Investing terms


12b-1 Fees

Fees paid out of fund assets to cover the costs of marketing and selling fund shares. “Distribution fees” include fees to compensate brokers and others who sell fund shares, and to pay for advertising, and printing and mailing prospectuses to new investors. “Shareholder Service Fees” are fees that cover the cost of responding to investor inquiries and providing investors with information.

401(k) Plan

An employer-sponsored retirement savings plan that gives employees a choice of investment options, typically mutual funds. Employees who participate in a traditional 401(k) plan have a portion of their pre-tax salary invested directly in the option or options they choose. These contributions and any earnings from the 401(k) investments are not taxed until they are withdrawn./

403(B) Plan

A type of tax-deferred retirement savings program available to employees of public schools, certain non-profits, and some members of the clergy.

529 College Savings Plan

A tax-advantaged way to save for future college expenses, such as tuition and housing.


Public companies file Form 8-K, known as the “current report,” to the SEC to announce major events that shareholders should know about, including bankruptcy proceedings, a change in corporate leadership (such as a new director or officer) and preliminary earnings announcements.

Account Fee

A fee that some funds separately impose on investors for account maintenance. For example, individuals with accounts below a specified dollar amount may have to pay an account fee.

Accrued Interest

Interest earned on a security but not yet paid to the investor.

Advance Fee Fraud

Advance fee frauds ask for payment up front in order for the deal to go through. The advance payment may be described as a fee, tax, commission, or incidental expense that will be repaid later. Some advance fee schemes target investors who already purchased underperforming securities and offer to sell those securities if an “advance fee” is paid.

Affinity Fraud

Affinity fraud refers to investment scams that prey upon members of identifiable groups, such as religious or ethnic communities, the elderly, or professional groups. The fraudsters who promote affinity scams frequently are – or pretend to be – members of the group. They often enlist respected community or religious leaders from within the group to spread the word about the scheme, by convincing those people that a fraudulent investment is legitimate and worthwhile. Many times, those leaders become unwitting victims of the fraudster’s ruse.

Many affinity scams involve “Ponzi” or pyramid schemes, where new investor money is used to make payments to earlier investors to give the false illusion that the investment is successful. This ploy is used to trick new investors to invest in the scheme and to lull existing investors into believing their investments are safe and secure. In reality, the fraudster almost always steals investor money for personal use. Both types of schemes depend on an unending supply of new investors – when the inevitable occurs, and the supply of investors dries up, the whole scheme collapses and investors discover that most or all of their money is gone.

After-hours Trading

Stock trading outside the regular hours of major exchanges such as the New York Stock Exchange and the Nasdaq Stock Market. Regular trading hours are 9:30 a.m. to 4:00 p.m. Eastern Time.

Annual Meeting

Once-a-year meetings where the chief executive officer reports on the year’s results to shareholders. At this meeting, shareholders vote to elect the board of directors and on other corporate business.

Annual Report (10K)

A report filed to the SEC by public companies that includes the company’s history, audited financial statements, a discussion of products and services, a review of the organization and its operations, and a discussion of the company’s major markets.

Annual Return

An annual rate of return is the profit or loss on an investment over a one-year period. There are many ways of calculating the annual rate of return. If the rate of return is calculated on a monthly basis, multiplying it by 12 expresses an annual rate of return. This is often called the annual percentage rate (A.P.R.).


An annuity is a contract between you and an insurance company, under which you make a lump-sum payment or series of payments. In return, the insurer agrees to make periodic payments to you beginning immediately or at some future date.

Ask Price

In the over-the-counter market, the term “ask” refers to the lowest price at which a market maker will sell a specific number of shares.


Any tangible or intangible item that has value in an exchange. A bank account, a home, or shares of stock are all examples of assets.

Asset Allocation

Asset allocation involves dividing your investments among different categories, such as stocks, bonds, and cash.

Asset Classes

Investments that have similar characteristics. The three main asset classes are stocks, bonds, and cash.

Back-end Load

A sales charge, also known as a “deferred sales charge,” investors pay when they redeem (sell) mutual fund shares. Funds generally use these to compensate brokers.

Basis Point

One one-hundredth (.01) of a percentage point. For example, eight percent is equal to 800 basis points.

Bear Market

A time when stock prices are declining and market sentiment is pessimistic. Generally, a bear market occurs when a broad market index falls by 20% or more over at least a two-month period.

Beneficial Owner

A beneficial owner holds stocks indirectly, for example, through a bank or broker-dealer. Beneficial owners are sometimes said to be holding shares in “street name.”

Bid Price

The highest price a market maker will pay to buy a specific number of shares.

Board of Directors

A group of people elected by shareholders to oversee the management of a corporation.


A debt security, similar to an IOU. When you buy a bond, you are lending money to the issuer. In return for the loan, the issuer promises to pay you a specified rate of interest during the life of the bond and to repay the principal when it “matures,” or comes due.

Bond Swap

The investor sells one bond and uses the proceeds to buy another bond, often at the same price.

