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After-Tax Return
The amount of funds that an investor keeps out of the income and capital gains earned from investments after allowing for state and Federal taxes.
Asset Allocation
The division of money into stocks, bonds, real estate, cash and other types of investments.
Asset
Anything of value that you own, whether or not it is investment related.
Average Duration
An estimate of how much a bond portfolio' s share price will fluctuate in response to a change in interest rates. To estimate the price sensitivity of a portfolio, multiply its duration by the change in rates. If interest rates rise by one percentage point, the share price of a portfolio with an average duration of five years will decline by about 5%. If rates decrease by a percentage point, the portfolio' s share price would rise by 5%.
Average Effective Maturity
Used for taxable fixed-income funds only, this is a weighted average of all the maturities of the bonds in a portfolio, computed by weighting each maturity date (the date the security comes due) by the market value of the security. This figure also takes into consideration all mortgage prepayments, puts, and adjustable coupons; it does not, however, account for call provisions. Longer-maturity funds are generally considered more interest-rate sensitive than their shorter counterparts.
Average Maturity
The average length of time until bonds held by a portfolio reach maturity and are repaid. In general, the longer the average maturity, the more a bond portfolio' s share price will fluctuate in response to changes in market interest rates.
Average Quality
An indicator of credit risk, this figure is the average of the credit ratings assigned to the portfolio' s securities holdings by bond rating agencies. Agencies assign credit ratings after an appraisal of a bond issuer' s ability to meet its obligations. Quality is graded on a scale, with Aaa indicating the most creditworthy bond issuers.
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Balance Sheet
Simplified financial statement showing the nature and amount of an individual's assets and liabilities. The difference between the two determines net worth. Assets included in the balance sheet are generally valued at their original cost. The managed portfolio is listed at market value.
Basis Point
One hundredth of one percent, as of interest rates, or investment yields, e.g., .01%
Bear Market
An extended period, usually one to three years, in which stock prices go down, usually due to negative economic factors.
Beneficiary
Person who will receive the financial benefits of an asset, subject to certain conditions. Asset may be an insurance policy, an annuity, a trust, a will or other property.
Beta
A measure of the expected price fluctuation of a stock or portfolio of stocks in relation to a specified market index or benchmark, analytically derived. A portfolio with a beta of 1.2 would be expected to increase 12% if the relevant index increased 10% before considering the impact of non-market factors such as industry and specific company developments. As such, beta does not explain all of the risk in a stock or portfolio. (see r-squared)
Blanket Coverage
Insurance coverage on certain assets. These assets are placed in categories and covered in "groups" rather than individually.
Bond
A debt security issued by a corporation or government agency. Bonds represent borrowing by the issuer. The issuer pays interest in return for the use of the money. Bonds are most often issued in $1,000 increments. Normally, they have a stated maturity date at which time the face value plus the balance of any interest owed is returned to the investor. Bonds issued by corporations or the US government are generally taxable. Bonds issued by state governments or municipalities are generally exempt from tax.
Book Value
This term generally represents the value at which an asset is being carried on your records. Book value should be differentiated from market value which is the price a willing buyer would pay for the asset.
Bull Market
An extended period in which stock prices go up, usually as a result of positive economic factors.
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Callable Bond
A bond that gives the issuer the right to prepay the bond at a date or dates prior to the stated maturity.
Call Option
The right to buy a security at a specified price during a specified time period (American) or at a specified date (European).
Cash Equivalent
Items that can readily be converted to cash, such as money market fund shares.
Cash Reserves
The percentage of a portfolio' s net assets invested in "cash equivalents" - highly liquid, short-term, interest-bearing investments.
Charitable Trust
A trust having a charitable organization as a beneficiary.
Churn
Excessive trading in clients' accounts to generate commissions for stockbrokers.
Common Trust Fund
A pooled investment vehicle, similar to mutual funds, for the benefit of banks or trust company' s trust clients.
Contributions
Transfers of cash or assets to charitable organizations. Contributions can take the form of cash or security transactions. Contributions are tax deductible.
Corporate Fiduciary
An institution which acts for the benefit of another. One example is a bank acting as trustee.
