Glossary

  • After-tax returns – Any profit made on an investment after subtracting the amount due for taxes.
  • Asset (holdings) – Items of value owned by an individual or corporation. Assets are usually financial or economic and may be converted to, or exchanged for, cash. Examples include stocks, bonds and real estate.
  • Asset allocation – Generally the distribution of money among various types of assets or asset classes to achieve diversification.
  • Asset classes – Refers to various types of investments that exhibit similar characteristics and are subject to the same laws and regulations. Historically, the three main asset classes have been equities (stocks), fixed income (bonds) and cash equivalent or money market instruments.
  • Bonds (also referred to as fixed income) - Security that is a liability or debt which may be short, intermediate or long-term, with a specified amount of interest (the coupon rate) and specified maturity date. The principal is the amount owed or the face amount of the debt. The maturity date is the time at which the debt issue becomes due and the principal must be repaid. The interest is the payment for the use of money. The coupon rate is the specified interest rate or amount paid by a bond. The current yield is the annual income divided by the current price of the bond. The yield to maturity is the yield earned on the bond from the time it is acquired until the maturity date of the bond.
  • Cash flow – Difference between how much income you have coming in and your spending over a period of time. A positive cash flow means you earned more than you spent and have money leftover at the end of a period. Conversely, a negative cash flow means you spent more than you earned.
  • Debt / Liabilities - Money owed to another and due to be paid according to a predetermined agreement. Also referred to as liability. This can include mortgages, credit card debt, or other types of loans.
  • Dividends – Share of a company's earnings paid to shareholders, usually in cash or stock.
  • Donor-advised fund (DAF) -  a separate identified fund or account that is maintained and operated by a public charity, which is called a “sponsoring organization.” Fund permits a donor to make a charitable contribution, receive an income tax deduction and retain the ability to make recommendations with respect to grantmaking and investing the fund’s assets. 
  • Emergency fund – Money set aside as you prepare to invest to cover about 3 to 6 months of living expenses. There are times when people become ill or are injured in accidents. Employers lay off workers. If something unexpected happens, having the money you need to pay the medical bills or see you through the weeks or even months without your previous level of income will help to keep you out of debt. If you already have investments, an emergency fund also will help you meet your expenses without disrupting your investment plan. The best place for your emergency fund is in a liquid (easily accessible) account. A liquid account might be a regular savings account at a bank or credit union that provides some return on your deposit, and from which your funds can still be withdrawn at any time without penalty.
  • Estate planning - Outlined goals and objectives, organizing your financial affairs, ensuring you will be cared for appropriately, planning the distribution of your estate and communicating last wishes for the end stages of life.
  • Financial Advisor – Generic term that usually refers to a broker (or, to use the technical term, a registered representative of a Broker/Dealer). By contrast, the term investment adviser is a legal term that refers to an individual or company that is registered as such with either the Securities and Exchange Commission or a state securities regulator. Common names for investment advisers include asset managers, investment counselors, investment managers, portfolio managers, and wealth managers. Investment adviser representatives are individuals who work for and give advice on behalf of registered investment advisers.
  • Financial planning – Process to help you assess if you are financially on track to reach your goals.  Through a comprehensive and personalized financial plan you can view an illustration of your net worth, understand how life changes and decisions can impact your financial outcomes, uncover potential challenges to reaching your goals and review recommendations to improve your likelihood of success. Since all aspects of your financial life are related,  they should work together to help you achieve your needs and priorities.
  • Guardianship instructions
    • For parent(s) with minor children it is important to name guardian(s) generally under your last Will & testament. This is because minors cannot take legal ownership/title to  assets/property, enter into contracts or other legal matters. Keep in mind that you can appoint two different guardians; one for the person (to provide care for the child) and one for the estate (to provide financial management.)
  • Health Insurance Portability and Accountability Act (HIPAA) release - Allows medical care providers to share what is normally protected private information with specific individuals so they can help make decisions that line up with your wishes.
  • Healthcare proxy - Allows you to name a specific person who can legally make healthcare decisions for you in the event you can't.
  • Inflation – Loss of purchasing power through a general rise in prices. If the process of goods and services increase, the real purchasing power of an investor's assets & the income generated from them is reduced. This is called "purchasing power risk" which is the risk of inflation that will erode the buying power of the investor's assets & income.  