Bonus Credits

Some annuities promise a bonus on your contract value, typically 1% to 5% of your purchase price. Always check the fees and expenses associated with this feature, as they can outweigh the benefit of the bonus.


An individual who acts as an intermediary between a buyer and seller, usually charging a commission to execute trades. Brokers are required to seek the best execution of trades they make for clients, and if they recommend investments to clients, those investments must be suitable for the client.

Broker Vote

For certain routine matters to be voted upon at shareholder meetings, if you don’t vote by proxy or at the meeting in person, brokers may vote on your behalf at their discretion. These votes may also be called uninstructed or discretionary broker votes. There are stock exchange rules regarding which routine matters brokers may vote upon.

Bull Market

A time when stock prices are rising and market sentiment is optimistic. Generally, a bull market occurs when there is a rise of 20% or more in a broad market index over at least a two-month period.

Buying Long

Purchasing or owning shares of stock, with the expectation that the stock will rise in value.

Callable Bonds (or Redeemable Bonds)

Bonds that can be redeemed or paid off by the issuer prior to the bond’s maturity date.

Callable CDs

These give the issuing bank the right to terminate – or “call” – the CD after a set period of time, but they do not give the CD holder the same right. If interest rates fall, the issuing bank might call the CD.

Capital Gain

The profit that comes when an investment is sold for more than the price the investor paid for it.


Money that can be used to pay for goods or services.

CD Call Period

Don’t assume that a “federally insured one-year non-callable” CD matures in one year. It doesn’t. These words mean the bank cannot redeem the CD during the first year. A “one-year non-callable” CD may still have a maturity date that is years in the future.


Different types of shares issued by a single fund, often referred to as Class A shares, Class B shares, and so on. Each class of a fund holds identical investments and shares the same investment objectives and policies. But each class has different shareholder services with different fees and expenses, and therefore, each class will have different performance results.

Closed-end Fund

A type of investment company that does not continuously offer its shares for sale but instead sells a fixed number of shares at one time. After its initial public offering, the fund typically trades on a market, such as the New York Stock Exchange or the NASDAQ Stock Market. Legally, they are known as a “closed-end company.”

College Savings Plan

A type of 529 plan that offers a choice of investment options, such as mutual funds, to save for future college costs. Many of these investments automatically shift to more conservative assets as the student gets closer to college age.


You will likely pay a commission when you buy or sell a stock through a financial professional.  The commission compensates the financial professional and his or her firm when it is acting as agent for you in your securities transaction.

Committee on Uniform Securities Identification Procedures (CUSIP)

The Committee on Uniform Securities Identification Procedures (CUSIP) number identifies most securities, including U.S. government and municipal bonds. CUSIP numbers are unique nine-character alphanumeric identifiers assigned to each series of securities.

Compound Interest

Interest paid on principal and on accumulated interest.

Contingent Deferred Sales Load

A type of back-end load, the amount of which depends on the length of time the investor holds his or her shares. For example, a contingent deferred sales load might be 5% if an investor holds his or her shares for one year, 4% after two years, and so on until the load disappears completely.


A feature some funds offer that allows investors to automatically switch from one fund class to another, typically one with lower annual expenses, after a set period of time. The fund’s prospectus or profile will state whether the fund has a conversion feature.

Convertible Bond

A corporate bond that can be exchanged for a specific number of shares of the company’s stock, usually common stock. In most cases, the holder of the convertible bond determines whether and when a conversion occurs.

Corporate Governance

A framework which may include rules and regulations, corporate charter and bylaws, formal policies, as well as customs and other processes, that determines the leadership, organization, and direction of a company.

Corporate Reports

Reports that public companies must file with the SEC.


A feature of a bond that denotes the amount of interest due and the date that the payment will be made.

Coupon Payment

The dollar amount of interest paid to an investor. The amount is calculated by multiplying the interest of the bond by its face value.

Coupon Rate

The interest rate on a bond. It is expressed as a semi-annual rate.

Creation Unit

Large blocks of shares in an ETF, typically 50,000 shares or more.

Credit Rating Agencies

Provide their opinion on the creditworthiness of a corporate or government borrower by issuing a grade, or credit rating, on bonds issued by that borrower.

Current Yield

The ratio of the interest rate payable on a bond to the actual market price of the bond, stated as a percentage. For example, a bond with a current market price of $1,000 that pays $80 per year would have a current yield of 8%.

Day Trading

Day traders rapidly buy, sell and short-sell stocks throughout the day in the hope that the stocks continue climbing or falling in value for the seconds or minutes they hold the shares, allowing them to lock in quick profits. Day trading is extremely risky and can result in substantial financial losses in a very short period of time.


An unsecured bond backed solely by the general credit of a company.


A failure by an issuer to pay principal or interest when due, or to fulfill other obligations, such as reporting requirements.

Deferred Annuity

With a deferred annuity, you make payments to an insurance company, which will be free from taxes until you reach a particular age or a date specified in your contact.


