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Glossary

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  • An employer-sponsored retirement plan that is used primarily by for-profit companies. Employees can choose to contribute a portion of their wages into an account; employers sometimes also contribute to each employee’s account, and/or match each employee’s contributions. All contributions are usually tax-deductible, and money in the account is not taxed until withdrawn, allowing for decades of tax-free growth. See 403(b) Plan, 457 Plan, Defined Contribution Plan, IRA, Rollover IRA 
  • An employer-sponsored retirement plan that is primarily used by non-profit organizations, including schools and hospitals. Employees can choose to contribute a portion of their wages into an account; employers sometimes also contribute to each employee’s account, and/or match each employee’s contributions. All contributions are usually tax-deductible, and money in the account is not taxed until withdrawn, allowing for decades of tax-free growth. Participants in 403(b) plans may only invest in annuities approved by the plan’s sponsor; those participating in 403(b)(7) plans may also invest in mutual funds approved by the plan’s sponsor. See 401(k) Plan, 457 Plan, Defined Contribution Plan, IRA, Rollover IRA
  • An employer-sponsored retirement plan that is available to state and local government employees, including police officers, firefighters, other civil servants and employees of state universities and school districts. Employers sometimes also contribute to each employee’s account, and/or match each employee’s contributions. All contributions are usually tax-deductible, and money in the account is not taxed until it is withdrawn, allowing for decades of tax-free growth. See 401(k) Plan, 403(b) Plan, Defined Contribution Plan, IRA, Rollover IRA
  • See College Savings Plan

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  • see Affordable Care Act
  • Individuals or entities meeting criteria established by the Securities and Exchange Commission allowing them to invest in securities not available to the general public, which the SEC regards as not financially sophisticated enough to understand the risks associated with said investments.
  • The tendency to act when no action is the better choice. Example: You own shares of stock. When the price falls, you decide to buy more or sell what you own – when doing nothing is the right decision. See Behavioral Bias
  • An investment strategy in which a professional money manager chooses the investments to buy or sell, with the goal of producing above-average returns. Active managers devote significant effort to research and analyze securities, and they typically trade them more often than they would if they used a buy-and-hold approach. As a result, actively managed funds typically charge higher fees than index funds. Studies consistently show that most active funds fail to meet their goal, generating below-average returns – and incurring higher risks and fees in the process. See Beating the Market, Index Investing, Passive Management, SPIVA Scorecard
  • Defined as dressing, bathing, eating, transferring from bed to chair and toileting. Inability to perform two or more ADLS without assistance generally qualify long-term care insurance policyholders to receive benefits. See Long-Term Care
  • A business professional who uses mathematics, statistics and financial theory to assess the likelihood and cost of potential events such as death, illness or disability. Insurance companies rely on actuaries to design their insurance contracts and set premiums so that the company can afford to pay claims and remain profitable. See Insurance Company, Pension, Pension Fund
  • An expense that can be increased, decreased or eliminated at will. Examples include dining out, entertainment and subscriptions. Because these costs are not mandatory, they are the first place to look when you need to reduce your spending. See Budget, Discretionary Expense, Fixed Expense, Non-Discretionary Expense, Variable Expense
  • A loan used to purchase real estate that charges an interest rate that can change over time. ARMs typically offer lower initial monthly payments than Fixed-Rate Mortgages but because rates can rise over time, future payments could be substantially higher. See Mortgage-Backed Securities, Private Mortgage Insurance, Refinance
  • Your annual income minus deductions, exemptions, exclusions and credits. Your income tax liability is determined by your AGI. See Taxable Income
  • A legal document that tells healthcare providers and loved ones what medical treatments you do or do not want if you become unable to communicate your own wishes. See Estate Planning, Health Care Power of Attorney, Living Will
  • A 2010 federal law that expanded access to health insurance, established online insurance marketplaces, required insurers to cover people with pre-existing conditions, and created rules about the minimum coverage health plans must provide. Also known as ACA or Obamacare.
