George Robertson, CFP, CRPS, AIF

Glossary of Financial Terms M - Z

Management Buyout:
Management buyout occurs when managers or executives of a company purchase controlling interest in their company from existing shareholders. If management has existing funding sources to pay a premium over the existing fair market value of outstanding shares, the company becomes a private corporation without a majority of shares trading on the market. Motivation for management buyout may include preservation of present management positions, privacy in management operations, or potentially substantial capital gain with future expansion and anticipated profits.
Management Fee:
A managment fee is a charge against an investor's assets for the fund manager's services in overseeing the portfolio. The charge is calculated as a fixed percentage of the fund's asset value, usually 1% or less, and terms of the fee should be disclosed in the fund's prospectus.
Mandatory Employee Contribution:
While participation in an employee benefit plan is voluntary, some plans, generally some defined benefit plans, require mandatory employee contributions in order to accrue benefits under the plan.
Market Risk:
Also called systematic risk, market risk is the portion of a security's risk common to all securities in the same asset class, and it cannot be eliminated through diversification. For example, a market risk associated with investment in stocks is the general tendency of share prices to decrease during an economic downturn.
Market Timing:
An investor who practices market timing makes buy-sell decisions by attempting to predict market trends, such as the direction of stock prices, the direction of interest rates, or the condition of the economy. Unlike investors who buy and hold securities with the hope of substantial gains over an extended period of time, market-timing investors actively buy and sell securities, hoping to turn quick profits on short-term price fluctuations.
The date of maturity is the date on which a debt becomes due for payment. For example, if a bond has a face value of $1,000 and a 30-year term of maturity, the bondholder should receive $1,000 in 30 years.
Medicaid is a federal program that covers medical expenses for individuals who are financially unable to afford health care.
Medicare is a federal program that covers health care for individuals age 65 and over, or individuals with certain disabilities.
Medicare Part D:
Medicare Part D is the prescription drug benefit program available to Medicare recipients.
Minimum Participation Requirements:
Employer-sponsored retirement plans usually require minimum participation requirements. Generally, a participant must be a full-time employee, 21 years of age, and a one-year tenured employee in order to receive benefits. Employee welfare benefit plans may provide a separate criterion for employee participation.
Monthly Housing Expenses:
Monthly housing expenses include the sum of the principal, interest, and taxes a borrower pays towards housing on a monthly basis. This figure is used to determine affordability in relation to total income.
Mortality Table:
A mortality table is a statistical table showing the death rate of people at each age, usually expressed as the number of deaths per thousand.
Municipal Bond:
This tax-exempt bond may be issued by a state government or agency, or by a town, county, or other political subdivision or district. Interest payments are generally not subject to federal taxes, and they may be exempt from state and local taxes if the bondholder is a resident of the state where the bond was issued.
National Association of Securities Dealers Automated Quotations (NASDAQ):
NASDAQ is a computerized system that facilitates trading and provides current price quotes for the most actively traded over-the-counter (OTC) securities.
Net Income:
Subtracting total costs, expenses, and taxes from total revenue results in the net income.
Net Worth:
The amount of asset value exceeding total liabilities is referred to as net worth.
New York Stock Exchange (NYSE):
Also called The Big Board and The Exchange, the NYSE is the oldest and largest stock exchange in the US, listing the country's largest corporations. Memberships are sold to brokers, who buy and sell stocks on the floor of the exchange.
Noncontributory Retirement Plan:
A noncontributory retirement plan is a pension plan that is funded only with employer contributions, requiring no employee contributions.
Upon vesting, a benefit of an employee benefit plan becomes nonforfeitable and, thus, payable upon any occurrence listed in the employee contract. Some benefits may be conferred immediately or on a deferred basis.
Nonqualified Plan:
A nonqualified plan is a retirement or employee benefit plan that does not meet the requirements of Section 401(a) under the Internal Revenue Code and, therefore, is not eligible for favorable tax treatment.