Deferred Sales Charge

A sales charge, also known as a “Back-end Load,” investors pay when they redeem (sell) mutual fund shares. Funds generally use these to compensate brokers.


Defined Benefit Plan

Defined benefit plans also are known as pension plans. Employers sponsor defined benefit plans and promise the plan’s investments will provide you with a specified monthly benefit at retirement. The employer bears the investment risks.

Defined Contribution Plan

A retirement savings plan, such as a 401(k) plan, that does not promise a specific payment upon retirement. In these plans, the employee or the employer (or both) contribute to the employee’s individual account. The employee bears the investment risks.


Financial instruments whose performance is derived, at least in part, from the performance of an underlying asset, security or index. For example, a stock option is a derivative because its value changes in relation to the price movement of the underlying stock.


Information about a company’s financial condition and business that it makes public. Investors can use this information to make informed investment decisions about the company’s securities.


A bond sold before it matures might not sell at full par value. If it sells below par, it is selling at discount.

Discount Note

Short-term obligations issued at a discount from face value. Discount notes have no periodic interest payments; the investor receives the note’s face value at maturity. For example, a one-year, $1,000 face value discount note purchased at issue at a price of $950, would yield $50 or 5.26% ($50/$950).

Distribution Fees

Fees paid out of fund assets to cover marketing and selling fund shares. These fees may cover advertising costs, compensating brokers and others who sell fund shares, payments for printing and mailing prospectuses to new investors, and providing sales literature to prospective investors. Distribution fees sometimes are referred to as “12b-1 fees.”


Diversification is a strategy that can be neatly summed up as “Don’t put all your eggs in one basket.” The strategy involves spreading your money among various investments in the hope that if one loses money, the others will make up for those losses.


A portion of a company’s profit paid to shareholders. Public companies that pay dividends usually do so on a fixed schedule although they can issue them at any time. Unscheduled dividend payments are known as special dividends or extra dividends.

Early Withdrawal

If a CD is redeemed before it matures, you may have to pay a penalty or forgo a portion of the interest.

Earnings Per Share

A public company’s net profit divided by the number of its common shares.

Electronic Data Gathering Analysis and Retrieval (EDGAR) database

The SEC’s Electronic Data Gathering, Analysis and Retrieval database provides free public access to corporate information such as registration statements, prospectuses, and quarterly and annual reports.

Employee Retirement Income Security Act (ERISA)

The Employee Retirement Income Security Act of 1974, which is administered by the U.S. Department of Labor. ERISA does not require employers to offer a pension plan. But it does require employers who do offer them to meet certain minimum standards.

Enrollment Fee

Fees that direct-sold college savings plans may charge to join in the program.

Exchange Fee

A fee that some funds impose on shareholders if they exchange (transfer) to another fund within the same fund group.

Exchange-Traded Fund (ETF)

A type of exchange-traded investment product that must register with the SEC as either an open-end investment company (generally known as “funds”) or a unit investment trust. ETFs offer investors a way to pool their money in a fund that makes investments in stocks, bonds, or other assets and, in return, to receive an interest in that investment pool. ETF shares are traded on a national stock exchange.

Expense Ratio

The fund’s total annual operating expenses, including management fees, distribution fees, and other expenses, expressed as a percentage of average net assets.

Financial Accounting Standards Board (FASB)

The Financial Accounting Standards Board (FASB) is the accounting standard setter for purposes of the Federal Securities Laws. See GAAP.

Financial Industry Regulatory Authority (FINRA)

The Financial Industry Regulatory Authority, a self-regulatory organization for the brokerage industry.

Financial Planner

An investment professional who typically prepares financial plans for clients. The services financial planners offer can vary widely. Some financial planners assess every aspect of a client’s financial life and help the client develop a detailed strategy or financial plan. Others may only be able to recommend investments in a narrow range of products that may or may not include securities.

Financial Product

Examples of financial products include but are not limited to the following: stocks, bonds, derivatives, and currencies.

Fixed Annuity

An insurance product that promises a minimum rate of interest while your account is growing. The insurance company also guarantees that the periodic payment will be for a set amount for a fixed period, such as 20 years, or an indefinite period, such as your lifetime.

Fixed-rate Bond

A long-term bond with a set interest rate.

Floating-rate Bond (or Variable or Adjustable rate Bond)

A bond whose interest rate is adjusted periodically according to a predetermined formula; it is usually linked to an interest rate index such as LIBOR.


The lower limit for the interest rate on a floating-rate bond.

Foreign Corrupt Practices Act (FCPA)

The Foreign Corrupt Practices Act (“FCPA”) generally prohibits the bribing of foreign officials. The FCPA also requires publicly traded companies to maintain accurate books and records and to have a sys-tem of internal controls sufficient to provide reason-able assurances that transactions are executed and assets are accounted for in accordance with management’s authorization and recorded as necessary to permit the preparation of financial statements in conformity with generally accepted accounting principles (known as “GAAP”). The FCPA can apply to prohibited conduct anywhere in the world, even, in certain circumstances, where there is no U.S. territorial connection, and extends to publicly traded companies (“issuers”) and their officers, directors, employees, agents, and stockholders. Agents can include third party agents, consultants, distributors, joint-venture partners, and others.

