Term Glossary

Term Glossary


Advisors in the financial world use many different terms, phrases, and acronyms throughout the field, and trying to understand them can be overwhelming. That's why we've compiled a glossary of common financial terms to help you get up to speed and better understand what we do!

  • 401(k)

    Employer Retirement Plan.


    By definition, a 401(k) plan is an arrangement that allows an employee to choose between taking compensation in cash or deferring a percentage of it to an account under the plan. The amount deferred is usually not taxable to the employee until it is withdrawn or distributed from the plan.

  • 529 Plan

    Savings on College Expenses


    529 is a category of plans that provides tax advantages when saving and paying for higher education. There are two major types, prepaid tuition plans and savings plans.

  • ADV (Uniform Application for Investment Adviser Registration)

    The official application document to register as an investment advisor firm. This registration document must be submitted to the SEC and state securities authorities.

  • Asset Allocation

    An investment strategy that aims to balance risk and reward by apportioning a portfolio's assets according to an individual's goals, risk tolerance, and investment horizon.

  • (BP) Basis Point

    A common unit of measure for interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01% (0.0001), and is used to denote the percentage change in a financial instrument. The relationship between percentage changes and basis points can be summarized as follows: 1% change = 100 basis points, and 0.01% = 1 basis point.

  • Beneficiary

    Someone who is eligible to receive distributions from a trust, will, or life insurance policy.

  • Beneficiary Deed

    A deed that conveys an interest in real property and the encumbrances the deceased owner carried with the property.

  • Bond

    A debt investment in which an investor loans money to an entity (typically corporate or governmental) that borrows the funds for a defined period of time at a variable or fixed interest rate. Bonds are used by companies, municipalities, states, and sovereign governments to raise money and finance a variety of projects and activities. Owners of bonds are debt-holders, or creditors, of the issuer.

  • CD (Certificate of Deposit)

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate, and can be issued in any denomination.

  • Deed

    A legal document that grants the bearer a right or privilege, provided that he or she meets a number of conditions. In order to receive the privilege – usually ownership, the bearer must be able to do so without causing others undue hardship.

  • Deferred Compensation Plan

    An amount of earned income that is payable at a later date. Most deferred compensation plans allow the wage earner to defer tax now so that the funds can be withdrawn and taxed at some point in the future.

  • Developed Markets

    While there is no one set definition of a developed economy, it typically refers to a country with a relatively high level of economic growth and security.

  • Donor Advised Fund

    A private fund administered by a third party and created for the purpose of managing charitable donations on behalf of an organization, family, or individual.

  • Effective Tax Rate

    The average rate at which an individual or corporation is taxed. The effective tax rate for individuals is the average rate at which their earned income is taxed. The effective tax rate for a corporation is the average rate at which its pre-tax profits are taxed. An individual's effective tax rate is calculated by dividing total tax expense by taxable income.

  • Emerging Markets

    Although loosely defined, countries that fall into this category  (varying from very big to very small) are usually considered emerging because of their developments and reforms.

  • Federal Reserve

    The central bank of the United States and the most powerful financial institution in the world. The Federal Reserve Bank was founded by the U.S. Congress in 1913 to provide the nation with a safe, flexible, and stable monetary and financial system.

  • FRA (Full Retirement Age)

    The age at which a person may first become entitled to full or unreduced retirement benefits. No matter what your full retirement age (also called "normal retirement age") is, you may start receiving benefits as early as 62 or as late as 70.

  • Form CRS (Client Relationship Summary)

    A relationship summary tells you about the types of services the firm offers; the fees, costs, conflicts of interest, and required standard of conduct associated with those services; whether the firm and its financial professionals have reportable legal or disciplinary history; and how to get more information about the firm. A relationship summary also includes questions to help you begin a discussion with an adviser or broker about the relationship, including their services, fees, costs, conflicts, and disciplinary information.

  • Hedged Strategy

    A risk management strategy used in limiting or offsetting the probability of loss from fluctuations in the prices of commodities, currencies, or securities. In effect, hedging is a transfer of risk without buying insurance policies.


    Hedging employs various techniques but, basically, involves taking equal and opposite positions in two different markets (such as cash and futures markets). Hedging is used also to protect one's capital against the effects of inflation through investing in high-yield financial instruments (bonds, notes, shares), real estate, or precious metals.

  • HELOC (Home Equity Line of Credit)

    A line of credit extended to a homeowner that uses the borrower's home as collateral. Once a maximum loan balance is established, the homeowner may draw on the line of credit at his or her discretion. Interest is charged on a predetermined variable rate, which is usually based on prevailing prime rates.

  • HSA (Health Savings Account)

    An account created for individuals who are covered under high-deductible health plans (HDHPs) to save for medical expenses that HDHPs do not cover. Contributions are made into the account by the individual or the individual's employer and are limited to a maximum amount each year. The contributions are invested over time and can be used to pay for qualified medical expenses, which include most medical care, such as dental, vision, and over-the-counter drugs.

  • Indicies

    An index, when used with respect to financial markets, is a statistical measure of change in a securities market. Indexes, or indices, are imaginary portfolios of securities (usually stocks) representing a particular market or a portion of it.

  • Inherited IRA

    An individual retirement account that is left to a beneficiary after the owner's death. If the owner had already begun receiving required minimum distributions (RMDs) at the time of his or her death, the beneficiary must continue to receive the distributions as already calculated or submit a new schedule based on his or her life expectancy.

  • Institutional Investor

    A non-bank person or organization that trades securities in large enough share quantities or dollar amounts that they qualify for preferential treatment and lower commissions. Institutional investors face fewer protective regulations because it is assumed that they are more knowledgeable and better able to protect themselves.