Corpus
This term is used interchangeably with "principal" as a trust term. It represents the assets (real estate, securities, personal property, etc.) held in a trust.
Cost
In asset transactions, this represents the original price paid for the asset plus the price paid for any additions or improvements.
Coupon
Interest rate the issuer promises to pay over lifetime of debt security (generally associated with bonds).
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Derivatives
A primitive security is an instrument such as a stock or bond for which payments depend only on the financial status of its issuer. A derivative security is created from the set of primitive securities to yield returns that depend on factors beyond the characteristics of the issuer and that may be related to the prices of other assets.
Devise
To give or bequeath.
Discretionary Spending
Cash outflows or expenses for which one does not have control. Such expenses can include vacations, home furnishings, clothing.
Dividends
A distribution of cash or of securities made at the discretion of the board of directors to the equity shareholders of a corporation. Also, a distribution of cash from net income made by a regulated investment company.
Dow Jones Industrial Average
A measure of stock market prices based on the performance of thirty leading manufacturing companies listed on the New York Stock Exchange.
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Earnings Growth Rate
The average annual rate of growth in earnings over the past five years for the stocks now in a portfolio.
Earned Income
Includes wages, salaries, tips and other compensation and an individual's net earnings from self-employment. In addition, earned income includes certain compensation that is excluded from gross income, such as disability income.
Emerging Markets
A subset of International markets. Refers to countries with developing growth economies versus mature, developed countries. Some examples include: Argentina, Brazil, Czech Republic, India, Indonesia, Israel, Mexico, Panama, the Philippines, Portugal, Russia, South Korea, Taiwan, and Thailand.
Equities
This generic term includes securities that represent an "owner" relationship with a business, rather than a "creditor" relationship. These include common and preferred stocks and partnership interests, but not bonds. They can be issued by US corporations as well as foreign or international corporations.
Escrow
Assets placed with an independent third party to insure that all parties to a contract fulfill its term.
Excess Liability
This insurance policy covers you for damages in excess of the primary liability limit that a covered person is legally obligated to pay for personal injury or property damage.
Expenditures
Disbursements of cash for expenses, asset purchases, or the reduction of liabilities.
Expenses
Expenditures on items or services that are consumed during the period.
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Fiduciary
A person in a position of trust or confidence. The fiduciary is bound by a duty to act in good faith. Example: trustees, executors, administrator guardians, custodians, and agents under a durable power of attorney.
Five-Year Earnings Growth
A measure of the trailing five-year annualized earnings-growth record of the stocks in the portfolio.
Fixed Income Securities
This term is often used interchangeably with "bonds." The securities are listed by name, the maturity date (which tells you when the obligation will be paid by the issuing agency or corporation) and the rate of interest to be paid on the face amount of the bond shown as a percent.
Five-Year Earnings Growth
A measure of the trailing five-year annualized earnings-growth record of the stocks in the portfolio.
Future Interest
A property interest which cannot be currently possessed, used, or enjoyed.
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Hedge
An offsetting securities position that limits loss.
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Income
Excess of revenues over expenses for a specific period of time (usually a month, quarter, or year).
Index
A statistical yardstick that measures a whole market by using a representative selection of stocks (the Dow Jones Industrial Average, S&P 500 Stock Index) or bonds (the Shearson Lehman Bond Index).
Inside Information
Material information that (1) would influence the purchase or sale of a company' s security and (2) has not been publicized in a widely used medium.
Interest
Any right in property.
International Markets
Refers to all other country markets, excluding the United States (note that the term "global" refers to all country markets, including United States).
Investment Advisor
A person or organization who sells investment advice for a fee.
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Junk Bonds
Industry expression for bonds with a credit rating of BB or lower. Such bonds have speculative overtones.
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Lehman Brothers Government Corporate Bond Index
Composed of all bonds that are investment grade (rated Baa or higher by Moody' s; or BBB or higher by S&P, if not rated by Moody' s). Issues must have at least one year to maturity. Total return comprises price appreciation/depreciation and income as a percentage of the original investment.
