401(k): A 401(k) plan is an employer-sponsored retirement plan that allows for contributions from both employee and employer. In many cases, employers offer a matching contribution up to a certain percentage of the employee’s salary.
403(b): Similar to a 401(k) plan, a 403(b) is an employer-sponsored plan for nonprofit and government employers.
457(b): A 457 plan or 457(b) plan is an employer-sponsored, tax-favored retirement savings account. This type of plan is offered to state and local government employees, including police officers, firefighters, and other civil servants. Some high-paid (or “top hat”) executives at certain nonprofits like hospitals, charities, and unions also get access to 457(b) plans. You can think of the 457(b) plan as a 401(k) for the government-worker set, but there are a couple of unique differences that make a 457(b) even more attractive. See 457(f).
457(f): There are two types of 457 plans. A 457(f) plan is offered to highly compensated government and select non-government employees. See 457(b).
active management: Also known as active investing, active management is a portfolio management strategy in which the manager makes specific investments with the goal of outperforming an investment benchmark index. See passive management.
annual percentage yield: An annual percentage yield (APY) is a percentage rate that reflects the total amount of interest paid on a deposit account (e.g., checking, savings, CD or IRA). It is based on the interest rate earned on your account and the frequency of compounding for a 365-day period.
annuity: An annuity is an insurance product that pays income to the owner and is sometimes used as part of a retirement strategy. When you purchase an annuity, you make an investment in it and it makes payments to you on a future date or dates, such as on a monthly, quarterly, or annual basis.
bond: A bond is a fixed income instrument that represents a loan made by an investor to a borrower. The borrower is typically a corporation or a government and the bond is used to finance projects or operations. Therefore, owners of bonds are holders of debt; they are creditors. A bond has an end date when the principal of the loan is due to be paid to the bond owner and usually includes the terms for variable or fixed interest payments that will be made by the borrower.
certificate of deposit: A certificate of deposit (CD) is a savings certificate with a fixed maturity date and specified fixed interest rate that can be issued in any denomination aside from minimum investment requirements. Access to the funds in a CD are restricted until its maturity date. Commercial banks generally issue the CDs. The Federal Deposit Insurance Corporation (FDIC) insures the CDs up to $250,000 per individual.
credit report: A credit report is a detailed report of your entire credit history, which includes your personal data, a summary of your credit history, and details of any accounts turned over to a credit agency. A credit report also includes your credit score, a three-digit number calculated from your credit history and used by lenders to determine your creditworthiness.
dividend: A dividend is a payment made by a corporation to its stockholders, usually out of its profits. Dividends are typically paid regularly (i.e., quarterly, semi-annually, or annually) and made as a fixed amount per share of stock. Not all stocks pay dividends.
estate planning: Making plans for the transfer of your estate after death is called estate planning. An estate includes all owned property, such as cash, cars, clothes, jewelry, fine art, houses, land, retirement, investment and savings accounts, etc. Generally, the objectives of estate planning are making sure most of the estate is transferred to your beneficiaries, paying the least amount of taxes on your estate, and assigning guardians for minor children.
exchange traded fund: An exchange-traded fund (ETF) is an investment fund that holds assets such as stocks, commodities, and bonds. An ETF can be an attractive investment because of its low costs, tax efficiency, and stock-like features.
Financial Industry Regulatory Authority (FINRA): The nonprofit commonly referred to as FINRA is a private self-regulatory organization that regulates certain aspects of the securities industry and is the successor to the National Association of Securities Dealers (NASD). While the Securities and Exchange Commission (SEC) is the ultimate regulatory authority for the industry, FINRA plays an important role when it comes to protecting investors. See Securities and Exchange Commission (SEC).
individual retirement account: An individual retirement account (IRA) is an account that allows you to save for retirement with tax-free growth or on a tax-deferred basis.
liquidity: Liquidity refers to the ability to convert an asset to cash quickly. For instance, blue chip stocks and money market securities can be quickly sold and converted into liquid cash.
living will: The terms living will, health care directive, and advance directive refer to the legal document that allows people to state their wishes for end-of-life medical care in the event they become unable to communicate their decisions. It has no power after death.
mutual fund: A mutual fund is an investment vehicle that pools funds from many investors and uses them to purchase stocks, bonds, and money market instruments. The fund is managed by a professional money manager and each investor can sell his or her shares at will.
passive management: In passive management, investors expect a return that mirrors the investment weighting and returns of a benchmark index. Passively managed funds are often invested in an index fund. See active management.
power of attorney: A power of attorney (POA) or letter of attorney is a written authorization to represent or act on another’s behalf in private affairs, business, or some other legal matter. The person authorizing the other to act is the principal, grantor, or donor (of the power). The one authorized to act is the agent or, in some common law jurisdictions, the attorney-in-fact.
real estate investment trust: A real estate investment trust (REIT) is a security that trades on the major exchanges like a stock, but it is invested in real estate, either through properties or mortgages.
returns: The return is your profit on an investment. It includes any change in value, including interest or dividends, that the investor may receive from the investment.
required minimum distribution (RMD): These are minimum amounts that a retirement plan account owner must withdraw annually starting with the year that he or she reaches 70 ½ years of age or, if later, the year in which he or she retires. If, however, the retirement plan account is an IRA or the account owner is a 5% owner of the business sponsoring the retirement plan, the RMDs must begin once the account holder is age 70 ½, regardless of whether he or she is retired. Retirement plan participants and IRA owners, including owners of SEP IRAs and SIMPLE IRAs, are responsible for taking the correct amount of RMDs on time every year from their accounts, and they face stiff penalties for failure to take RMDs.
Roth IRA: In a Roth IRA, contributions are made after taxes are paid, so growth is tax free. See individual retirement account.
Securities and Exchange Commission (SEC): An independent agency of the United States federal government, the SEC holds primary responsibility for enforcing federal securities laws. It also holds responsibility for proposing securities rules as well as regulating the securities industry, the nation’s stock and options exchanges, and other activities and organizations, including the electronic securities markets. See Financial Industry Regulatory Authority (FINRA).
SEP IRA: A SEP (Simplified Employee Pension) IRA is a type of traditional IRA for self-employed individuals or small business owners. Any business owner with one or more employees, or anyone with freelance income, can open a SEP IRA. See individual retirement account.
SIMPLE IRA: A SIMPLE (Savings Incentive Match Plan for Employees) IRA is sponsored by a small employer and allows for contributions from both employer and employee. See individual retirement account.
stock: The stock of a corporation is all of the shares into which ownership of the corporation is divided. Shares of stock represent fractional ownership of a corporation in proportion to the total number of shares. Unlike bonds, stocks are not debt instruments; they are equity. Common stock typically carries voting rights that can be exercised in corporate decisions. On the other hand, preferred stock usually does not carry any voting rights, but it is legally entitled to receive a certain level of dividend payments prior to any dividends being issued to other shareholders.
traditional IRA: With a traditional IRA, earnings are tax-deferred, meaning you don’t pay taxes on contributions until you withdraw. See individual retirement account.
trust: A trust is a three-party fiduciary relationship in which the first party, the trustor or settlor, transfers (settles) a property (often, but not necessarily, a sum of money) upon the second party (the trustee) for the benefit of the third party, the beneficiary.
will: A will or testament is a legal document by which a person, the testator, expresses their wishes as to how their property is to be distributed at death, and names one or more persons, the executor, to manage the estate until its final distribution.
Updated on February 3, 2019 by Anthony Piccininno
crimsonmoneyconcepts.com 