Foreign exchange

The money/currency of other countries.

Foreign Exchange Markets

Markets that trade currencies.

Form 10-K

You can find a wealth of information in the company’s annual report on Form 10-K. Among other things, the 10-K offers a detailed picture of a company’s business, the risks it faces, and the operating and financial results for the fiscal year. Company management also discusses its perspective on the business results and what is driving them.

Form 8-K

Form 8-K provides investors with current information to enable them to make informed decisions. The types of information required to be disclosed on Form 8-K are generally considered to be “material.” That means that, in general, there is a substantial likelihood that a reasonable investor would consider the information important in making an investment decision.


A person whose goal is to con people out of their money.

Free look Period

Variable annuity contracts typically have a “free look” period of ten or more days. During this period, you are free to terminate your contract without paying any surrender charges and you will receive a refund for the amount you paid. The “free look” period is a time for you to continue to ask questions so that you understand the variable annuity and are sure that it is right for you.

Free look Period

Variable annuity contracts typically have a “free look” period of ten or more days. During this period, you are free to terminate your contract without paying any surrender charges and you will receive a refund for the amount you paid. The “free look” period is a time for you to continue to ask questions so that you understand the variable annuity and are sure that it is right for you.

Front-end Load

An upfront sales charge investors pay when they buy fund shares. It generally is used by the fund to compensate brokers. A front-end load is deducted from the purchase and reduces the amount available to buy fund shares.

Future Value

The value of an asset at a specified date in the future.

Futures contract

An agreement to buy or sell a specific quantity of a commodity or financial instrument at a specified price on a particular date in the future.

Futures Market

Markets that trade futures contracts for commodities such as gold, oil or wheat, as well as financial futures.

General Obligation Bond

A municipal bond not secured by any assets; instead it is backed by the issuer’s power to tax residents to pay bondholders.

Generally Accepted Accounting Principles (GAAP)

GAAP (Generally Accepted Accounting Principles) are accounting standards, conventions and rules. It is what companies use to measure their financial results. These results include net income as well as how companies record assets and liabilities. In the US, the SEC has the authority to establish GAAP. However, the SEC has historically allowed the private sector to establish the guidance. See The Financial Accounting Standards Board.

Good-Til-Cancelled Order

An order to buy or sell a security at a specific (limit) price that remains in effect until the order is completed or cancelled.

High-yield Bond (or Junk Bond)

Bonds that are believed to have a higher risk of default and receive low ratings by credit rating agencies, namely bonds rated Ba or below (by Moody’s) or BB or below (by S&P and Fitch). These bonds typically are issued at a higher yield (for example, a higher interest rate) than more creditworthy bonds, reflecting the perceived higher risk to investors.

High-Yield Investment Programs

High-Yield Investment Programs (HYIP) are unregistered investments typically run by unlicensed individuals – and they are often frauds. The hallmark of an HYIP scam is the promise of incredible returns at little or no risk to the investor. A HYIP website might promise annual (or even monthly, weekly, or daily!) returns of 30 or 40 percent – or more. Some of these scams may use the term “prime bank” program. If you are approached online to invest in one of these, you should exercise extreme caution – they are likely frauds.

Immediate Annuity

This annuity has no accumulation phase. Instead, you start receiving annuity payments right after you purchase the annuity.

Index Fund

A type of mutual fund whose investment objective typically is to achieve approximately the same return as a particular market index, such as the Standard & Poor’s 500 Index, the Russell 2000 Index, or the Wilshire 5000 Total Market Index.

Initial Public Offering (IPO)

An initial public offering occurs when a company first sells its shares to the public.


The price paid for borrowing money. It is expressed as a percentage rate over a period of time.

Interest rates may be fixed, meaning the rate is set and will not change, or may be variable or “floating,” meaning the rate may move higher or lower over time.

Internet Fraud

The Internet allows individuals or companies to communicate with a large audience without spending a lot of time, effort, or money. Anyone can reach tens of thousands of people by building an Internet Web site, posting a message on an online bulletin board, entering a discussion in a live “chat” room, or sending mass e-mails. It’s easy for fraudsters to make their messages look real and credible. But it’s nearly impossible for investors to tell the difference between fact and fiction.

Offering frauds come in many different forms. Generally speaking, an offering fraud involves a security of some sort that is offered to the public, where the terms of the offer are materially misrepresented. The offerings, which can be made online, may make misrepresentations about the likelihood of a return. For example, in a recent case, Securities and Exchange Commission v. Imperia Invest IBC , the fraudsters allegedly used a website to offer investors a “guaranteed return” of 1.2% per day. Other online offerings may not be fraudulent per se, but may nonetheless fail to comply with the applicable registration provisions of the federal securities laws. While the federal securities laws require the registration of solicitations or “offerings,” some offerings are exempt. Always determine if a securities offering is registered with the SEC or a state, or is otherwise exempt from registration, before investing.