  • A person or business authorized to act on behalf of another person or organization. In insurance, an agent sells the products of a single insurance company; they legally represent that company, not the consumers purchasing its products. In legal matters, an agent is someone you designate through a power of attorney to act on your behalf. See Attorney in Fact, Insurance Agent
  • A measure of an investment’s performance relative to a benchmark, such as the S&P 500. A positive alpha means the investment outperformed the benchmark; a negative alpha means it underperformed. Alpha is often used to evaluate a fund manager’s skill. See Active Management, Beta
  • Asset classes that are outside the traditional categories of stocks, bonds and cash. Examples include real estate, commodities, hedge funds, private equity, crypto and collectibles. Alternative investments often have higher risks and fees, lower liquidity and regulation and potentially higher returns than traditional investments.
  • The process of repaying a loan over time, where each payment consists of a larger portion of principal and a smaller portion of interest than the previous payment. The initial payments of an amortized loan are almost entirely interest, and the final payments are almost entirely principal. See Depreciation
  • The tendency to ascribe greater value to an asset than it has, merely because you own it. Example: Choosing to rent a house you inherit instead of selling it; had you inherited an equivalent amount of cash, you would not have chosen to buy that house and make it a rental.
  • The yearly cost of borrowing money, as a percentage of the amount borrowed. The formula for calculating APR is set by the government, making it easy for consumers to compare rates in the marketplace.
  • The person who receives payments from an annuity. The payment amount is based in part on the annuitant’s age at the time the annuity is purchased and their life expectancy. Additional factors include the annuity company’s projections regarding the annual returns it will earn on the money that’s paid into the annuity in the years prior to annuitization and the fees charged. The annuitant and the owner of the annuity can be the same person. See Annuitize, Bonus Annuity, Fixed Annuity, Immediate Income Annuity, Variable Annuity
  • The act of converting money into a series of periodic payments. Each payment is part interest and part principal; ordinary income taxes are owed only on the interest portion. See Annuitant, Annuitize, Annuity, Bonus Annuity, Fixed Annuity, Immediate Income Annuity, Variable Annuity
  • The act of converting the accumulated value of an annuity into payments paid to the annuitant. When you annuitize, you waive the opportunity to receive the annuity’s value in a lump sum in exchange for periodic payments (typically monthly) that last for a set number of years, called “term certain” or for the rest of the annuitant’s life. Payments can also be set as “joint and survivor” to provide income for the combined lifetimes of the annuitant and the annuitant’s spouse. See Annuitization, Bonus Annuity, Fixed Annuity, Immediate Income Annuity, Variable Annuity
  • An insurance contract that features an owner, who purchases the contract and is the person who typically funds it; an annuitant, named by the owner and whose life expectancy is used to determine the amount of money that will be paid when owner chooses to annuitize the contract, which converts the account value to a series of monthly payments ranging from a few years to the annuitant’s lifetime. Once annuitized, changes cannot be made, and payments cease upon the death of the annuitant, unless the owner had selected a guaranteed minimum period of payments or a “joint and survivor” payment schedule that is based on the combined lifetimes of the annuitant and the annuitant’s spouse. The owner also names a beneficiary, who receives the value of the annuity upon the owner’s death if the contract had not been annuitized. The growth in value of an annuity is tax-deferred until withdrawal.(…)
  • Anything you own that has value, such as cash, property and investments. See Asset Allocation, Asset Classes, Net Worth
  • An investment strategy that divides the money you’re investing among different asset classes, such as cash, bonds, stocks, real estate and crypto – in an effort to strike a desired balance between risk and return. The right asset allocation is based on your goals, risk tolerance and time horizon. See Modern Portfolio Theory, Harry Markowitz
  • Broad categories of investments. The three primary asset classes are stocks, bonds and cash (including cash equivalents). Real estate, commodities, emerging markets, gold (and other precious metals) and alternative investments are also recognized asset classes. Each asset has unique risks, return potential, taxation, liquidity, fees and other features. Diversifying across asset classes is widely regarded as a fundamental element of investment management. See Asset Allocation, Diversification