Notary Public:
A notary public is an officer of the public that can authenticate signatories on documents and take depositions or oaths. A state or jurisdiction may authorize an applicant to certify specific documents usually for a term of years. Banks, insurance agencies, legal offices, and government buildings often have persons who are notaries public on staff.
Offering Price:
In terms of investing, the offering price is the per-share price at which a stock or mutual fund is offered to the public. Companies going public for the first time will issue shares of stock at an offering price, as will companies who are issuing new shares. The market price, a security's most recent price, may be more or less than the offering price. With no-load funds (mutual funds that do not charge sales commissions, the offering price is the same as the initial market price. With load funds (mutual funds that charge sales commissions), a sales charge is added to the market price to reach the offering price.
Old-Age, Survivors, and Disability Insurance (OASDI):
OASDI, also known as Social Security, is a comprehensive federal benefits program that includes retirement benefits, disability income, veteran's pension, public housing, and even the food stamp program. The Social Security tax, which is levied on all self-employed and employed workers, is used to fund the program.
An option gives the buyer the right, but not the obligation, to buy or sell a security at a set price on or before a given date. Investors, not companies, issue options. Investors who purchase "call" options bet the security will be worth more than the price set by the option (the strike price), plus the price they paid for the option itself. Buyers of "put" options bet the security's price will go down below the price set by the option.
Ordinary Income:
Income is defined as ordinary if it is derived from normal business activities, such as wages and salary, as distinguished from capital gains earned from the sale of assets.
Over-The-Counter (OTC):
A security is considered over-the-counter if it traded in some other context than on a formal exchange, such as the NYSE, TXS, AMEX, etc. Also, OTC refers to a market where transactions are conducted among security dealers over a network of telephone and computer lines, rather than on the floor of an exchange.
Paid-Up Additions:
Paid-up additions refer to additional life insurance coverage that is typically purchased with policy dividends. Paid-up additions may have a cash value component in addition to a death benefit.
Par Value:
The par value refers to the face value of a stock or bond when issued. The par value may bear little relationship to a security's current market value.
A partnership is a contractual association between two or more individuals who share in the management and profitability of a business venture. If the agreement specifically contracts for only an investment obligation, the investor is a limited partner. If responsibilities include management or supervision of operations, the holder of that responsibility is a general partner. Partnerships employ general partners, while limited partners associate through securities transactions.
Past Due:
Most lenders allow a specified period after a due date during which payment can be made without penalty. Any amount owed that is not received by the end of this grace period is considered past due. When an account is past due, showing a balance that contains past due funds, the creditor may assess a late fee, or consider the account delinquent and report it to a credit reporting agency.
A patent is an official license granted by the Patent Office to issue exclusive right to an individual or business, for a specified period of time, for the production or sale of a specific invention, process, or design. The financial value of a patent is the future monetary returns from its economic worth.
A pension is an employer-provided qualified retirement plan. Examples of pension plans include defined benefit plans, profit sharing plans, bonus plans, employee stock ownership plans (ESOPs), thrift plans, target benefit plans, and money purchase plans.
Permanent Life Insurance:
Permanent life insurance is a life insurance policy that does not expire and combines a death benefit with a savings portion. This saving portion can build cash value, which can be borrowed against or withdrawn for cash needs. The two main types of permanent life policies are whole life and universal life.
PITI refers to the components of a mortgage payment: principal, interest, property taxes, and insurance. Principal is the money used to pay down the balance of the loan, interest is the charge you pay for the opportunity to borrow the money, taxes are the property taxes you pay as a homeowner, and insurance refers to both your property insurance and your private mortgage insurance. Residential mortgage lenders usually require evidence that homeowners have property and casualty insurance if they do not fund the insurance as part of their monthly payment.
Plan Administrator:
As designated in the insurance or retirement documents, plan administrators of employee benefit programs maintain government regulations and procedures, and confirm that all participating employees receive annual reports.
Plan Sponsor:
A plan sponsor refers to an employer who establishes and perpetuates a qualified employee benefit pension plan. Although ultimately responsible for plan administration, plan sponsors often use outside consultants, corporations, government agencies, or labor organizations to confirm the implementation of Internal Revenue Code regulations and guidelines in plan administration.
