Glossary

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Real Assets:: Tangible assets, such as gold or real estate.
Real Estate Investment Trusts (REITs):: A type of closed-end investment company that invests money, obtained through the sale of shares to investors, in various types of real estate and/or real estate mortgages.
Realized Return:: The return received by an investor during the period.
Recession:: A decline in total physical output that lasts six consecutive months or more. A growth recession is marked by a six month or longer slowdown (but no decline) in growth rate.
Refinancing:: The retirement of existing securities and issuing of new securities to save interest costs, consolidate debt, lengthen maturity, or otherwise alter the capitalization of a company.
Refunding:: A redemption with funds raised through the sale of a new issue.
Registered Bond:: A bond registered on the issuing company's books in the name of the owner, unlike a bearer bond. It can be transferred only when endorsed by the registered owner.
Reinvestment Rate:: The rate at which an investor assumes his cash payments can be reinvested over the life of an issue.
Reinvestment Rate Risk:: The part of interest rate risk resulting from uncertainty about the rate at which future interest coupons can be reinvested.
Required Rate of Return:: The minimum expected return on an asset that an investor requires before investing.
Required Yield:: The current market rate demanded by investors for a particular debt security.
Reserves:: A part of a financial institutions' assets held in cash or on deposit at the Federal Reserve Bank.
Reserve Requirements:: The percentage of deposits required to be held as reserves. This is held by the Federal Reserve Bank, within limits legislated by Congress.
Retail:: Legitimate institutional or individual investors as opposed to dealers and broker traders.
Return on Assets:: A fundamental measure of the firm's profitability, equal to net income divided by total assets.
Return on Equity:: The rate of return on stockholders equity, equal to net income divided by equity.
Return on Invested Capital:: Return to investors based on the amount of money actually invested in a security, rather than the value of the contract itself.
Return Relative:: The total return from an investment for a given period of time, including both yield and capital gain or loss; stated on the basis of 1.0 which represents no gain or loss.
Revenue Bond:: A municipal bond backed by the revenue-generating capacity of the issuer; requires that the principal and interest be paid only if a sufficient level of revenue is generated.
Reverse Stock Split:: A maneuver in which a company reduces the number of shares outstanding by exchanging a fractional amount of a new share for each outstanding share of stock.
Right:: An option to subscribe to new shares issued by a company which enables a stockholder to maintain his/her proportionate ownership in the company.
Risk:: A measure of the probability of financial loss.
Risk-Adjusted:: Modified to account for risk. If a yield were lowered to account for the probability of default, it would be a "credit risk-adjusted rate of return."
Risk Aversion:: The unwillingness of investors to take risk. Since most investors are risk-adverse, they must be compensated to take additional risk.
Risk-Free Asset:: An asset with a certain expected return and a variance of return of zero.
Risk-Free Rate of Return:: The return on a riskless asset, often provided by the rate of return on Treasury securities.
Risk Premium:: The additional compensation demanded by investors, above the risk-free rate of return, for assuming risk -- the larger the risk, the larger the risk premium.
Risk/Reward:: The combination of risk and reward afforded by a security. Investors attempt to obtain the most favorable mixture of risk and reward (highest reward for least risk).
Rolling Returns:: A statistical technique for conveying a clearer picture of a long-term investing trend by presenting returns for a given period as a series of consecutive returns. Thus, 10-year rolling returns for the decade ending in 1996 would consist of returns for the periods 1978-87, 1979-88, 1980-89, etc., rather than simply the returns for each year of the decade.
Round Lot:: A unit of trading or a multiple thereof. On the New York Stock Exchange the unit of trading is generally 100 shares in stocks and $1,000 par value on the case of some bonds. In some inactive stocks, the unit of trading is 10 shares.
Russell 1000:: An index comprised of the 1000 largest companies within the Russell 3000 index, known as the Market-Oriented Index, because it represents the group of stocks from which most active money managers typically choose.
Russell 2000:: An index comprised of the smallest 2000 companies in the Russell 3000 index, representing approximately 7% of the Russell 3000 total market capitalization.
Russell 3000:: An index comprised of the 3000 largest U.S. companies by market capitalization, representing approximately 98% of the U.S. equity market.