  • The act and process of investing money into investments. Professional asset managers perform these duties on behalf of others, with the goal of increasing the value of the assets over time while limiting risk. See Financial Advisor, Portfolio Manager
  • The money you pay to an asset manager, financial firm or financial advisor for their services. The AUM fee is a percentage of the value of the assets held with the firm or advisor, typically 0.5% to 2% per year. Often, the higher the assets under management, the lower the percentage. See Commissions
  • The sector of the financial services field, composed of individuals and firms, that invests and manages money on behalf of individuals, companies, pension funds, endowments and institutions. The industry includes mutual fund companies, hedge funds, private equity firms and registered investment advisors. See Asset Management, Asset Manager, Financial Firm, Wealth Management Industry
  • A person or firm that manages investments on behalf of clients in exchange for compensation. Asset managers decide which securities to buy and sell consistent with the client’s financial goals and risk tolerance. See Asset Management, Asset Management Industry, Financial Advisor, Portfolio Manager
  • The total value of investments held in all client accounts at a financial firm or being served by a financial advisor within the firm. The asset management industry and the wealth management industry both frequently derive their revenue by charging clients an asset management fee that is a percentage of the AUM. Investment advisers often charge annual fees calculated as a percentage of your AUM. For example, 1% of $100,000 in assets would be a $1,000 annual fee. See Commissions
  • The person you authorize through a power of attorney to act on your behalf in legal and financial matters. Your attorney in fact does not need to be a lawyer; they can be any trusted adult you choose. The role carries a fiduciary obligation, meaning your attorney in fact is legally required to act in your best interest. The authorization becomes void upon your incapacity. See Durable Power of Attorney
  • The tendency to make a decision based on the frequency of media mentions. For example, people who track news stories daily tend to believe there’s a higher rate of crime than those who don’t track the news. See Behavioral Bias

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  • A document that shows what you own and what you owe. See Asset, Debt, Net Worth
  • A financial institution licensed by state or federal authorities to accept deposits, make loans and provide other financial services. Deposits at FDIC-member banks are insured by the federal government, subject to limits. Banks earn money from fees for services and by charging higher rates of interest on loans than they pay on deposits. See Investment Bank
  • A legal process for cancelling debts you cannot repay. Although a judge in bankruptcy court may relieve you of your obligation to repay debts, the judge may also order that some or all of your assets be given to creditors. You will probably be unable to borrow money for years, and your ability to keep you job or get hired could also be impacted.
  • A period when stock prices have fallen 20% or more from their high. Bear markets are typically accompanied by investor pessimism, slowing economic activity and rising unemployment. Bear markets generally occur every 4–7 years and last less than two years. Historically, all bear markets have been followed by new all-time highs. See Bull Market, Market Correction
  • Achieving investment returns that exceed the performance of a market benchmark, such as the S&P 500 Stock Index, after accounting for fees. As shown by the SPIVA Scorecard, published by S&P Dow Jones Indices, most professional fund managers fail to beat the market in either short- or long-term periods. See Active Management, Index Investing, Index Funds, Passive Management
  • The tendency to make decisions based on emotions or cognitive errors rather than objective data. These biases can cause you to buy high or sell low – resulting in losses or below-average returns. See Action Bias, Anchoring Bias, Availability Bias, Catastrophizing Bias, Compartmentalizing Bias, Confirmation Bias, Endowment Bias, Framing Bias, Herd Mentality Bias, Hindsight Bias, Illusion of Attention Bias, Illusion of Control Bias, Intuition Bias, Mental Accounting Bias, Optimism Bias, Overconfidence Bias, Pattern Recognition Bias, Pessimism Bias, Proud Papa Bias, Recency Bias, Regret Avoidance Bias, Small Sample Size Bias, Status Quo Bias
  • A standard or reference point against which the performance of an investment or portfolio is measured. Common benchmarks include the S&P 500 Stock Index and the Bloomberg U.S. Aggregate Bond Index. More than 100,000 benchmarks exist, enabling investors to compare their investments to almost any investment category or strategy. See Alpha, Beta, Index Funds
  • A person or entity designated to receive the proceeds of a life insurance policy, annuity or retirement account, as well as assets left to them in a will or trust.