To engage in any activity in which money is put at risk for the purpose of making a profit.

Investment Adviser

An investment adviser is a firm or an individual that, for compensation, engages in the business of advising others as to the value of securities or as to the advisability of investing in, purchasing, or selling securities. An investment adviser can also be a firm or individual that, for compensation and as part of a regular business, issues analyses or reports concerning securities.

Investment Company

A company that issues and invests in securities. The three types of investment companies are mutual funds, closed-end funds, and unit investment trusts.

Investment-grade Bond (or High-grade Bond)

Bonds that are believed to have a lower risk of default and receive higher ratings by the credit rating agencies, namely bonds rated Baa (by Moody’s) or BBB (by S&P and Fitch) or above. These bonds tend to be issued at lower yields than less creditworthy bonds.


The entity obligated to pay principal and interest on a bond.


An amount owed to a person or organization for borrowed funds. Loans, notes, bonds, and mortgages are forms of debt. These different forms all call for borrowers to pay back the amount they owe, typically with interest, by a specific date, which is set forth in the repayment terms.

Lifecycle Funds

A diversified mutual fund that automatically shifts towards a more conservative mix of investments as it approaches a particular year in the future, known as its “target date.” A lifecycle fund investor picks a fund with the right target date based on his or her particular investment goal. The managers of the fund then make all decisions about asset allocation, diversification, and rebalancing. Lifecycle funds also are known as target date funds.

Limit Orders

A limit order is an order to buy or sell a security at a specific price. A buy limit order can only be executed at the limit price or lower, and a sell limit order can only be executed at the limit price or higher.

Liquidity (or Marketability)

A measure of the relative ease and speed with which a security can be bought or sold in a secondary market.


The amount that investors pay when they buy (front-end load) or redeem (back-end load) shares in a mutual fund, similar to a commission. The SEC’s rules do not limit sales loads a fund may charge, but FINRA’s rules cap mutual fund sales loads at 8.5% of the purchase or sale, or at lower levels, depending on other fees and charges.

London Interbank Offered Rate (LIBOR)

The interest rates banks charge each other for short-term loans. LIBOR is frequently used as the base for resetting rates on floating-rate securities.

Lost and Stolen Securities Program

Congress directed the establishment of the Lost and Stolen Securities Program (LSSP) to curtail trafficking in lost, stolen, missing, and counterfeit securities certificates.  Rule 17f-1 under the Exchange Act governs LSSP operations.  The LSSP consists mainly of a database for securities that have been reported lost, stolen, missing, or counterfeit. The LSSP has two essential parts: “reports” and “inquiries.”  Most financial institutions (including exchanges, banks, brokers, clearing agencies, and transfer agents) are required to report any certificates that they discover to be lost, stolen, missing, or counterfeit.  These institutions also must inquire of the LSSP about any securities certificate valued at more than $10,000 that comes into their “possession or keeping.”  These financial institutions also may voluntarily report or inquire about other certificates.

Lump Sum Payment

A payment of a sum of money at one time, such as an inheritance.

Maintenance Fee

Fees that direct-sold college savings plans may charge for continued participation in the plan.

Management Fee

A fee paid out of fund assets to the fund’s investment adviser for investment portfolio management. A fund’s management fees appear under Annual Fund Operating Expenses in the fee table in the fund’s prospectus.

Margin Account

In a margin account, your brokerage firm can lend you money to buy securities, with the securities in your portfolio serving as collateral for the loan. As with any other loan, you will incur interest costs when you buy securities on margin. There are risks from purchasing securities on margin that do not come with most other types of loans. For example, if the value of your securities declines significantly, you may be subject to a “margin call.”

Margin Call

If you buy on margin and the value of your securities declines, your brokerage firm can require you to deposit cash or securities to your account immediately, or sell any of the securities in your account to cover any shortfall, without informing you in advance. The brokerage firm decides which of your securities to sell. Even if the brokerage firm notifies you that you have a certain number of days to cover the shortfall, it still may sell your securities before then. A brokerage firm may at any time change the threshold at which customers are subject to a margin call.

Market Capitalization

A measure of the size of a corporation. For publicly traded companies, market capitalization is calculated by multiplying the number of shares outstanding by the current market price per share. Companies may be considered to be large-cap, mid-cap or small-cap firms based on their market capitalization.

Market Index

A measurement of the performance of a specific “basket” of stocks considered to represent a particular market or sector of the U. S. economy. For example, the Dow Jones Industrial Average (DJIA) is an index of 30 “blue chip” stocks of U.S. companies.

Market Indices

A market index tracks the performance of a specific “basket” of stocks that represent a particular market or economic sector. U.S. examples include the Dow Jones Industrial Average, an index of 30 “blue chip” U.S. company stocks, the Standard and Poor’s 500 Index, and the Wilshire 5000 Index, which includes most publicly traded U.S. stocks.