In terms of real estate mortgages, points quantify the initial fee charged by the lender, with each point being equal to 1% of the total principal of the loan. For example, on a $100,000 mortgage, four points would cost a borrower $4,000.
A policy is a legal written document that states the terms of an insurance contract.
Policy Dividend:
A policy dividend refers to a refund of part of a life insurance premium that reflects the difference between the premium charged and the insurer's actual cost of providing coverage, if lower than previously anticipated.
Policy Exclusion:
A policy exclusion is an item specifically not covered by an insurance policy.
Policy Loan:
A policy loan is a loan made by an insurance company, secured by the cash surrender value of a life insurance policy.
Policy Reserves:
Policy reserves refer to the funds that a state requires an insurer to hold in order to cover all policy obligations.
Policy Rider:
A policy rider is a provision that may be added to an insurance policy, at an additional cost, to increase or limit the benefits the policy otherwise provides.
The policyholder is the person or entity owning an insurance policy. The policyholder is usually the insured but may also be a spouse, business partner, partnership, or corporation.
Portability refers to the ability of an employee to keep benefits after employment ceases. With a mobile workforce in which employees move from one company to another, portability of employee benefits, especially insurance and retirement plans, is important. Concerns about pre-existing conditions or insurability, as well as vesting schedules of qualified pension plans, are critical factors to an employee who entertains a more lucrative employment opportunity elsewhere.
A portfolio is the combined security holdings of an individual investor or mutual fund. The objective of holding investments in a portfolio is to reduce risk through diversification.
Power of Attorney:
This legal document, drafted in accordance with state law, grants a person full or limited powers to perform specified acts or make decisions for another person in the event the grantor is unable to act on his or her own. The power terminates upon the disability of the conveyor, unless it is a "durable" power.
Preferred Stock:
Preferred stock is a security representing partial ownership, also called equity, in a corporation. Preferred stock does not confer voting rights, as does common stock, but takes precedence in claims against the company's profits and assets.
Premature or Early Distributions:
The Internal Revenue Code (IRC) levies penalties for certain distributions before the age of 59½ from qualified retirement plans. The IRC, however, provides some specific exceptions that qualify for premature or early distributions without penalty.
A premium is a periodic payment for an insurance policy.
Premium Loan:
A premium loan is a loan made from an insurance policy to cover the premiums.
Prepayment is the ability to repay installment credit before it is due or to pay off a loan before its maturity date. Some loans, particularly mortgages, include prepayment clauses allowing you to repay them in advance of the regular schedule without a penalty.
Prepayment Penalty:
On a loan without a prepayment clause, the fee a borrower pays for repaying all or part of the loan before it is due is a prepayment penalty.
Present Value:
The present value is the amount a future sum of money is worth today given a specified rate of return. For example, an investment that earns 10% annually and can be redeemed for $1,000 in five years would have a present value of $620. In other words, $620 today will be worth $1,000 in five years at a 10% rate of return.
Price/Earnings Ratio (P/E):
Also called the "multiple," the P/E ratio is calculated as a stock's price divided by its earnings per share. This ratio gives investors an idea of how much they are paying for a company's current earnings. For example, a stock selling for $30 a share with earnings per share of $2 has a P/E ratio of 15. In other words, the investor paid $15 for each $1 of earnings. Faster growing, or higher risk, companies generally have higher P/E ratios than slower growing, or less risky, firms.
Primary Beneficiary:
The primary beneficiary is the named beneficiary who receives the proceeds of an insurance policy or annuity contract when the insured or annuitant dies.
Prime Rate:
The prime rate is a standardized short-term borrowing rate established by the Federal Reserve Board. Most banks use the prime rate and base a loan on the creditworthiness and collateral of bank customers (e.g., prime plus 1% or prime plus 2%).
The principal can refer to the original amount of money invested in a security, the face value of a bond, or the remaining amount owed on a loan, separate from interest. The term principal can also refer to the owner of a private company or the main party to a financial transaction.