  • Insurance (life, disability, LTC)
    • In general, most types of insurance involve transferring a risk of loss from yourself to an insurance company.  This is done through "risk pooling" which is the essence of insurance which pools risks and losses across a very large population. The transfer of risk is subject to a cost, called the insurance premium.  The premium is based on the specific risk(s) involved;
      • For life insurance, the risk is mortality, estimated by taking into account the probability of death based on actuarial tables as well as current age and health of a particular individual.  Life insurance may be used to insure/replace a family member's salary in the event of dying at a young age.
      • For disability & LTC  insurance, the risk is morbidity, estimated by taking into account the probability of a "disease, illness or injury" based on actuarial tables as well as current age, health and occupation of a particular individual.  Disability income insurance may replace a portion of an individual's salary in the event of a short or long term disability. Long-term care insurance may indemnify an individual for the cost and expenses associated with LTC or provide additional capital to cover LTC expenses.
  • Investment Income - Generally includes non-business, unearned income, such as income from interest, dividends, capital gains, annuities, rents, royalties and certain passive activities.
  • IRA – Personal retirement plan that provides an individual with tax-deferred growth on his/her money.  Contributions may be tax-deductible to the individual depending on his/her participation in an employer-sponsored retirement plan and his/her adjusted gross income.
  • Living Will – Statement outlining your wishes for your end-of-life medical care. This can include advanced directives such as "do not resuscitate"(DNR) guidelines. You can create the rules around if and when you'd like these directives to take place.
  • Markets – Place where securities, such as stocks and bonds, are bought & sold.
  • Market volatility / market fluctuations / market downturn – Volatility is sometimes referred to as the "fluctuations" of a market or securities that comprise a market, such as stocks or bonds. Security prices and therefore the value of securities such as stocks and bonds will increase or decrease, due to a variety of factors. When the securities that comprise a market decrease in value that is sometimes referred to as a "market downturn."
  • Power of Attorney – Authorization to act on someone else's behalf in a legal or business matter. The person authorizing the other to act is the principal or granter (of the power), and the one authorized to act is the agent or attorney-in-fact ("Agent").
  • Risk tolerance – Degree of variability in investment returns that an investor is willing to withstand over their time horizon, or the amount of risk they are willing to take on when investing in the markets.
  • Stock (also referred to as equities) – Security that represents ownership in a company and is issued in shares. 
  • Time Horizon - Refers to length of time over which an investment is made or held before it is liquidated. Time horizons can range from seconds in the case of a day trader, all the way up to decades for a buy-and-hold investor or an individual who is investing in a retirement plan. (Google) For example, if an investor's goal is to save money for retirement 20 years from today, they may said to have a "long-term time horizon".
  • Trusts –
    • Trust instrument: a binding agreement between the grantor (sometimes referred to as the settlor) and trustee that defines the legal rights and duties of the parties and the beneficial enjoyment of the assets placed in trust. In exercising its responsibilities, the trustee is guided by the wishes of the person who created the trust, as set out in the trust agreement, which is, in effect, the charter of the trust. Trust instruments can be as general or as detailed as the grantor wishes.
      • Living or revocable trust: may be established to provide for the management of assets in the event of your incapacity or illness and to avoid the time and cost of probate upon death. A revocable trust is most effective when ownership of assets is transferred to the trust during the grantor’s life. A separate will is generally still needed to provide instructions for distribution of assets not actually held in the trust at the time of death.
      • Testamentary trust: any trust created under a decedent’s will. Testamentary trusts can take many forms. For example, a trust designed to utilize the decedent’s remaining applicable exclusion amount is often referred to as a credit shelter trust or bypass trust.
  • Wealth transfer planning – Involves outlining goals and objectives, organizing your financial affairs, planning the distribution of your assets and communicating your intentions.
  • Will – Legal document in which you appoint the executor of your estate, designate a guardian for your minor children and outline how you want your estate to be distributed. To die without a will is to die intestate. If this occurs, the state will determine who should care for your minor children and your assets will pass according to your state’s intestacy laws; this may or may not be consistent with your wishes.
  • 401(k) – employer sponsored retirement plan that allows you to make pre-tax contributions and taxes aren't owed on the contributions and earnings until they are withdrawn.