Page 4: Glossary of Terms

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Charles Schwab Glossary
Investopedia Dictionary of Financial Terms

Brokerage Account:
A brokerage account is an arrangement in which an investor deposits money with a licensed brokerage firm, which places trades on behalf of the customer.

A savings plan that allows employees to contribute a fixed amount of income to a retirement account and to defer taxes until withdrawal.

IRA (Individual Retirement Account):
A retirement savings account in which income taxes on certain deposits and on all gains are deferred until withdrawals are made.

Roth IRA:
An individual retirement account in which investments are made with taxable dollars, but earnings are tax-free and withdrawals are tax-free after age 59.5.

Back door Roth IRA:
A method used by high-income earners to create a permanently tax free Roth IRA.

Savings Bond Plan:
A workplace program which allows employees to purchase U.S. savings bonds through payroll deductions.

An asset or item acquired with a goal of generating income or appreciation. 

A fixed income instrument that represents a loan made by an investor to a borrower (typically corporate or governmental). Used by companies, municipalities, states, and sovereign governments to finance projects & operations. Owners of bonds are debt holders, or creditors, of the issuer.

(I Bond) Inflation Linked Savings Bond:
U.S. government issued debt securities similar to regular savings bonds yet with protection against inflation.

U.S. Savings Bonds:
A government bond offered to its citizens to help fund federal spending, which provides savers with a guaranteed, modest, return.

(CD) Certificate of Deposit:
A product offered by credit unions and banks that provides an interest rate premium in exchange for the purchaser agreeing to leave a lump sum deposit untouched for a predetermined period of time.

ETF (Exchange Traded Funds):
A type of pooled investment security that operates much like a mutual fund. Typically, ETFs will track a particular index, sector, commodity, or other asset, but unlike mutual funds, ETFs can be purchased or sold on a stock exchange the same way that a regular stock can.

Index Fund:
Investment funds that follow a benchmark index, such as the Nasdaq 100 or the S&P 500.  When you put money in an index fund, that cash is then used to invest in all the companies that make up the particular index, which gives you a more diverse portfolio than if you were buying individual stocks.

Mutual Fund:
An investment program made up of a pool of money collected from many investors to invest in securities like stocks, bonds, money market instruments, and other assets. Operated by professional money managers, who allocate the fund’s assets and attempt to produce capital gains or income for the fund’s investors.  (Actively Managed)

Security (not Se ker idee):
Fungible instruments and stuff…

A security that represents the ownership of part of a corporation. This entitles the owner of the stock to a proportion of the corporation’s assets & profits equal to how many stocks they own. Units of stock are called “shares.”

Stock Market:
Broadly refers to the exchanges and other venues where the selling, buying and issuance of shares of publicly held companies takes place.   Umbrella term for the collection of Stock Exchanges.

Stock Exchange:
A market place in which financial securities issued by companies are sold and bought.  A subset of the Stock Market.
Example Stock Exchanges:
(NYSE) New York Stock Exchange

A standardized method to track the performance of a group of assets. Indexes typically measure the performance of a group of securities intended to replicate a specific area of the market. These could be a broad based index that captures the entire market or more specialized that track a particular segment or industry 

Market Index:
A hypothetical portfolio of investment holdings which represent a segment of a financial market. The index value comes from a calculation of the the prices of the underlying holdings.
Example Market Indexes:
S&P 500 Index
Dow Jones Industrial Average (DJIA)
Nasdaq Composite Index

Capital Gain – Short Term:
A gain from the sale or exchange of a capital asset held for not more than 1 year, if and to the extent such gain is taken into account in calculating gross income (taxed as ordinary income at your personal income tax rate).

Capital Gain – Long Term:
A gain from the sale or exchange of a capital asset held for more than 1 year, if and to the extent such gain is taken into account in calculating gross income (taxed at a lower rate, 15% for most people*).

A distribution of money paid regularly by a company to its shareholders out of its earnings or reserves as determined by the company’s board of directors. 

Dividend Reinvestment Plan (DRIP):
A program that allows investors to reinvest their dividends into additional shares or fractional shares of the stock.

An increase in prices and the fall in purchasing power of money over time.

A monetary charge to borrowing money, expressed as an annual percentage rate (APR).

Interest – Compound:
Interest earned on both the money you’ve saved and the interest you earn, interest earned on interest.

Interest – Simple: 
The interest calculated on the principal portion of a loan or the original contribution to a savings account.

Gross Income:
An individual’s total earnings before taxes or other deductions. This includes income from all sources including pensions, interest, dividends, and rental income.

Adjusted Gross Income (AGI):
Gross income minus adjustments to income including such items as Student loan interest,  Educator expenses, Alimony payments or contributions to a retirement account. Your (AGI) will never be more than your Gross Total Income on you return and in some cases may be lower.

Modified Adjusted Gross Income (MAGI):
Adjusted gross income (AGI) after taking into account certain allowable deductions and tax penalties.

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Page 1:  Overview
Page 2:  Read More
Page 3:  Books & Video
Page 4:  Glossary of Terms
Page 5:  Resources & Quotes

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