A 401(k) plan is a retirement savings plan sponsored by an employer. It allows employees to save and invest a portion of their paycheck before taxes are taken out.
Securities that have been actively traded on a particular stock exchange during a particular period. Active stocks are characterized by high trading volumes and frequent price movements, which make them attractive for traders looking for opportunities in market trends.
A company linked in some sense to another company, often for mutual business benefit including shared resources or collaborative efforts.
A measure of the expected return on a particular share compared to the expected return on shares with a similar beta coefficient, identifying the specific risk associated with a share as opposed to the systematic risk associated with securities of the same class.
The amount of one, often referred to as the 'compound amount of one', is a financial metric used to determine the future value of a single sum of money invested at a particular interest rate over a specified period.
The amount of one per period refers to the compound amount that accumulates when one unit of currency is invested at the end of each period for a certain number of periods at a specific interest rate. This concept is critical in understanding the future value of annuities in finance.
An application form is a document issued by a newly floated company, accompanied by its prospectus, that members of the public use to apply for shares in the company.
An 'Approved List' refers to a specific selection of investments that a mutual fund or other financial institution is authorized to invest in. It can be statutory, especially when fiduciary responsibilities are involved.
Asking price refers to the initial price at which an investment or property is offered for sale. It is a key term in real estate, finance, and investments, marking the starting point for negotiations.
Asset allocation is a strategic approach involving the distribution of investments among various asset classes to optimize returns while minimizing risk. Asset proportions can be adjusted based on market conditions.
An Asset-Backed Fund involves investing in tangible or corporate assets, such as property or shares, providing potential growth aligned with inflation, in contrast to traditional bank savings.
An Asset-Backed Medium-Term Note (ABMTN) is a type of debt security that is secured by a pool of assets and typically has a maturity period ranging from one to ten years.
In the context of investments, 'at risk' refers to being exposed to the danger of a financial loss. Specifically, for investors in a limited partnership, they can claim tax deductions only if they can demonstrate a possibility of losing their invested capital.
At-risk rules are tax laws designed to limit the amount of tax losses an investor can claim from certain industries, including oil and gas, movie production, farming, and real estate. These rules ensure that losses are deductible only to the extent of money the equity investor stands to lose.
Auction Market Preferred Stock (AMPS) refers to a type of preferred stock in which the dividend rate is reset at periodic intervals through a Dutch auction process, allowing for competitive bidding and market-based pricing.
In the USA, B shares are a category of less important ordinary shares that are typically distinguished from A shares by their limited voting power.
A blue-chip stock represents a national company renowned for its robust profit growth, consistent dividend payments, quality management, and top-tier products and services. The term 'blue-chip' is derived from the color of the most valuable gambling tokens.
The Borrowing Power of Securities refers to the ability of a client to borrow funds from a financial institution, using the purchased securities as collateral for the loan.
An investor who seeks to purchase securities, commodities, or other assets that are at their lowest market prices and are expected to rise in value.
Term used by Marxist economists to denote the social class that owns property and financial assets and thus derives income from investments. Also may be used to refer to the middle and upper classes and the prevailing social values of mainstream society.
A bucket shop is a derogatory term for a brokerage firm or similar financial entity known for questionable practices and typically lacking membership in established trade organizations.
A bulldog bond is an unsecured or secured bond issued in the UK domestic market by a non-UK borrower, which helps diversify investor portfolios and provides borrower access to the UK's capital markets.
A callable security can be redeemed by the issuer before its scheduled maturity date, usually triggering a necessity for extra payment to the holder, identified as a call premium.
A capital asset is property of any type held by an individual or business, excluding inventory and certain other types of property. Capital assets can include buildings, land, equipment, vehicles, stocks, and bonds.
A capital fund is a financing source specifically allocated for long-term initiatives, large projects, or investments, often used by non-profit organizations, governments, or businesses to support development and growth initiatives.
Capital gain distributions refer to payments made by mutual funds or corporations to their investors, representing the gains earned from the sale of securities or liquidated assets. This distribution retains its character as capital gains when passed on to investors.
Capital gains refer to the profit realized from the sale of assets or investments, which exceeds the purchase price. They can apply to stocks, bonds, real estate, and other types of investments.
Capital Gains Tax (CGT) is a tax levied on the profit from the sale of assets or investments. The tax applies to the difference between the sale price and the original purchase price or basis of the asset.
Capital widening in macroeconomics refers to the process of increasing an economy's capital stock to enhance production levels.
Short-term, highly liquid investments that are capable of being converted into known amounts of cash without notice, typically maturing within three months when acquired.
Cash value refers to the amount of money a policyholder is entitled to receive upon the cancellation of a life insurance policy or the amount available for loans and withdrawals before the policy matures or is cashed out.
Chartered Financial Consultant (ChFC) is a professional designation awarded by The American College in Bryn Mawr, Pennsylvania, recognizing individuals for their expertise and proficiency in financial planning.
Professional designation conferred by The American College, signifying expertise in insurance planning, investments, taxation, and related areas.