Private Letter Ruling:
Upon request, the Internal Revenue Service (IRS) may issue an interpretation of a tax situation in light of a particular individual's circumstances with a private letter ruling judgment. Private letter rulings are nonbinding and not to be seen as a precedent for individuals with seemingly similar circumstances.
Private Mortgage Insurance (PMI):
Private mortgage insurance protects the lender in case of default. Lenders typically require borrowers to purchase PMI when the loan-to-value ratio is greater than 80%.
Profit and Loss Statement:
Also known as an income statement, the profit and loss statement summarizes the revenues, costs, and expenses incurred during a specific time period. These records show the ability of a company to generate profit by increasing revenue and reducing costs.
Profit-Sharing Plan:
A profit-sharing plan is a defined contribution plan in which employers allow employees to share in company profits. The employer's contribution, a percentage of profits generally based on an employee's earnings, may vary from year to year with no minimum required. Funds generally accumulate on a tax-deferred basis until the employee leaves the company or retires. An employee's retirement benefit depends on the amount in his or her account at retirement.
Prohibited Transaction:
In terms of Individual Retirement Accounts (IRAs), a prohibited transaction is one forbidden by the Internal Revenue Code. Examples include borrowing against an IRA, using an IRA as collateral, and investing IRA funds in collectibles.
Anything that has a value and is owned is termed property. It may be tangible or intangible (incorporeal), personal or public, or common.
A prospectus is an official document that must be provided (according to Securities and Exchange Commission (SEC) regulations) by the issuer to potential purchasers of a new securities issue. The reports within a prospectus provide information on the financial well being of the issuer and the specifics of the issue itself.
Qualified Plan:
A qualified plan is a retirement plan that meets the requirements of Section 401(a) of the Internal Revenue Code, one that is, therefore, eligible for tax-favored treatment.
The quotation refers to the highest bid and lowest offer (asked) price currently available for a security. For example, an investor requesting a price on XYZ Company might be quoted "40 to 40½." This means that the best bid price (the highest price any buyer will pay) is currently $40 a share and the best offer price (the lowest price any seller will accept) is $40.50.
Rate of Return:
The rate of return is the gain or loss of an investment over a specified period of time, expressed as a percentage increase over the original investment cost. For stocks, the rate of return is the dividend and capital appreciation. The yield is the rate of return on fixed-income securities. Analysts use the return on equity to compare the rates of return on differing investment vehicles. Accountants use internal rates of return when reviewing investment contracts, budgets, or investment opportunities.
Rated Policy:
Also called an "extra risk" policy, a rated policy covers a higher risk for a higher-than-usual premium. For example, an insured person with a dangerous occupation or impaired health condition often has a "rated" policy that costs more to protect the insurer from added risk.
Real Estate Investment Trust (REIT):
A REIT is a security that sells like a stock on the major exchanges and invests primarily in real estate through properties and mortgages.
Recapitalization occurs when a company changes its capital structure by exchanging preferred stock for bonds to reduce taxes or to avoid or emerge from a bankruptcy. Often, new debt (e.g., reorganization bonds) is issued to replace existing debt.
Redemption is the repayment of a debt security or preferred stock, either for par value at maturity or for a premium before maturity.
Required Minimum Distribution (RMD):
The RMD is the legally required minimum annual amount that must be distributed from a retirement account to an IRA holder or qualified plan participant. RMDs, which are calculated by dividing the year-end account balance by the applicable distribution period or life expectancy, must begin by April 1 of the year following that during which the individual reaches age 70½.
Revenue is the amount of money that a company receives during a given period from the sale of goods and services, before expenses and taxes.
Reverse Mortgage:
This type of loan is used to turn home equity into cash. The lender makes regular tax-free payments to the homeowner (borrower), which are usually used to fund retirement needs.
Risk refers to the quantifiable likelihood of loss or less-than-expected returns. For example, U.S. savings bonds, which are backed by the full faith and credit of the federal government, are considered low risk, where as junk bonds, which are issued by companies with questionable credit, are generally considered high risk. Historic or average returns are often used to measure risk.
