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
--- P ---
Par value (bond):
The face value of a bond, generally $1,000
for corporate issues, with higher denominations for many government
The dollars that employees contribute to
their 401k plans.
In this case, the employee decides how to
invest his or her funds. It is the company's responsibility to offer a
variety of investment opportunities so that the employee can make
investments according to his or her long term goals and risk.
Dividends per share divided by earnings per
share. Provides an indication of how well earnings support the dividend
payments. The lower the ratio, the more secure the dividend.
Pension Benefit Guarantee Corp. The PBGC is
a guarantee fund, established by ERISA, which covers all defined benefit
pension plans. Companies with a defined benefit plan must pay premiums
into this fund according to the number of employees in the plan and the
current ratio of assets to liabilities in the plan.
The group of individual securities held by
a person or an institution.
A bond that is valued at more than its face
The value today of a future payment, or
stream of payments, discounted at some appropriate interest rate.
Price-earnings ratio (P/E):
Market price per share divided by the
firm's earnings per share. A measure of how the market currently values
the firm's earnings growth and risk prospects.
Market price per share divided by book
value (tangible assets less all liabilities) per share. A measure of
stock valuation relative to net assets. A high ratio might imply an
overvalued situation; a low ratio might indicate an overlooked stock.
The original amount of money invested or
lent, as distinguished from profits or interest earned on that money.
Net earnings after taxes divided by sales.
Measures the ability of a firm to generate earnings from sales.
Profit sharing plan:
A defined contribution pension plan that
uses a variable level of contributions based on company profits. Profit
sharing plans allow firms to limit allocations to a pension fund in lean
years. However, they suffer from lower maximum deduction limits than
Computer-based trigger points are
established in which large volume trades are indicated. The technique is
used by institutional investors.
The written statement that discloses the
terms of a securities offering or a mutual fund. Strict rules govern the
information that must be disclosed to investors in the prospectus. You
should always read the prospectus on any mutual fund before investing.
Prudent Investor Rule:
The latest development in evaluating
fiduciary prudence. The current (1992) model uniform act differs from
the traditional Prudent Man Rule in that it indicates that: (1) no asset
is automatically imprudent, but must be suitable to the needs of the
beneficiaries, (2) the entire portfolio is viewed when evaluating the
prudence of a fiduciary, and (3) certain actions can be delegated to
other agents and fiduciaries. ERISA [ § 404(a)(1)(C) ] generally
follows the approach of the Prudent Investor Rule.
Prudent Man Rule:
A rule originally stated in 1830 by the
Supreme Judicial Court of Massachusetts in Harvard College v. Amory [ 9
Pick. (Mass.) 446 ], that, in investing, all that can be required of a
trustee is that he conduct himself faithfully and exercise a sound
discretion and observe how men of prudence, discretion, and intelligence
manage their own affairs not in regard to speculation, but in regard to
the permanent disposition of their funds considering the probable income
as well as the probable safety of the capital to be invested. The
current (1959) model uniform rule categorizes certain types of assets as
automatically imprudent, looks at each investment separately in
determining prudence, and prohibits the delegation of responsibilities.
Most states have adopted the Rule as a part of state fiduciary law,
usually with certain different specifics from state to state.
The right to sell stock at a specified
(exercise) price within a specified period of time.
--- Q ---
A private retirement plan that meets the
rules and regulations of the Internal Revenue Service. Contributions to
such a plan are generally tax-deductible; earnings on such contributions
are always tax sheltered until withdrawal.
--- R ---
Real rate of return:
The annual percentage return realized on an
investment, adjusted for changes in the price level due to inflation or
Price performance of a stock divided by the
price performance of an appropriate index over the same time period. A
measure of price trend that indicates how a stock is performing relative
to other stocks.
Required rate of return:
The rate of return demanded to induce
investors to invest in a security.
The percent of earnings retained in the
firm for investment purposes.
Return on equity (ROE):
A ratio calculated by dividing common stock
equity (net worth) at the beginning of the accounting period into net
income for the period after preferred stock dividends, but before common
stock dividends. ROE tells common stockholders how effect their money is
Consists of income plus capital gains (or
losses) relative to investment.
A municipal bond supported by the revenue
from a specific project, such as a toll road, bridge, or municipal
The balance an investor must decide on
between the desire for low risk and high returns, since low levels of
uncertainty (low risk) are associated with low potential returns and
high levels of uncertainty (high risk) are associated with high
Possibility that an investment's actual
return will be different than expected; includes the possibility of
losing some or all of the original investment. Measured by variability
of historical returns or dispersion of historical returns around their
An employee's transfer of retirement funds
from one retirement plan to another plan of the same type or to an IRA
without incurring a tax liability. The transfer must be made within 60
days of receiving a cash distribution. The law requires 20 percent
federal income tax withholding on money eligible for rollover if it is
not moved directly to the second plan or an investment company.
The basic trading block for stocks--usually
Glossary provided by:
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