The term 'class' has versatile meanings across different fields such as education, finance, and law. It commonly refers to a group sharing common characteristics, whether in a school, investment category, or legal context.
A closed fund is a type of mutual fund that has stopped issuing shares because it has become too large. This typically occurs when the fund manager believes that accepting additional investments could hinder the fund's performance.
Closed-End Mutual Funds are investment companies that operate with a limited number of shares outstanding. Unlike open-end mutual funds, which create new shares to meet investor demand, closed-end funds have a fixed number at inception.
An in-depth definition and overview of Commercial Banks, their functions, examples, frequently asked questions, related terms, resources for further reading, and a fundamental quiz.
The conversion ratio is a relationship that determines how many shares of common stock will be received in exchange for each convertible bond or preferred share when the conversion takes place.
Convertible securities can be crucial financial instruments for both investors and companies, offering the potential for conversion into common stock under specific conditions.
Convertibles are corporate securities, typically preferred shares or bonds, that are exchangeable for a set number of another form, commonly common shares, at a preset price.
Corporate Venturing Scheme (CVS) is an initiative where large corporations invest in small start-ups or emerging firms. This strategy helps established companies gain innovative capabilities while providing financial and strategic support to the emerging enterprises.
The Cost Method is an accounting technique used by a parent company for investments in subsidiary companies, particularly when ownership is less than 20% of the outstanding voting common stock.
The term 'cover' has multiple meanings in finance and corporate terms, commonly associated with buying back shorted positions, meeting fixed financial obligations, and the net-asset value supporting a security.
A Coverdell Education Savings Account (ESA) is a type of Individual Retirement Account (IRA) designed to help parents save for their child's education expenses. These accounts allow for tax-free growth and withdrawals for qualified education expenses.
Cyclical stocks are equities that tend to fluctuate significantly with the economic cycle, experiencing high volatility with economic upturns and downturns.
The date on which a corporation uses its list of stockholders to mail a dividend check. It is usually two days after the ex-dividend date. Also called record date.
A capital reserve created to ensure that funds are available for the redemption of debentures at maturity, limiting profits available for distribution but not providing actual redemption funds directly.
Interest that has not been paid on time. Implies a more serious state of delay than past-due or delinquent.
A deposit is a sum of money paid upfront for various purposes, such as reserving a purchase, saving in a bank, or as a security in trading.
The total interest paid or earned in a year, expressed as a percentage of the principal amount at the beginning of the year. The Effective Annual Rate provides a clear picture of the actual annual cost or earnings, considering compounding periods during the year.
Effective Yield is a measure of the actual return earned on an investment, taking into account the effects of compounding interest.
Equity accounting refers to a method of accounting whereby a company reports a proportionate share of the undistributed profits and net assets of another company in which it holds a share of the equity.
The equity method is an accounting technique used to record investments in associated undertakings, reflecting the investor's share of the investee's net assets and performance.
A currency deposited in a bank outside its country of issue, providing a cheap and convenient form of liquidity for international trade and investment.
The Face Amount of a Bond represents the nominal or principal amount that the issuer agrees to pay the bondholder at maturity.
A financial asset is either cash, a contractual right to receive cash, the right to exchange a financial instrument with another entity under potentially favourable terms, or an equity instrument of another entity.
Financial assets include stocks, bonds, rights, certificates, bank balances, and other securities, distinguishing themselves from tangible, physical assets like real property.
A financial plan is a comprehensive strategy designed to help individuals or businesses achieve specific financial goals, both short and long-term. Financial planning covers aspects such as budgeting, investments, savings, taxes, and retirement planning.
A financial planner is a professional who analyzes personal financial circumstances and prepares a program to meet financial needs and objectives, equipped with knowledge in several domains including estate planning, retirement planning, and investments.
A financial pyramid is a risk structure many investors aim for, distributing their investments among low-, medium-, and high-risk vehicles. It is designed to minimize risk while maximizing potential returns.
Financing involves the act of providing funds for business activities, making purchases, or investing. It enables companies to meet their objectives through various financial instruments like loans, investment, shares, or bonds.
Fixed-income refers to a type of investment or income stream where payments are received on a regular schedule and are typically not adjusted for inflation. Common examples include most bonds, certain annuities, and some pension funds.
Fixed-interest securities provide defined interest payments and are considered lower-risk investments. Examples include gilt-edged securities, bonds, preference shares, and debentures.
Floating securities refer to securities that are actively traded or outstanding in the market, often bought for quick profits or persistently remaining unsold after issuance.
Flow of funds in economics refers to the way in which capital moves across various sectors of the economy, transferring from savings surplus units to savings deficit units through financial intermediaries.
Future Worth, also known as the Future Value (FV), refers to the amount of money that an investment made today will grow to at a specific point in the future when interest is compounded over time.
A power, introduced by the Trustee Act 2000, that allows trustees to make any kind of investment that they could make if they were absolutely entitled to the assets of the trust fund. Previously, trustees were only permitted to make certain authorized investments. There are still some restrictions on investments in land.