Market Maker

A firm that stands ready to buy and sell a particular stock on a regular and continuous basis at a publicly quoted price.

Market Order

A market order is an order to buy or sell a stock at the current market price. Unless you specify otherwise, your broker will enter your order as a market order. The advantage of a market order is that as long as there are willing buyers and sellers, you are almost always guaranteed your order will be executed. The disadvantage is the price you pay when your order is executed may not be the price you expected.


When a broker-dealer sells you securities out of its inventory, the broker-dealer acts as a principal in the transaction (that is, selling to you directly the securities it holds).  When acting in a principal capacity the broker-dealer generally will be compensated by selling the security to you at a price that is higher than the market price (the difference is called a markup), or by buying the security from you at a price that is lower than the market price (the difference is called a markdown).


The combining of two or more companies into a single entity.

Microcap stock

Stock in very small companies whose market capitalization, reflecting the total value of the company’s stock, is low or “micro.” Microcap stocks tend to be low priced and trade in low volumes.

Money Markets

A market that provides trading in short-term debt.

Mortgage-backed Securities (MBS)

Mortgage-backed securities, or MBS, are bonds or notes backed by a pool of mortgages on residential or commercial properties. As the mortgage borrowers pay the principal and interest on their loans, the investors in MBS receive payments of interest and principal.

Mutual Fund

The common name for an open-end investment company. Like other types of investment companies, mutual funds pool money from many investors and invest the money in stocks, bonds, short-term money-market instruments, or other securities. Mutual funds issue redeemable shares that investors buy directly from the fund or through a broker for the fund instead of from other investors.

Net Asset Value (NAV)

The value of a fund’s assets minus its liabilities. SEC rules require funds to calculate their NAV at least once daily. To calculate the NAV per share, simply subtract the fund’s liabilities from its assets and divide the result by the number of shares outstanding.

Net Income

The profit earned by a company after all expenses and taxes have been deducted from revenue. A simple way to think about net income is it’s the price of a widget multiplied by the number of widgets sold (this result is revenue) minus the cost to make and sell the widgets, other expenses and any interest or taxes.

No-load Fund

A fund that does not charge any type of sales load. But not every type of shareholder fee is a “sales load,” and a no-load fund may charge fees that are not sales loads. No-load funds also charge operating expenses.

Offering Document (or Official Statement or Prospectus)

The disclosure document prepared by a bond issuer that gives detailed financial information about the issuer and the bond offering.

Municipal securities issuers must prepare an “Official Statement” before presenting the primary offering. These municipal disclosure documents provide information for investors, including the terms of the bond and financial information on the issuer. They also typically contain information regarding: the purpose of the bond; whether the issuer can redeem the bond prior to maturity; and when and how principal and interest on the bond will be repaid.

Open-end Company

The legal name for a mutual fund. An open-end company is a type of investment company.

Operating Expenses

The costs a fund incurs in running the fund, including management fees, distribution fees, and other expenses.


Options are contracts giving the purchaser the right – but not the obligation — to buy or sell a security at a fixed price within a specific period of time. Stock options are traded on a number of exchanges.

Ponzi Schemes

A Ponzi scheme is an investment fraud that pays existing investors with funds collected from new investors until the scheme collapses. Ponzi schemes are named after Charles Ponzi, who ran a postage stamp speculation scheme in the 1920s and used funds from new investors to pay fake “returns” to earlier investors. Ponzi scheme organizers often promise high returns with little or no risk, but instead of investing, they use money from new investors to pay other investors or keep it for themselves.


The combined holdings of stock, bond, commodity, real estate and other investments by an individual or institutional investor.


The amount by which the price of a bond exceeds its principal (par) amount.

Prepaid Tuition Plans

A type of 529 plan that allows you to pay for future college tuition now, at or near the current tuition rate. Some pre-paid tuition plans also allow you to pre-pay for room and board.


The unscheduled partial or complete payment of the principal amount outstanding on a loan, such as a mortgage, before it is due.

Prepayment Risk

The risk that principal repayment will occur earlier than scheduled, forcing the investor to reinvest at lower prevailing rates.

Price-earnings (P/E) Ratio

A company’s P/E ratio is a way of gauging whether the stock price is high or low compared to the past or to other companies. The ratio is calculated by dividing the current stock price by the current earnings per share. Earnings per share are calculated by dividing the earnings for the past 12 months by the number of common shares outstanding.

Primary Market

Markets in which newly issued securities are sold to investors and the issuer receives the proceeds.

Prime Bank Fraud

If someone approaches you about investing in a so-called “prime bank” program, “prime World Bank” financial instrument, or similar high-yield security, you should know that these investments do not exist. They are all scams.


The total amount of money being borrowed or lent; the initial amount of money invested.

Product Description

A summary of key information about an ETF that explains how to obtain a prospectus.


Revenue minus cost; money made on a transaction.