Savings Certificate:: A deposit of a fixed maturity and amount, usually earning a higher rate of interest than a savings deposit.
Secondary Market:: The market in which securities are traded after they have been issued; also called the aftermarket.
Sector:: A group of securities with similarities (for example, industry type, coupon rate, maturity date and/or rating).
Sector Neutral:: A stock portfolio that holds a combination of stocks equivalent to the sector weightings of the benchmark index.
Sector Rotator:: A "top-down" style of manager whose approach is to decide, based on macroeconomic and industry fundamentals, when certain market sectors will perform better than others and invest accordingly.
Securities:: Stocks, bonds and notes which give evidence to and assure the fulfillment of an obligation.
Securities Act of 1933:: A law designed to ensure that new securities offered to the public are clearly and completely described in the registration statement and prospectus. Today, the Securities Exchange Commission does not guarantee that the statements are accurate, but attempts to make certain that all relevant information is fully disclosed.
Securities Exchange Act of 1934:: A law which extended the disclosure principle to trading in existing securities and provided for control over corporate insiders. This act established the Securities and Exchange Commission.
Securities and Exchange Commission (SEC):: An agency created by Congress to provide laws for the protection of investors in security transactions.
Securities Investor Protection Corporation (SIPC):: Provides funds for use, if necessary, to protect customers' cash and securities which may be on deposit with an SIPC member firm in the event the firm fails and is liquidated under the provisions of the SIPC Act. SIPC is not a government agency but is a non-profit membership corporation created by an Act of Congress.
Securities Market:: A market allowing suppliers and demanders of funds to make transactions; may provide trading in either money or capital.
Senior Securities:: The class of securities that occupies the highest priority in a claim for principal, interest or dividends.
Serial Bond:: An issue that matures at periodic stated intervals rather than on a single, specific date.
Settlement Date:: The date a transaction is completed; the customer is debited or credited normally five business days after the trade date for corporations, the next day for governments.
Sharpe Ratio:: Named after investment professional William Sharpe, a measure of how much extra return an investment portfolio provides over a riskless standard, typically Treasury bills, for the risk it takes. The higher the ratio, the better the risk/return tradeoff.
Short Sale:: The sale of securities with the expectation of their repurchase at lower prices. They are not in the seller's possession, but are usually borrowed for delivery to the buyer.
Short-Term Investment:: A type of obligation with a maturity of less than one year.
Sinking Fund:: Money regularly set aside by a company and used to redeem its bonds, debentures, or preferred stock.
Small Company Fund:: Seeks capital appreciation by investing primarily in stocks of small companies, as determined by either market capitalization or assets.
Small-, Medium-, Large-Cap (Capitalization):: A reference to the size of a company as a function of its number of outstanding shares times the price of its stock. Depending on the market, "large-cap," "medium-cap," and "small-cap" are relative terms.
Split:: The division of the outstanding shares of a corporation into a larger number of shares. A 3-for-1 split by a company with 1 million shares outstanding results in 3 million shares outstanding. Ordinarily, splits must be voted by board of directors and approved by shareholders.
Split Ratings:: Different ratings given to a bond issue by the two major rating agencies.
Spread:: The yield or price differential between different securities.
Standard Deviation:: Listed for three, five, 10 and 15 years, this is a statistical measure of the range of performance within which the total returns of a fund will fall.
Standard and Poor's Corporation (S&P):: A company that rates stocks and corporate and municipal bonds according to risk profiles and that produces and tracks the S&P indexes. The company also publishes a variety of financial and investment reports.
Standard and Poor's Composite Index of 500 Stocks (S&P 500):: A value-weighted index that offers broad coverage of the securities market. It is composed of 400 industrial stocks, 40 financial stocks, 40 public utility stocks and 20 transportation stocks. The index is owned and compiled by Standard & Poor's Corporation.
Standard Industrial Classification (SIC) System:: A system based on census data used to classify industries on the basis of what the firms produce.
Stock:: A security that gives the purchaser an equity interest in a business.
Stock Dividend:: A payment by the corporation in shares of stock rather than cash.
Stock-Index Futures:: Futures contracts on stock indices, including the Standard & Poor's 500, the New York Stock Exchange, and The Value Line Composite Index.
Stock-Index Options:: Option contracts on a stock market index such as the Standard & Poor's 500.
Stock Split:: The issuance by a corporation of a large number of shares of stock in proportion to the existing shares outstanding. A split changes the book value and the par value.
Stockbrokers:: Individuals licensed by stock exchanges to enable investors to buy and sell securities.
Stockholder's Annual Report:: A report published every year by every publicly held firm; contains a wide range of information including financial statements for the most recent fiscal year.
Strike Price:: See Exercise Price.
Super NOW Account:: An unrestricted checking account paying money-market rates.
Surety Bond:: A contractual agreement under which an insurance company agrees to reimburse investors for any losses on the collateral underlying an asset-backed security.
Systematic Risk:: The potential for a security to decrease in value owing to its inherent tendency to move together with all securities of the same type. Neither diversification nor any other investment strategy can eliminate this risk.