  • An Individual Retirement Account originally owned by someone who has died. Also called a Decedent IRA. See Beneficiary IRA, Inherited IRA, Rollover IRA, Roth IRA, Spousal IRA
  • A measure of an investment’s price volatility relative to the overall market. A beta of 1 means the investment moves in line with the market. A beta above 1 means it is more volatile than the market; below 1 means it is less volatile. See Alpha, Benchmark
  • A digital asset created in 2009 by Satoshi Nakamoto. It operates on a decentralized network, called the Bitcoin blockchain, using distributed ledger technology. Bitcoin can be bought, sold, transmitted and used to purchase goods and services worldwide. See Crypto, Tokens
  • A digital record-keeping technology that stores transactions across a network of computers in a way that makes the records difficult to hack. Each “block” of data contains a group of transactions, and each block is linked, forming a chain of data. Blockchain is the technology underlying Bitcoin and other digital assets. Also called Distributed Ledger Technology. See Crypto
  • A security that when purchased serves as a loan to the issuer, which pays interest to the bondholder until the bond’s maturity date is reached, upon which the principal is returned to the investor. See Duration
  • An investment contract that credits the account with an amount of money, typically 1% to 10% of the initial premium. Bonus annuities often feature longer surrender periods than other annuity products, lower long-term credited interest rates and/or higher fees, resulting in erosion or elimination of the bonus benefit over time. See Fixed Annuity, Immediate Income Annuity, Variable Annuity
  • A person or firm that acts as an intermediary between a buyer and seller of securities or other financial products, earning compensation on each transaction. In insurance, a broker represents many insurance companies and legally serves them, not the consumer purchasing a policy. See Brokerage Firm, Broker-Dealer, Insurance Broker, Stockbroker
  • Also known as a Brokerage Firm, this is a company is licensed to buy and sell securities on behalf of investors. Broker-dealers are regulated by FINRA and client accounts are protected to some extent by the Securities Investor Protection Corporation. When acting as a dealer, the firm sells securities to investors that it owns or buys them from investors to hold in its own account. Its compensation may include fees and/or commissions. When acting as a broker, the firm acts as an intermediary, helping buyers and sellers execute trades. As a broker, the firm’s compensation can include fees and/or commissions, as well as a spread.
  • A company that is licensed to buy and sell securities on behalf of investors. Brokerage firms are regulated by FINRA and client accounts are protected to some extent by the Securities Investor Protection Corporation. See Broker, Broker-Dealer
  • A plan for how you will spend your money during a period. See Expenses, Fixed Expense, Variable Expense
  • The process of creating a plan for earning and spending your money in a given period, typically monthly or annually. A budget helps you track income and expenses, identify opportunities to reduce spending and make progress toward financial goals such as buying a home or paying off debt.
  • A period when stock prices increase 20% or more from their recent low. Bull markets are typically accompanied by investor confidence, strong economic growth and declining unemployment. Bull markets generally last for years before being replaced by a bear market. See Market Correction
  • A contract with an insurance company whereby you pay a fee, called a premium, and in exchange, the insurer replaces lost income when normal business operations are interrupted.
  • An investment strategy in which you purchase investments and keep them for a long period of time regardless of short-term market fluctuations. The buy-and-hold strategy has been far more successful than market-timing strategies. See Index Investing, Passive Management
  • Financing arrangements offered at the point of sale. These contracts let you purchase a product immediately and pay for it in installments, typically four equal payments over six weeks, often with no interest. Missed payments can result in fees and damage to your credit score. See Credit