Lehman Brothers Municipal Bond Index
Composed of approximately 33,000 investment grade tax-exempt bonds classified into four main sectors: 27% general obligation, 37% insured, 29% revenue, and 7% prerefunded/ETM.
Liabilities
Debts that you owe. Any claim for money against your assets.
Life Insurance Trust
A trust that will receive or has received the proceeds of a person's life insurance policy as its beneficiary.
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Market Cap
The market capitalization of a strategy equals the market price multiplied by the number of outstanding shares.
Market Timing
An investment strategy that attempts to switch in and out of securities or between types of funds in order to benefit from various economic and technical indicators that are thought to presage market moves.
Market Value
Price at which a buyer and seller are willing to exchange an asset. Market value is based on the best information available and the competitive forces of supply and demand in a free and open marketplace.
MSCI ACW ex-US Index
Morgan Stanley Capital International All Country World ex-US Index, encompassing both developed and emerging countries on a market cap weighted basis.
Morgan Stanley Capital International Europe, Australia, Far East Index (MSCI EAFE)
An arithmetic, market value-weighted average of the performance of over 900 securities listed on the stock exchanges of the following countries in Europe, Australia, and the Far East: Australia, Austria, Belgium, Denmark, Finland, France, Hong Kong, Ireland, Italy, Japan, Malaysia, Netherlands, New Zealand.
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NASDAQ (National Association of Securities Dealers Automated Quotations)
One of three main stock exchanges in the US. (The New York Stock Exchange and Over-the-Counter are the other two.) Unlike the NYSE, Nasdaq is an electronically connected trading network that has no single physical location. Approximately 5,000 of the most actively traded stocks trade on Nasdaq.
Net Income
All ordinary income and capital gains net of income taxes. With respect to a trust, the ordinary income of the trust after the payment of income expenses.
Net Worth
The dollar value by which assets exceed liabilities.
New York Stock Exchange (NYSE)
The marketplace for large, established companies; also called "the Big Board."
NMF
(No Meaningful Figure) Used when the figure available is not relevant for the datapoint in question.
Nondiscretionary Spending
Cash outflows or expenses for which one does not have control. Such expenses include: real estate taxes, income taxes, mortgage payments, insurance.
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Ordinary Income
The difference between your normal, recurring income (earning income, portfolio, trust, etc.) and your fixed and controllable expenses. It excludes capital gains and losses, acquisition or disposition of assets and any loan activity or extraordinary items. Positive ordinary income gives a general indication of living within one' s means. Conversely, an Ordinary Loss is indicative of spending in excess of available income resulting in the diminution of principal assets.
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Per Capita
A trust distribution made equally among all of a trust's eligible beneficiaries, according to the number of individuals.
Portfolio
The total holdings of securities that an individual can invest.
Price/Book Ratio
The share price of a stock divided by its net worth, or book value, per share. For a portfolio, the weighted average price/book ratio of the stocks it holds.
Price/Earnings Ratio
The ratio of a stock's current price to its per-share earnings over the past year. P/E is an indicator of market expectations about corporate prospects; the higher the P/E, the greater the expectations for a company's future growth. For a portfolio, the weight average P/E of the stocks it holds.
Principal
As a trust term, this is used interchangeably with corpus (see "corpus").
Probate
The proving of the validity of a will.
Probate Court
A court with the power to probate wills and settle estates.
Probate Estate
Those estate assets which fall within the jurisdiction of the probate court before being transferred to another person. Life insurance proceeds, for example, are not generally part of the probate estate, nor are assets such as real estate and bank accounts which are titled in joint names and pass to the survivor by operation of law.
Put(Able) Bond
A bond that gives the holder the right to redeem the bond at a specified date or dates before the stated maturity date.
Put Option
The right to sell a security at a specified price during a specified time period (American) or at a specified date (European).
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Rate Of Return
A percentage to measure the interest on an investment plus any capital growth.
REIT
Real Estate Investment Trust. A REIT invests in real estate or loans secured by real estate, and it issues shares in such investments.
Receivable
Amounts owed to you by others.
Retirement Income Needs
The amount of income a retired individual needs each year to maintain a pre-retirement standard of living.