Tax Shelter:: An investment vehicle that offers potential reductions of taxable income.
Tax Swap:: Selling one security that has experienced a capital loss and replacing it with another similar security in order to partially or fully offset a capital gain that has been realized in another part of the investor's portfolio; used to avoid Internal Revenue Service regulations against wash sales.
Term Bond:: A bond that has a single, fairly lengthy maturity date.
Term to Maturity:: The remaining life of a bond.
Third Market:: Over-the-counter transactions made in securities listed on the New York Stock Exchange, American Stock Exchange, or other organized exchanges.
Time Deposit:: A deposit with a maturity fixed by law of at least 30 days. Savings accounts at commercial banks also are regarded as time deposits.
Time Premium:: The difference between an option's price and its intrinsic value, reflecting what investors are willing to pay to speculate on future price changes.
Total Return:: All the return an investor receives on a specific investment over a stated period, including realized or unrealized capital gain or loss, and dividends or interest; expressed as a percentage of the investment's value at the beginning of the period. Total return is the true measurement of investment results, as distinct from either income yield or price appreciation alone, since total return measures the total change in value of an investment over a given period (aside from the investor's own withdrawals or additions).
Total Risk:: The sum of the diversifiable and nondiversifiable risk components of an investment vehicle.
Trade Date:: The date when a transaction is effected or executed.
Trader:: A person whose intention is to profit from the buying and selling, rather than the holding, of securities.
Traditional Portfolio Management:: An approach to portfolio management that emphasizes balancing the portfolio with a variety of stocks and/or bonds from a broad cross-section of industries.
Transfer:: 1) the delivery of a stock certificate from the seller's broker to the buyer's broker and legal change of ownership, normally accomplished within a few days. 2) the recording of the change of ownership on the books of the corporation by the transfer agent.
Transfer Agent:: A transfer agent keeps a record of the name of each registered shareowner, his or her address, and the number of shares owned, and sees that certificates presented to his office for transfer are properly canceled and new certificates issued in the name of the transferee.
Treasury Bill (T-bill):: A short-term money market instrument sold at discount by the U.S. Government.
Treasury Bond:: A long-term bond sold by the U.S. Government.
Treasury Fund:: A government bond that seeks income by generally investing at least 80% of its assets in U.S. Treasury securities.
Treasury Inflation-Protected Securities (TIPS):: Treasury bonds structured to protect investors from inflation-related losses. TIPS' interest rates are fixed, but their principal, or face value, moves with the Consumer Price Index, so if inflation picks up, the holder receives higher payments. Held to maturity, the bonds are almost guaranteed to beat inflation. They tend to outperform regular Treasuries when inflation expectations rise and underperform when expectations fall.
Treasury Note:: A coupon issued by the U.S. Treasury with a maturity of 1 to 10 years.
Treasury Stock:: Stock issued by a company but later reacquired. It may be held in the company's treasury indefinitely, reissued to the public, or retired.
True No-Load:: This includes funds with maximum sales charges and 12b-1 charges equal to zero.
Turnover:: The volume of business in a security or the entire market, or the number of shares or bonds which have changed hands in a given day.
12b-1 Asset-Based Fees:: A provision of the Investment Company Act of 1940 that allows a mutual fund to collect a fee for the promotion, sale or other activity connected with the distribution of its shares. The fee must be reasonable (typically « to 1% of net assets managed), up to a maximum of 8.5% of the offering price per share.