A Glamor Stock is a type of stock that has a wide public and institutional following, often due to consistently rising sales and earnings over a long period. These stocks tend to outperform market averages during bull markets.
A grantor is an entity, often an individual or trustee, that transfers, or 'grants,' assets or rights to another party; in the context of investments and law.
The gross redemption yield, also known as the effective yield or yield to maturity (YTM), represents the internal rate of return of a bond bought at a specified price and held until its maturity, excluding any taxes payable on the interest and the capital repayments.
Half-life in finance refers to the point in time at which half the principal has been repaid in a mortgage-backed security, including amortization and retirements.
Highly leveraged situations in business or investments involve financing to a large degree using borrowed money, which raises the stakes in terms of financial risk and the potential for both gains and losses.
A holding company is an entity that owns other companies' outstanding stock. It typically doesn't produce goods or services itself, instead, its purpose is to own shares of other companies to form a corporate group.
An independent financial adviser (IFA) is a person or firm licensed under the Financial Services Act to provide unbiased advice on a range of financial products, including pensions, investments, and life assurance. They are distinguished by their lack of commitment to any particular financial institution, ensuring they offer 'best advice' from the entire market.
An indicative quote is a price provided to a client as a guide to current market prices. It is not a firm offer to buy or sell at the quoted price.
A tax-advantaged savings account available in the UK that allows individuals to save or invest a certain amount per year without paying personal income tax or capital gains tax on the earnings.
Investment Management involves the selection and overseeing of various financial assets to meet specified investment goals for the benefit of investors.
A gold bullion coin minted by the Republic of South Africa containing one troy ounce of gold. The Krugerrand is frequently traded and widely recognized.
A 'lemon' refers to a product or investment that performs poorly and fails to meet expectations. This term is commonly used to describe defective cars and underperforming stocks. Lemon laws in several states provide consumers with legal recourse for their underwhelming purchases.
A liquid instrument refers to a negotiable instrument that the purchaser can sell or trade before its maturity date, offering flexibility and quick access to funds.
Marketability refers to the speed and ease with which a particular product or investment may be bought and sold. While it is often used interchangeably with liquidity, liquidity specifically implies the preservation of value when a security is bought or sold.
A millionaire is an individual whose net worth exceeds $1 million, typically calculated by totaling their assets and subtracting liabilities. This status often signifies significant financial achievement and can be attained through various means such as inheritance, business success, investments, or a combination of these.
An individual whose overall assets exceed $1 million but are not liquid cash. These assets could be in the form of securities, real estate, or other investments.
A multi-tied adviser is a type of financial advisor who represents several financial institutions and can offer products from a limited range of providers.
Negative leverage, also referred to as reverse leverage, occurs when the cost of borrowing exceeds the returns generated from investments. This situation creates a net loss for the investor, contrasting with positive leverage where borrowed funds generate higher returns.
Nominal value refers to the face value of a security as stated by the issuer, often used interchangeably with 'par value.' It represents the value printed on the instrument, such as a bond or share certificate.
Notes to the accounts, also known as notes to financial statements, provide detailed information and explanations that support and complement a company's financial statements. These notes help users understand and interpret the financial data and the company's overall performance and financial health.
An invitation to the general public to purchase the stock of a company through an intermediary, such as an issuing house or merchant bank. It is one of the most frequently used means of corporate flotation.
The price at which a security is offered for sale by a market maker, and the price at which an institution sells units in a unit trust.
Open interest represents the total number of outstanding contracts in a commodity or options market, which have not yet been exercised, closed out, or allowed to expire.
An Open-End Investment Company (commonly known as a mutual fund) is an investment vehicle that continually issues new shares and allows investors to redeem shares at any time.
An order refers to an instruction or command to perform a particular action, applicable across various contexts such as commercial law, investments, law, and trade. It signifies a formal directive requiring compliance according to defined terms.
Original maturity refers to the interval between the issue date and the maturity date of a bond, distinct from current maturity, which measures the remaining time from the present to the maturity date.
Unrealized gain (loss) in an investment or portfolio, calculated by comparing the current market price to the investor's cost.
An in-depth look into Passive Activity Loss (PAL), including definition, examples, frequently asked questions, related terms, online resources, and suggested books for further studies.
Passive investment income refers to the earnings derived from investments in which the individual or entity does not actively participate. This includes royalties, rents, dividends, interest, annuities, and gains from the sale of stocks and securities.
A passive investor is an individual or entity that invests money but does not actively manage the business or property in which they invest. They typically seek long-term investment returns with minimal day-to-day involvement.
A Pathfinder Prospectus is an outline document designed to test market reaction to the initial public offering (IPO) or flotation of a new company.
A perpetuity is a financial instrument that provides continuous payments indefinitely. It has no end date, meaning it theoretically continues forever. The Rule Against Perpetuities restricts the length of time properties can be held or devised to lineage.
Financial planning for individuals, which involves analyzing their current financial position, predicting their short-term and long-term needs, and recommending a financial strategy. This may involve advice on pensions, the provision of independent school fees, mortgages, life assurance, and investments.