Retirement Period
The amount of time a person expects to live in retirement. Generally, it is expected than an individual who retires at age 65 will live 20 or more years in retirement.
Return on Equity
The rate of return generated by a company during the past year for each dollar of shareholder' s equity (net income for the year divided by the shareholder' s equity). For a portfolio, the weighted average return on equity for the companies represented in the portfolio.
Revenue
The inflow or receipt of funds that are earned during a period of time. These funds can be earned either through capital investment (interest and dividends) or through labor (wages).
R-Squared
A measure of how much of the expected fluctuation in a stock or portfolio of stocks is explained by the expected fluctuation in a specified market index or benchmark, analytically derived. In the case of a portfolio with a beta of 1.2 and an r-squared of .8, the portfolio' s expected increase of 12% if the index increases 10% explains 80% of the possible fluctuation in the portfolio' s value.
Russell 2000 Index
Consists of the smallest 2,000 companies in the Russell 3000 Index, representing approximately 10% of the Russell 3000 total market capitalization. This is the small cap index that is widely regarded in the industry as the premier measure of small cap stocks.
Russell Midcap Index
Defined as the lowest 800 companies in the Russell 1000 Index, as ranked by total market capitalization. It accurately captures the medium-sized universe of securities and represents approximately 34.9% of the Russell 1000 total market capitalization.
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Sector Diversification
The percentage of a portfolio's common stocks invested in each of the major industry classifications that compose the stock market.
Security
A generic term for various investment products like stocks, bonds, and mutual funds.
Securities Analyst
Someone who researches information about stocks and bonds and evaluates whether or not they would be good investments.
Standard & Poor's 500 (S&P 500)
A measurement of the value movement of 500 widely held common stocks. It is considered as a measurement of average stock market performance. 400 industrial issues, and 100 other issues: 20 transportation, 40 financial, 40 public utilities.
Stocks
Financial instruments issued by corporations in exchange for money. Stocks represent individual ownership in a corporation. Ownership entitles stockholders to certain rights, primarily the right to vote on certain corporate issues and to participate in dividends if any are paid.
Successor Trustee Or Executor
An individual or institution which takes the place of a trustee or executor who can no longer hold office.
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Testator
A person who makes or has made a Will.
Testamentary Trust
A trust established in a Will which begins after the testator' s death.
Total Return
The total change in value of an investment over a given period (usually one year) that results from both income (interest, dividends) and capital appreciation (change in fair market value from the purchase price).
Trade
To buy and sell stocks and bonds. A "trade" refers to the exchange that takes place when one person agrees to buy or sell a security from or to another person. ("Settlement" occurs when the money is actually paid or received.)
Trust
A legal relationship where a property is transferred to and managed by another person or institution for the benefit of a third person (or group).
Trust Agreement
The document which creates a trust and establishes the rules which control the trust' s management.
Trustee
The person or institution entrusted with the duty of managing property placed in the trust. A "co-trustee" serves as trustee with another. A "contingent trustee" becomes trustee upon the occurrence of a specified future event.
Turnover Rate
Indicates trading activity during the past year. Portfolios with high turnover rates incur higher transaction costs and are more likely to realize and distribute capital gains taxable to investors.
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Weighting
Relative importance of items that are combined. For example, stocks included in indices may be equally weighted or weighted according to value.
Will
A legally executed document which explains how and to whom a person would like his or her probate property distributed after death.
Wilshire 5000 Equity Index
Consists of nearly 7,000 common equity securities, covering all stocks in the US for which daily pricing is available. Both a value-weighted total return index and an equal-weighted total return index are computed.
Wrap Account
An investment management account at a brokerage firm whereby the investor pays a flat fee, typically 3%, which is all-inclusive, as opposed to paying a commission on individual transactions.
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Yield
A snapshot of a portfolio' s income from interest and dividends. The yield, expressed as a percentage of a portfolio' s net asset value, is based on income earned by the portfolio over the past 30 days and is annualized, or projected forward for the coming year.
Yield to Maturity
The rate of return an investor would receive if the bonds in a portfolio were held to their maturity dates.
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