Risk Tolerance:
Risk tolerance is the measurement of an investor's willingness or ability to handle declines in the value of his or her investment portfolio. For many investors, risk tolerance is an important consideration when developing a diversification strategy for a portfolio.
A rollover is a tax-free transfer of funds from one retirement plan to another.
Roth IRA:
A Roth IRA is a type of Individual Retirement Account (IRA) in which contributions are nondeductible. Earnings grow tax deferred, and distributions are tax free, provided you have owned the account for five years and are at least age 59½.
Roth IRA Conversion:
This refers to the process of converting an existing IRA into a Roth IRA. Roth conversions have specific income eligibility requirements (through 2009) and income tax consequences.
S Corporation (Subchapter S of the Code):
An S corporation is an incorporated business that is a "pass-through" entity for tax purposes.
Salary Reduction Plan:
A salary reduction plan is any qualified retirement program in which employees make tax advantaged contributions on a pre-tax basis.
Savings Account:
A savings account is an account with a bank or savings and loan company that pays interest on money deposited.
Section 162 (Executive Bonus) Plan:
Internal Revenue Code Section 162 provides employers a deduction for trade or business expenses. Through this executive bonus plan, the employee owns a life insurance policy for which the employer pays premiums. Premiums are taxable to the employee.
Secured Card:
A secured card is a credit card guaranteed by a deposit in a savings account or certificate of deposit (CD). The credit line usually equals the deposit. If a cardholder defaults on payments, the issuer may apply the deposit toward the balance owed.
Securities and Exchange Commission (SEC):
The SEC is the primary federal regulatory agency for the securities industry, whose responsibility is to promote full public disclosure and protect investors against fraudulent and manipulative practices. In addition to regulation and protection, it also monitors corporate takeovers in the US. The SEC is composed of five commissioners appointed by the president and approved by the Senate.
Security Deposit:
A security deposit is a type of payment usually required of an individual wishing to secure a personal loan, a rental property, or a later purchase.
Self-Directed IRA (SDA):
A self-directed IRA is an individual retirement arrangement that allows a holder a wider choice of investments, including stocks, bonds, mutual funds, and money market funds. SDAs may be opened at institutions with trust powers, state FDIC-insured institutions, federal credit unions, and federally chartered savings banks or savings and loans.
Self-Employment Tax:
The self-employment tax is a Social Security tax imposed on self-employed individuals. The self employed need to file a special "Computation of Social Security Self-Employment Tax" (Schedule SE) with their annual Individual Income Tax Return Form 1040.
Seller Financing:
Seller financing is a "creative financing" technique in which an owner sells property, usually real estate, directly to a buyer. This technique is often used if the market interest rates are too high for the buyer and the seller does not require principal from the sale. The title or deed transfers only at full payment of the loan, and any foreclosure results in the property reverting to the seller. Seller financing was very popular during the 1980s when real estate values escalated. Buyers used seller financing to arrange "no money down" purchases of real estate.
Settlement Costs:
Also called closing costs, these are the expenses involved in transferring real estate to a buyer from a seller. Settlement costs typically include fees or charges for loan origination, discount points, appraisal, property survey, title search, title insurance, deed filing, credit reports, taxes, and legal services. Closing costs do not include points and the cost of private mortgage insurance (PMI).
A share is a certificate representing one unit of ownership in a corporation, mutual fund, or limited partnership.
SIMPLE (Savings Incentive Match Plan for Employees) Plan:
A SIMPLE Plan is a retirement plan, which can be set up as a 401(k) or IRA, that allows employee pre-tax contributions and mandatory employer matching contributions. All contributions are immediately vested in a SIMPLE plan.
Simplified Employee Pension Plan (SEP):
A SEP is a retirement plan allowing both an employer and an employee to contribute to the employee's Individual Retirement Account (IRA) on a discretionary basis, subject to special rules on eligibility and contributions.
