bobbrinker.com Investment Glossary
This glossary of investment and related terms
provides simple definitions of terms that you may need to know.
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A B C D
E F G H
I J K L
M N O P
Q R S T
U V W X
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Long-term debt divided by stockholders'
equity. The ratio identifies the relationship of debt to ownership
interest in the firm's financial structure. A measure of financial risk.
Deep discount bond:
A bond that has a coupon rate far below
rates currently available on investments and whose value is at a
significant discount from par value.
The risk that a company will be unable to
pay the contractual interest or principal on its debt obligations.
A defined benefit plan is an employer
maintained plan that pays out a specific, pre-determined amount to
retirees. Defined benefit plans are guaranteed by PBGC.
A defined contribution plan does not
promise a specific benefit at retirement, but does provide regular, set
contributions to a pension fund. Defined contribution plans tend to be
less expensive than defined benefit plans.
The increase of purchasing power due to a
general decrease in the prices of goods and services.
Decrease in the value of an investment over
A bond that is valued at less than its face
A stockbroker who charges a reduced
commission and provides no investment advice.
The interest rate used in discounting
future cash flows; also called the "capitalization rate."
Distributions and withdrawals:
When money is withdrawn from a 401(k) plan,
the withdrawal is referred to as a distribution. 401(k) plan assets can
be withdrawn without penalty after age 59 1/2. Employees are required to
begin taking distributions after age 70 1/2.
The practice of spreading risk by investing
in a number of securities that have different return patterns over time.
When one investment is yielding a low or negative rate of return in a
diversified portfolio, another investment may be enjoying positive or
Payments by a company to its stockholders.
A dividend is usually a portion of profits. Payment of dividends on
common stock is generally discretionary. Dividends to common-stock
shareholders may be withheld if business is poor or if the corporation's
directors decide to retain earnings to invest in business operations.
Dividend payout ratio:
Annual dividends per share divided by
annual earnings per share.
Annual dividends per share divided by price
per share. An indication of the income generated by a share of stock.
The dividend yield plus capital gains percentage equals total return.
A process of buying securities at regular
intervals and at a fixed dollar amount. When prices are lower, the
investor buys more shares or units; when prices are higher, the investor
purchases fewer shares or units. Over time, this typically results in a
better average price for all shares or units purchased.
Dow Jones Industrial Average (DJIA):
Price-weighted average of 30 actively
traded blue-chip stocks, traditionally of industrial companies.
--- E ---
An estimated price-earnings ratio adjusted
for the current level of interest rates. Used to determine the value of
a stock, based on Graham's formula relating value to recent earnings and
expected earnings growth rates.
Earnings per share:
The net income of the firm divided by the
number of common stock shares outstanding.
Earnings per share for the most recent 12
months divided by market price per share. Relates the generation of
earnings to share price. It is the inverse of the price-earnings ratio.
Employer matching contribution:
The amount, if any, that the employer
contributes to the employee's 401(k) account. Matching contributions are
usually configured to provide a set percentage of an employee's
contribution up to a fixed limit.
Equity risk premium:
An extra return that the stock market must
provide over the rate on Treasury bills to compensate for market risk.
Investments in which the investors obtain a
portion of ownership. Real estate and common stocks represent equity
instruments. Usually, their chief benefit is potential growth in value.
It is another word for stock.
Employee Retirement Income Security Act.
ERISA, passed in 1974, is a comprehensive package dealing with all areas
of pensions and employee benefits. ERISA includes requirements on
pension disclosure, participation standards, vesting rules, funding, and
administration. ERISA also mandated the creation of PBGC.
Returns in excess of the risk-free rate or
in excess of a market measure such as the S&P 500 index.
The average of a probability distribution
of possible returns.
The ratio of total expenses to net assets
of a mutual fund. Expenses include management fees, 12(b)1 charges, if
any, the cost of shareholder mailings and other administrative expenses.
The ratio is listed in a fund's prospectus. Expense ratios may be a
function of a fund's size rather than of its success in controlling
--- F ---
The stated principal amount of a debt
An individual or a trust institution
charged with the duty of acting for the benefit of another party as to
matters coming within the scope of the relationship between them. The
relationship between a guardian and his ward, an agent and his
principal, an attorney and his client, one partner and another partner,
a trustee and a beneficiary, each is an example of fiduciary
relationship, See also ERISA Section 3(21)(A).
An accounting period consisting of 12
Investments that represent an IOU from the
government or a corporation to the investor and offer specific payments
at predetermined times. Public and private bonds, government securities,
and the 401(k)'s guaranteed accounts, are fixed-income investments.
Guaranteed fixed-income accounts offer investors a guarantee against the
loss of both principal and the interest earned on that principal.
A tax-deferred retirement plan that can be
offered by businesses of any kind. A company's 401(k) plan can be a
"cash election" profit-sharing or stock bonus plan, or a
salary reduction plan. A 401(k) plan carries many unique advantages for
both employer and employee.
SECTION 403(b) of the Internal Revenue Code
allows employees of public school systems and certain charitable and
nonprofit organizations to establish tax-deferred retirement plans which
can be funded with mutual fund shares.
This valuation of stocks based on
fundamental factors, such as company earnings, growth prospects, and so
forth, to determine a company's underlying worth and potential for
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