Promissory Notes

Promissory notes are a form of debt that companies sometimes use to raise money. They typically involve investors loaning money to a company in exchange for a fixed amount of periodic income. Although promissory notes can be appropriate investments for many individuals, some fraudsters use promissory notes to defraud investors, especially the elderly.


A document that describes the mutual fund to prospective investors. Every mutual fund provides a prospectus with information about the mutual fund’s investment objectives, risks, past performance, and expenses. You can get a prospectus from the mutual fund company’s website or by mail. A broker or other financial professional also can provide you with a copy.

Proxy Statement

A document sent to shareholders letting them know when and where a shareholders’ meeting is taking place and detailing the matters to be voted upon at the meeting.  You can attend the meeting and vote in person or cast a proxy vote.

Proxy Voting

A way for shareholders to vote for corporate directors and on other matters affecting the company without having to personally attend the meeting.

Public Company

A company that offers its securities through an offering and now has those securities traded on the open market.

Pump and Dump

“Pump-and-dump” schemes involve the touting of a company’s stock (typically small, so-called “microcap” companies) through false and misleading statements to the marketplace. These false claims could be made on social media such as Facebook and Twitter, as well as on bulletin boards and chat rooms. Pump-and-dump schemes often occur on the Internet where it is common to see messages posted that urge readers to buy a stock quickly or to sell before the price goes down, or a telemarketer will call using the same sort of pitch. Often the promoters will claim to have “inside” information about an impending development or to use an “infallible” combination of economic and stock market data to pick stocks. In reality, they may be company insiders or paid promoters who stand to gain by selling their shares after the stock price is “pumped” up by the buying frenzy they create. Once these fraudsters “dump” their shares and stop hyping the stock, the price typically falls, and investors lose their money.

Purchase Fee

A shareholder fee that some funds charge when investors buy mutual fund shares. This is not the same as, and may be in addition to, a front-end load.

Purchasing Power

The amount of goods and services that can be purchased by a given unit of currency, taking into account the effect of inflation.

Pyramid Schemes

In the classic “pyramid” scheme, participants attempt to make money solely by recruiting new participants. The hallmark of these schemes is the promise of sky-high returns in a short period of time. A pyramid scheme is closely related to a Ponzi scheme because they both involve paying longer-standing members with money from new participants, instead of actual profits from investing or selling products. Pyramid schemes collapse when the promoter cannot raise enough money from new investors to pay earlier investors.

Quarterly Reports (10Q)

Each quarter, public companies file reports to the SEC containing unaudited financial statements and information about the company’s operations in the previous three months.

Real Estate Investment Trust (REIT)

A company that owns and typically operates income producing real estate or real estate-related assets, such as office buildings, shopping malls, apartments, hotels, resorts, self-storage facilities, warehouses, and mortgages or loans.

Registered Owner

A registered owner or record holder holds stocks directly with the company, rather than in “street name.” Registration Statement — By law, public companies in the U.S. must disclose important financial information before they issue securities for sale to the public. This report, known as a registration statement, is filed with the SEC.


The total amount of money, or gross income, generated by a company from selling its goods and services. A simple way to think about revenue is it’s the price of a widget multiplied by the number of widgets sold.

Revenue Bond

A municipal bond not backed by the government’s taxing power but by revenues from a specific project or source, such as highway tolls or lease fees.


In finance, risk refers to the degree of uncertainty about the rate of return on an asset and the potential harm that could arise when financial returns are not what the investor expected. In general, as investment risks rise, investors seek higher returns to compensate them for taking on such risks.

Risk Tolerance

An investor’s ability and willingness to lose some or all of an investment in exchange for greater potential returns.

Roth 401(k) Plan

An employer-sponsored Roth 401(k) plan is similar to a traditional plan with one major exception. Contributions by employees are not tax deferred but are made with after-tax dollars. Income earned on the account from interest, dividends, or capital gains, is tax-free.

Sales Charge (or Load)

The amount that investors pay when they buy (front-end load) or redeem (back-end load) shares in a mutual fund, similar to a commission. The SEC’s rules do not limit sales loads a fund may charge, but FINRA’s rules cap mutual fund sales loads at 8.5% of the purchase or sale, or at lower levels, depending on other fees and charges.


Income that is not spent on consumption but is put aside.

Say-on-pay Vote

Required by law, most public companies must periodically (at least every three years) provide their shareholders with an advisory vote on the compensation of the most highly compensated executives. Companies are required to disclose (usually in a proxy statement [hyperlink to defined term]) how their compensation policies and decisions have taken into account the results of their most recent say-on-pay vote.

Secondary Market

Markets where existing securities are bought and sold.

Section 1035

This part of the U.S. tax code allows you to exchange an existing variable annuity contract for a new annuity contract without paying tax on the income and investment gains in your current account. But you may have to pay surrender charges on your old annuity if you are still within the surrender period.


An investment instrument such as a stock or bond.