The term situs refers to the location or position of a property. For intangible property, such as debt, the situs is generally the jurisdiction in which the debt obligation was issued.
Small Business Association (SBA):
The SBA is a federal government organization that assists small businesses in providing programs and opportunities to hasten their potential growth and success.
Smart Card:
Unlike a debit, charge, or AMT card, the smart card requires a prepayment of a specified amount for the future purchase of goods, services, or admissions. Smart card holders may use the card without debiting a checking account or adding balances to a charge card. Banks, hotels, recreational facilities, and other businesses provide smart card privileges to their customers and guests.
Social Security Tax:
Since inception, the Social Security system has been funded by a Social Security Tax, which is paid by both employers and employees. These levies are deposited in trust funds for investment. At various optional retirement ages, employees may qualify for fixed-income payments based on marital status, quarters employed, and wages earned. The self-employed worker has a different contribution schedule, but he or she has equal treatment on all distributions at retirement or disability.
Split-Dollar Life Insurance:
A split-dollar life insurance agreement is a contractual arrangement between employer and employee sharing obligations and benefits of a life insurance policy. The shared arrangement may govern the payment of premiums, death proceeds, cash values, dividends, or ownership.
Spousal IRA:
A spousal IRA is an individual retirement arrangement for a nonworking spouse funded with contributions from the working spouse. The Internal Revenue Service sets a limit on the combined amount a married couple may contribute to a traditional and spousal IRA.
Standard & Poor's 500 Index (S&P 500):
The S&P 500 is an index of 500 of the most widely held common stocks on the New York Stock Exchange (NYSE). It is used as a measure to indicate the overall health of the US stock market.
A stock is a security representing partial ownership, also called equity, in a corporation. Each stock share represents a proportionate claim against the company's profits and assets. Common stock entitles shareholders to participate in stockholder meetings and to vote for the board of directors. Preferred stock does not confer voting rights, but it takes precedence in claims against profits and assets.
Stock Certificate:
This document substantiates the legal ownership of shares of stock in a corporation. Stock certificates are made out to the shareholder or the brokerage firm, and they identify the issuer, the number of shares, the par value, and the stock class. A stock certificate must be endorsed by the shareholder to sell the shares.
Stock Market:
The stock market is a general term referring to the organized trading of securities in the various market exchanges and the over the counter (OTC) market.
Stock Purchase Plan:
A stock purchase plan is a mechanism for employees to purchase company stock. Increasingly, companies are encouraging employee participation in ownership opportunities. Employees may purchase company stock in Employee Stock Ownership Plans (ESOPs), Dividend Reinvestment Plans (DRIPs), stock options, automatic investment plans, and other creative plans. In theory and practice, employees have the potential of becoming majority stockholders through participation in a stock purchase plan, assuming a viable role in corporate planning.
Stock Split:
A stock split is a distribution of additional shares to each stockholder in proportion to the shares the individual already owns. A stock split has no immediate effect on a stockholder's equity. For example, if a stock splits 2-for-1, a shareholder who owns one share with a $100 par value before the split, would own two shares, each with a $50 par value, after the split.
Straight-Term Mortgage:
A straight-term mortgage is a mortgage in which the borrowed amount is due at the conclusion of a term, or maturity date.
Survivorship Life Insurance:
Also called second-to-die or last-to-die insurance, survivorship life insurance covers the lives of two people and pays benefits when the second person dies. It is often used by couples to fund estate tax liability.
Tangible Asset:
A tangible asset refers to anything that has a value and physically exists. Land, machines, equipment, automobiles, and even currencies are examples of tangible assets. On some financial statements, however, a nonmaterial item may often be listed as a tangible asset, such as, a payment to be made on products or goods already delivered.
Tax Credit:
A tax credit reduces a taxpayer's taxable amount due dollar-for-dollar. A $1,000 tax credit saves the taxpayer $1,000 in taxes. In many cases, tax credits offer incentive to support social change (e.g., renovation of historical property, jobs for the disadvantaged, research and development, and constructing low-income housing).