Undermargined:: The condition of a margin account in which equity is less than the maintenance margin level.
Underwriter:: An investment banker that works with an issuer to help bring a security to the market and sell it to the public.
Underwriting:: The process by which investment bankers purchase an issue of securities from an issuer and resells it to the public.
Unit Investment Trust (UIT):: An investment company that sells redeemable shares in a professionally selected portfolio of securities. It is organized under a trust indenture, not a corporate charter.
Unlisted Security:: A security not listed on one of the organized exchanges or auction markets.
Unrealized Capital Gain:: A capital gain made only "on paper," that is, not realized until the fund's holdings are sold; also called paper profit or paper gain.

Value Line:: An investment advisory services that rates hundreds of stocks as to safety, timeliness and projected price performance.
Value Line Composite Index:: A market index composed of 1,700 exchange and over-the-counter stocks.
"Value" Stocks:: Stocks selling at low prices in relation to company assets, sales and earnings power (the kind of stocks favored by "value investors").
Variable Annuity:: An annuity contract that adjusts the monthly payment according to the investment experience (and sometimes the morality experience) of the insurer.
Variable Rate Mortgage (VRM):: An adjustable-rate mortgage; its rate is listed to an index of lender's cost of money, calculated periodically.
Variability:: Dispersion in the likely outcomes.
Velocity:: In the most common usage, the number obtained when Gross National Product is divided by money supply. As such, it represents the number of times per year that each dollar in the money supply is spent on goods and services.
Volatility:: Fluctuations in a security's or portfolio's return.
Voting Right:: The stockholder's right to vote his/her stock in the affairs of the company. Most common shares have one vote each. Preferred stock usually has the right to vote when preferred dividends are in default for a specified period. The right to vote may be delegated by the stockholder to another person.

Warrant:: A certificate giving the holder the right to purchase a security at a stipulated price, either for a specified period of time or perpetually.
Wash Sale:: Selling a security at a loss for tax purposes and, within 30 days before or after, purchasing the same or a substantially identical security. The Internal Revenue System will disallow the claimed loss.
Wealth Index:: Cumulative wealth from the beginning of one period to the end of another period.
Weighted Average Coupon (WAC):: The weighted average of the interest rates on the loans underlying a mortgage pool or asset-backed security, with the balance of each loan as the weighting factor.
When Issued (WI):: A method of trading in listed or unlisted securities which have not actually been issued. The securities are not yet deliverable and such trades are subject to subsequent delivery of the certificates.
Wilshire 5,000 Equity Index:: Measure of the total dollar value (in billions) of 5,000 actively traded stocks, including all those on the New York Stock Exchange and the American Stock Exchange, plus active over-the-counter stocks. A value-weighted market indicator composed of 5,000 exchange-listed and over-the-counter common stocks. It is the broadest measure of the market.
World Equity Benchmark Shares (WEBS):: Exchange-listed index funds holding portfolios of securities that track the Morgan Stanley Capital International Indices for particular country. WEBS are managed to trade at prices very close to the net asset value of the underlying stocks in the portfolio.
Wrap Account:: A type of brokerage account where all costs are wrapped in one fee.


Yankee Bond:: A bond of a foreign issuer payable in U.S. dollars and registered with the Securities Exchange Commission.
Yield:: The effective annual rate of return expressed as a percentage.
Yield to Average Life:: The yield derived when the average life date (average maturity) is substituted for the maturity date of the issue.
Yield to Call:: The yield computed assuming cash flow is the coupon stream to the call date, when the issue is redeemed at its call price.
Yield Curve:: A graphical depiction of the relationship between yields and time for bonds that are identical except for maturity; the pattern of interest rates across the entire spectrum of maturities represented in the U.S. Treasury bond market; A "normal" yield curve is positively sloped such that longer.
Yield to Maturity:: The return a bond earns on the price at which it was purchased if it were held to maturity. It assumes that coupon payments can be reinvested at the yield to maturity.
Yield Spread:: The relationship between bond yields and the particular features on various bonds such as quality, capability and taxes.

Zero-Coupon Bond:: A bond with no coupons that are sold at a deep discount from par value; they increase in value over time at a compound rate of return so that at maturity they are worth considerably more than their initial cost.

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z