
the security; also called the offer price. This price is usually higher
than the Bid price.
Dividing your investment portfolio among
the major asset categories. The most important decision you will make.
Asset Allocation Fund
A common trust fund or mutual fund that
spreads its portfolio among a wide variety of investments, including
domestic and foreign stocks and bonds, government securities, and real
estate stocks. This gives small investors far more diversification than
they could get allocating money on their own. Some of these funds keep
the proportions allocated between different sectors relatively constant,
while others alter the mix as market conditions change.
A resource that has economic value to its
owner. Examples of an asset are cash, accounts receivable, inventory,
real estate, and securities.
--- B ---
The firm's financial statement that
provides a picture of its assets, debts, and net worth at a specific
point in time.
A common trust fund or mutual fund that
maintains a balanced portfolio, generally 50% bonds or preferred stocks
and 50% common stocks, but this percentage can and does vary.
A measure of a stock's risk relative to the
market, usually the Standard & Poor's 500 index. The market's beta
is always 1.0; a beta higher than 1.0 indicates that, on average, when
the market rises, the stock will rise to a greater extent and when the
market falls, the stock will fall to a greater extent. A beta lower than
1.0 indicates that, on verage, the stock will move to a lesser extent
than the market. The higher the beta, the greater the risk.
The price a buyer is willing to pay for a
security. This price is usually lower than the Ask price.
A certificate of debt issued by a company
or the government. Bonds generally pay a specific rate of interest and
pay back the original investment after a specified period of time.
Book value per share:
The accounting value of a share of common
stock. It is determined by dividing the net worth of the company (common
stock plus retained earnings) by the number of shares outstanding.
Business and industry risk:
Uncertainty of an investment's return due
to a fall-off in business that is firm-related or industry-wide.
A strategy in which the stock portion of
your portfolio is fully invested in the stock market at all times.
--- C ---
The right to purchase stock at a specified
(exercise) price within a specified time period.
A bond that can be redeemed by the issuer
prior to its maturity. Usually a premium is paid to the bond owner when
the bond is called.
Cash Balance Plan:
A defined benefit plan in which each
participant has an account that is credited with a dollar amount that
resembles an employer contribution, generally determined as a percentage
of pay. Each participant's account is credited with earned interest. The
plan provides the benefits in the form of a lump-sum distribution or
Cash or Deferred Arrangement (CODA):
See Salary Reduction Plan.
An increase in the value of a capital asset
such as common stock. If the asset is sold, the gain is a
"realized" capital gain. A capital gain may be short-term (one
year or less) or long-term (more than one year).
Certificate of Deposit:
A bank deposit that pays a specified rate
of interest for a certain period of time.
Collective Trust Fund:
Work and act much like a mutual fund.
Collective trust (also known as a common trust fund) funds offer
investors many of the same benefits as mutual funds, such as portfolio
diversification, professional management and investment flexibility. But
since collective funds do not impose the same administrative fees and do
not have some of the regulatory requirements that mutual funds do, they
generally have lower operating expenses.
Broker's fee for buying or selling
An investment representing ownership
interest in a corporation.
Testing required by the IRS to make sure
that the 401(k) plan is fair to both highly compensated and ordinary
The ability of an asset to generate
earnings that are then reinvested and generate their own earnings
(earnings on earnings).
The amount, expressed as a dollar value or
as a percentage, by which the price of the convertible security exceeds
the current market value of the common stock into which it may be
A state of freedom from worry and anxiety about money due
to the accumulation of assets which make it possible to live your life as you
choose without working if you prefer not to work or just working because you
enjoy your work but don't need the income. Plainly stated, the Land of
Critical Mass is a place in which individuals enjoy their own personal financial
nirvana. Differentiation between earned income and assets is a fundamental lesson
to learn when thinking in terms of critical mass. Earned income does not
produce critical mass......critical mass is strictly a function of assets.
Current assets, including cash, accounts
receivable and inventory, divided by current liabilities, including all
short-term debt. A rough measure of financial risk: the smaller current
assets relative to current liabilities,the greater the risk of credit
Annual income (interest or dividends)
divided by the current price of the security. For stocks, this is the
same as the dividend yield.
The bank or trust company that maintains a
retirement plan's assets, including its portfolio of securities or some
record of them. Provides safekeeping of securities, but has no role in
An industry, such as automobiles, whose
performance is closely tied to the condition of the general economy.
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