Tax Deduction:
A tax deduction reduces tax liability by the percentage of the marginal tax bracket for the taxpayer. For example, a $1,000 tax deduction for a taxpayer in the 25% marginal tax bracket saves only $250 in tax (0.25 x $1,000). Allowable deductions include charitable contributions, state and local taxes, and some interest expense.
Tax Lien:
A tax lien is a claim against property for unpaid taxes (including city, county, school, estate, income, payroll, property, or sales taxes). A tax lien, which lasts until the claim is satisfied or a statute of limitations takes effect, may make other creditors aware of a delinquent's tax liability.
Tax-Exempt Bond:
A tax-exempt bond is a bond issued by a municipal, county, or state government whose interest payments are not subject to tax from federal, state, or local authorities.
Tax-Sheltered Annuity:
This type of annuity, often called a TSA, allows employees of government and nonprofit organizations to make pretax contributions to a retirement plan, up to a predefined annual limit.
Taxable Income:
Taxable income is a taxpayer's gross income less all allowable adjustments. Incorporated businesses derive net income before taxes after deducting total costs and expenses from gross sales.
Tenants by the Entirety:
Spouses commonly use this form of ownership. Each spouse theoretically owns 100% of the property, but complete ownership will pass at the first death to the surviving spouse without tax and probate.
Tenants in Common:
Two or more owners having undivided ownership (not necessarily equal) in property are referred to as tenants in common. This form of ownership does not have a "right of survivorship" in the event that one owner dies.
Term Certain:
In terms of an annuity contract, the term certain is a payout option that provides income for a specified period of time.
Term Insurance:
Term insurance is a type of life insurance that pays benefits only when the insured dies within a specific period. If the insured lives beyond the end of the period, no benefits are payable. Term insurance has no cash value, and premiums traditionally rise with age.
Time Horizon:
The time horizon is the projected length of time for which an investor plans to hold investments.
A title is a document that identifies legal ownership of property, and it is used to transfer ownership from a seller to a buyer.
Title Insurance:
Title insurance is a form of insurance that protects against loss due to a defect in a real estate title, such as an ownership dispute or a lien against property. A mortgage lender generally stipulates that a borrower must purchase a title insurance policy.
Title Search:
A title search is the inspection of city, town, or county records to determine the legal owner of real estate property, as well as any applicable liens, mortgages, or future interests.
Total Disability:
For insurance purposes, this classification indicates that a worker cannot complete most job requirements based on a physical or mental disability. In some cases, total disability is immediate subsequent to the loss of sight or limbs. In other situations, an "elimination" period provides a passage of time to confirm the disability status before an individual receives benefits. Private disability plans, employer group disability benefits, and Social Security will provide a percentage replacement of lost income for gainfully employed workers who are experiencing a total disability.
Total Return:
Total return is defined as the gross annual yield on an investment, including capital appreciation or distributions, interest, dividends, and personal taxes.
Transaction Fee:
A transaction fee is a charge for various credit-related activities, such as receiving a cash advance or using an ATM.
Treasuries are negotiated debt obligations that the United States government regularly offers at public auction through the Federal Reserve Bank. Treasuries have varying maturities and yields. Treasury bills have maturities of less than one year, notes less than ten years, and bonds less than 30 years. Issued treasuries may be purchased in the public marketplace and reflect current yields to maturities.
Treasury Bill:
Also called a T-bill, a treasury bill is a negotiable debt obligation, which is issued by the federal government and backed by its full faith and credit, has a maturity of one year or less, and is exempt from state and local taxes. Treasury bills have face values ranging from $10,000 to $1 million, and they sell at a discount based on current interest rates.
Triple Net Lease:
A triple net lease is a lease in which the lessee assumes the payments of maintenance and upkeep, taxes, utilities, and insurance. The tenant bears the risks associated with these fluctuating expenses.
A trustee is an individual or party responsible for managing a trust on behalf of a beneficiary or beneficiaries. Duties often include holding title to property, distributing assets, and overseeing investments and payments.