Senior Bond

A bond that has a higher priority than another bond’s claim to the same class of assets in case of a default or bankruptcy. Settlement Date — The agreed date for the delivery of bonds and payment of funds.


An individual or entity that owns stock in a company.

Shareholder Service Fees

Fees paid to respond to inquiries from investors and provide them with information about their investments.

Short Sale

A short sale occurs when you sell stock you do not own. Investors who sell short believe the price of the stock will fall. If the price drops, you can buy the stock at the lower price and make a profit. If the price of the stock rises and you buy it back later at the higher price, you will incur a loss.

Standard & Poor’s Depositary Receipts (SPDR) Trust

An ETF designed to replicate the performance of the Standard & Poor’s 500 Index. Because of its acronym, the SPDR instrument is referred to as a “spider.”

Statement of Additional Information (SAI)

Conveys information about an open or closed-end fund that some investors find useful. Funds are not required to provide investors with the SAI, but they must provide it for free upon request. Also known as “Part B” of the fund’s registration statement.


An instrument that signifies an ownership position (called equity) in a corporation, and a claim on its proportional share in the corporation’s assets and profits. Most stocks also provide voting rights, which give shareholders a proportional vote in certain corporate decisions, such as the election of corporate directors.

Stock Market

A general term for the organized trading of stocks through exchanges, over-the-counter, and computerized trading venues.

Stock Quotes

Listings of prices to buy and sell a specific stock. During trading, quotes show bids, the prices buyers are willing to pay, and offers, the prices sellers are willing to accept. Historical data provides the opening and closing price for each day of trading, and the daily high and low price for a stock, along with trading volume.

Stock Split

An increase in the number of shares of a corporation’s stock without a change in the shareholders’ equity. Companies often split shares of their stock to make them more affordable to investors. Unlike issuing new shares, a stock split does not dilute the ownership interests of existing shareholders. For example, if you own 100 shares of a company that trades at $100 per share and the company declares a two-for-one stock split, you will own 200 shares at $50 per share immediately after the split. If the company pays a dividend, your dividends paid per share also will fall proportionately.

Stop Order

A stop order is an order to buy or sell a stock once the price of the stock reaches a specified price, known as the stop price. When the specified price is reached, your stop order becomes a market order. The advantage of a stop order is you don’t have to monitor how a stock is performing on a daily basis. The disadvantage is that a stop price purchase or sale could be activated by a short-term fluctuation in a stock’s price. In addition, the price at which your trade is executed may differ from the stop price, especially in a fast-moving market where stock prices can change rapidly.

Surrender Charge

A type of sales charge that applies if you withdraw money from a variable annuity within a certain period of time, usually six to ten years. This is known as the surrender period. The charge declines over time until it no longer applies. For example, a 7% surrender charge might apply in the first year after purchase. The charge may fall to 6% in the second year, 5% in the third year and so on, until the eighth year, when it no longer applies.

Target Date Fund

A diversified mutual fund that automatically shifts towards a more conservative mix of investments as it approaches a particular year in the future, known as its “target date.” A target date fund investor picks a fund with the right target date based on his or her particular investment goal. The managers of the fund then make all decisions about asset allocation, diversification, and rebalancing. Target date funds also are known as lifecycle funds.

Tender Offer

A public offer to purchase the stated amount of stock of a corporation from its shareholders at the stated price within a stated time limit often in an effort to gain control of the company.


Each publicly traded common stock in the U.S. receives a short abbreviation that identifies it, known as its stock symbol or stock ticker symbol. Some stocks have single-letter ticker symbols while others may have up to five. Letters that appear after a ticker provide additional information. For instance, the letter “Q” after a ticker signifies that the company is in bankruptcy.

Time Horizon

Your time horizon is the number of months, years, or decades you need to invest to achieve your financial goal.

Total Annual Fund Operating Expense

The total of a fund’s annual fund operating expenses, expressed as a percentage of the fund’s average net assets. You’ll find the total in the fund’s fee table in the prospectus.


An institution, usually a bank, designated by the issuer as the custodian of funds and official representative of bondholders.

Unit Investment Trust (UIT)

A type of investment company that typically makes a one-time “public offering” of only a specific, fixed number of units. A UIT will terminate and dissolve on a date established when the UIT is created, which may be more than 50 years in the future.

Variable Annuity

A variable annuity is a contract between you and an insurance company, under which the insurer agrees to make periodic payments to you, beginning either immediately or at some future date.

Variable-rate CDs

These have changeable interest rates. Some variable-rate CDs feature a “multi-step” or “bonus rate” structure in which interest rates increase or decrease over time according to a pre-set schedule. Other variable-rate CDs pay interest rates that track the performance of a specified market index, such as the S&P 500 Index.


The annual percentage rate of return earned on a bond calculated by dividing the coupon interest rate by its purchase price.

Yield Curve

A line graph that shows the relative yields on debt over a range of maturities from three months to 30 years. Investors, analysts and economists use yield curves to evaluate bond markets and interest rate expectations.