  • Interest Rate

    The proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the loan outstanding.

  • IRA (Individual Retirement Account)

    Retirement plans that provide tax advantages for retirement savings. An individual can contribute each year up to the maximum amount allowed by the Internal Revenue Service (IRS). There are several types of IRAs available to participate in.

  • Large Cap

    A term used by the investment community to refer to companies with a market capitalization value of more than $10 billion. Market capitalization is calculated by multiplying the number of a company's shares outstanding by its stock price per share.

  • Life Insurance

    Protection against the loss of income that would result if the insured passed away. The named beneficiary receives the proceeds and is thereby safeguarded from the financial impact of the death of the insured.

  • Long-Term Capital Gain/Loss

    A gain or loss from a qualifying investment owned for longer than 12 months and then sold. The amount of an asset sale that counts toward a capital gain or loss is the difference between the sale value and the purchase value.

  • LTC (Long-Term Care)

    A range of services and supports you may need to meet your personal care needs. Most long-term care is not medical care, but assistance with everyday life's basic personal tasks.

  • LTD (Long-Term Disability)

    An insurance policy that protects an employee from loss of income in the event that he or she is unable to work due to illness, injury, or accident for a long period of time. Long-term disability insurance does not provide insurance for work-related accidents or injuries that are covered by workers’ compensation insurance.

  • Managed Futures

    An alternative investment strategy in which professional portfolio managers use futures contracts as part of their overall investment strategy. Managed futures provide portfolio diversification among various types of investment styles and asset classes to help mitigate portfolio risk in a way that is not possible in direct equity investments.

  • Mid Cap

    A company with a market capitalization between $2 and $10 billion, which is calculated by multiplying the number of a company's shares outstanding by its stock price.

  • MLP (Master Limited Partnership)

    A type of limited partnership that is publicly traded. There are two types of partners in this type of partnership: The limited partner is the person or group that provides the capital to the MLP and receives periodic income distributions from the MLP's cash flow, whereas the general partner is the party responsible for managing the MLP's affairs and receives compensation that is linked to the performance of the venture.

  • Municipal Bond

    A debt security issued by a state, municipality, or county to finance its capital expenditures. Municipal bonds are exempt from federal taxes and from most state and local taxes, especially if you live in the state in which the bond is issued.

  • Pension Plan

    A type of retirement plan, usually tax exempt, wherein an employer makes contributions toward a pool of funds set aside for an employee's future benefit. The pool of funds is then invested on the employee's behalf, allowing the employee to receive benefits upon retirement.

  • Power of Attorney

    A legal document giving one person (called an "agent" or "attorney-in-fact") the power to act for another person (the principal). The agent can have broad legal authority or limited authority to make legal decisions about the principal's property and finance. The power of attorney is frequently used in the event of a principal's illness or disability or when the principal can't be present to sign necessary legal documents for financial transactions.

  • REIT (Real Estate Investment Trust)

    A type of security that invests in real estate through property or mortgages and often trades on major exchanges like a stock. REITs provide investors with an extremely liquid stake in real estate. They receive special tax considerations and typically offer high dividend yields.

  • RMD (Required Minimum Distribution)

    The amount that Traditional, SEP, and SIMPLE IRA owners and qualified plan participants must begin distributing from their retirement accounts by April 1, following the year they reach age 70.5. RMD amounts must then be distributed each subsequent year.

  • Roth IRA

    An IRA that bears many similarities to the traditional IRA, but contributions are not tax deductible, and qualified distributions are tax-free. Similar to other retirement plan accounts, non-qualified distributions from a Roth IRA may be subject to a penalty upon withdrawal.

  • SEP (Simplified Employee Pension) IRA

    An IRA that an employer or self-employed individuals can establish. The employer is allowed a tax deduction for contributions made to the SEP plan and makes contributions to each eligible employee's SEP IRA on a discretionary basis.

  • Simple (Savings Incentive Match Plan for Employees) IRA

    An IRA that may be established by employers, including self-employed individuals. The employer is allowed a tax deduction for contributions made to the SIMPLE. The employer makes either matching or non-elective contributions to each eligible employee's SIMPLE IRA, and employees may make salary deferral contributions.

  • Short-Term Disability

    Insurance that pays a percentage of your salary if you become temporarily disabled, which means that you are not able to work for a short period of time due to sickness or injury not related to your job. Typically, a short-term disability policy provides you with 40 to 70 percent of your pre-disability base salary.

  • Short-Term Capital Gain

    A capital gain realized by the sale or exchange of a capital asset that has been held for exactly one year or less. Short-term gains are taxed at the taxpayer's top marginal tax rate.

  • Small Cap

    Stocks with a relatively small market capitalization. The definition of a small cap can vary among brokerages, but generally, it is a company with a market capitalization of between $300 million and $2 billion.

  • Three Main Asset Classes

    The Three Main Asset Classes are:

    • Equities (Stocks)
    • Fixed-Income (Bonds)
    • Cash Equivalents

    All have different levels of risk and return, so each will behave differently over time.

  • Traditional IRA

    An IRA that allows individuals to direct pretax income, up to specific annual limits, toward investments that can grow tax-deferred (no capital gains or dividend income is taxed).

  • Umbrella Policies

    Extra liability insurance coverage that goes beyond the limits of the insured's home, auto, or watercraft insurance. It provides an additional layer of security to those who are at risk of being sued for damages to other people's property or injuries caused to others in an accident. It also protects against libel, vandalism, slander, and invasion of privacy.

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