Underwriting is the process by which an insurance company determines whether, and on what basis, it can assume the risk of a specific life insurance policy. Also, underwriting is the business of investment bankers, who purchase new issues of securities from a company or government and then resell them to the public.
When a previously employed worker is "laid off" or involuntarily "not in gainful employment," he or she is considered unemployed and possibly eligible for certain state and federal compensation and benefits.
Uniform Gift to Minors Act (UGMA):
Also called Uniform Transfer to Minors Act (UTMA) in some states, these laws allow an adult to contribute to a custodial account in a minor's name without having to establish a trust or name a legal guardian.
Uniform Transfer to Minors Act (UTMA):
Also called Uniform Gift to Minors Act (UGMA) in some states, these laws allow an adult to contribute to a custodial account in a minor's name without having to establish a trust or name a legal guardian.
Universal Life Insurance:
Universal life insurance allows the holder to vary the amount and timing of premiums and to change the death benefit, based on the policyholder's changing needs and circumstances. It is generally considered more flexible than traditional whole life insurance and includes a "cash value" savings feature that may allow certain premium funds the opportunity to earn tax-deferred interest.
Unsecured Debt:
This type of debt is not guaranteed by collateral. If the borrower defaults, the issuer has no assets to back up the loan.
Variable Interest Rate:
A variable interest rate is one that fluctuates with a measure or an index, such as current money market rates or the lender's cost of funds. Often, variable interest rate loans have a fixed rate for several years and then become variable. The borrower is usually protected from dramatic increases in the loan rate by a "rate cap."
Vesting is the process leading to a future event at which time money or property held in trust belongs to a person, though it may not be available for distribution until a future date or occurrence. Vesting usually refers to the scheduled confirmation of ownership rights in qualified employee benefit retirement plans.
Volatility refers to the relative rate at which the price of a security moves up and down, found by calculating the annualized standard deviation of daily change in price. The more volatile a security or mutual fund, the more it is subject to rapid and extreme price fluctuations relative to the market.
Voluntary Employee Contribution:
An employee may be permitted to make voluntary contributions to a retirement plan, usually unmatched by the employer, in excess of mandatory contributions to his or her plan account. Voluntary employee contributions may be deposited on a pre-tax or post-tax basis that is pre-arranged.
Waiver of Premium:
This insurance policy rider allows a policyholder to stop making premium payments if the insured suffers a permanent disability. Generally, there is an additional cost for this rider to become part of a policy.
Whole Life Insurance:
Whole life insurance provides coverage for the insured's entire life, provided the policyholder continues to pay the premiums. Premiums generally remain level for the life of the contract. In addition, there is also a cash value component that can be used to help supplement future financial needs.
Withholding refers to the process by which an employer deducts a portion of employee wages, usually for income taxes. Employers base the withholding amounts on Form W-4, Employee's Withholding Allowance Certificate, which employees submit when commencing employment. A Treasury account at a bank is the repository for withholding amounts and is a credit toward future tax liability for the calendar year.
Working Capital:
During the business life cycle, working capital or money ensures that the business will be able to operate on a daily basis.
The yield of an investment is its annual gain or loss, generally expressed as a percent. To determine the yield on a bond, divide the amount of interest received from the bond by the amount paid for the bond. For example, suppose an individual paid $5,000 for a bond. At 5% interest, he/she would earn $250 annually in interest income. The yield, $5,000 divided by $250, would be 5%. Similarly, to determine the yield on stocks, divide the dividend received per share by the amount paid per share.
Yield To Maturity (YTM):
The return an investor will receive if a long-term interest-bearing investment, such as a bond, is held until the date it becomes due and payable (maturity date). A calculation to determine the YTM of a bond, for example, would account for the interest rate, the payment schedule, the market value, the face value, and the length of the term.
Zero Coupon Bond:
A zero coupon bond is a bond that makes no periodic interest payments, but rather sells at a deep discount from its face value. At the maturity date, the investor will receive the face value of the bond, plus the interest that has accrued over a fixed term.