Glossary: Savings & Investing

401(k) plan A tax-deferred investment and savings plan offered by an employer that serves as a personal retirement fund for employees.

Appreciation An increase in the value or price.

Blue chips The high-quality stocks of major corporations with long records of uninterrupted earnings and dividends, capable management, and good growth prospects.

Bonds An I.O.U. for money you lend to the issuer of the bond. Issuer promises to pay the holder a specified amount of interest over a specific time period, with principal to be repaid on the maturity date.

Broker An agent who executes buy and sell orders for securities or commodities for a fee.

Capital gain (loss) Profit (loss) from the sale of securities or other capital assets.

Certificate of deposit (CD) Short-term debt security with a maturity from a few weeks to several years. Interest rates are established by market demand and competition. A type of savings account.

Commission A fee an investor pays a broker for buying or selling securities.

Common stock A kind of ownership in a corporation that entitles the investor to share any profits remaining after all other obligations have been met.

Compound interest Interest credited daily, monthly, quarterly, semiannually, or annually on both principal and previously credited interest.

Diversification The distribution of investments among several companies to lessen the risk of loss.

Dividend A share of profits paid to a stockholder.

Emerging market A stock or bond market in an economically developing country. Emerging markets are extremely volatile, but they offer the potential to share in the early stages of a country’s economic growth.

Federal Deposit Insurance Corp. (FDIC) A federal chartered corporation that insures bank deposits up to $100,000.

Growth stock The stock of a corporation whose sales and earnings are expanding faster then the general economy.

Individual development account (IDA) A type of savings account, offered in some communities, for people whose income is below a certain level.

Individual retirement account (IRA) A retirement plan, offered by banks, brokerage firms, and insurance companies, to which individuals can contribute each year on a tax-deferred basis.

Interest The return made on an investment, usually expressed as an annual percentage. Also refers to the fee lenders charge borrowers for the use of loaned funds.

Investing The act of using money to make more money.

Investor An organization, corporation, individual, or other entity that acquires an ownership position in an investment, assuming risk of loss in exchange for anticipated returns.

Junk bonds Below investment-grade bonds that provide high yields with high risk.

Keogh plan A tax-deferred retirement plan for the self-employed.

Liquidity Ability of an asset to be converted into cash quickly and without significant loss of value.

Load The fee a brokerage firm charges an investor for handling transactions.

Management fee The fee paid to a company for managing an investment portfolio.

Market risk The risk that an overall decline in the stock market will have a negative impact on the securities you own. Although the companies in which you have invested may be doing well, if there is a general decline in stock prices your shares may decline in value anyway.

Maturity The time when a note, bond, or other investment option comes due for payment to investors.

Money market account Federally insured accounts (with financial institutions) that pay rates established by the bank upon money-market yields.

Mutual fund A pool of money managed by an investment company.

Par value The nominal, or face, value of a stock or bond, expressed as a specific amount on the security.

Pension plan A retirement plan established by a corporation or organization to provide income for its employees when they retire.

Portfolio
An individual’s total investment holdings.

Principal The unpaid balance on a loan, not including interest; the amount of money invested.

Return The profit made on an investment.

Risk The measurable possibility of loss on an investment. There is risk involved if the outcome of an investment is uncertain at the time the investment is made. Although the outcome is uncertain, it is measurable.

Risk tolerance An investor’s ability to withstand declines in the value of his/her portfolio, financially and emotionally.

S&P 500 The Standard & Poor’s 500 is an index made up of 500 blue chip stocks. The index is commonly used to measure stock market performance.

Savings account A service depository institutions offer whereby people can deposit their money for future use and earn interest.

Stock Represents ownership in a company. The value of a stock will fluctuate with the company's performance and the stock market in general.

Stockholder A person who owns stock in a company and is eligible to share in profits and losses; same as shareholder.

Tax-deferred Phrase referring to money that is not subject to income tax until it is withdrawn from an account, such as an individual retirement account or a 401(k) account.

Treasuries Negotiable debt obligations issued by the U.S. government at various schedules and maturities. (See “Treasury bills,” “Treasury bonds,” “Treasury notes.”)

Treasury bill Short-term U.S. government securities with a maturity of one year or less.

Treasury bond Long-term U.S. government securities with a maturity of more than seven years and pays interest semiannually.

Treasury note Medium-term U.S. government securities with a maturity of one to ten years.

U.S. savings bond A nontransferable, registered bond issued by the U.S. government in denominations of $50 to $10,000.