Retirement Glossary

DIVIDEND

Money an investment fund or company pays to its stockholders, typically from profits. The amount is usually expressed on a per share basis.

 

DOW JONES INDUSTRIAL AVERAGE (DOW OR DJIA)

A widely followed price weighted index of 30 of the largest, most widely held U.S. stocks.

 

EMERGING MARKET

Generally, economies that are in the process of growth and industrialization, such as those in Africa, Asia, Eastern Europe, the Far East, Latin America and the Middle East that, while relatively undeveloped, may hold significant growth potential in the future. Investing in these economies may provide significant rewards and carry significant risks. May also be called “developing market.”

 

EMERGING MARKET FUND

A fund that invests primarily in emerging-market countries.

 

EMPLOYER SECURITIES

Securities issued by an employer of employees covered by a retirement plan that may be used as a plan-investment option.

 

EQUITY/EQUITIES

A security or investment representing ownership in a corporation, unlike a bond that represents a loan to a borrower. Often used interchangeably with “stock.”

 

EQUITY FUND

A fund that invests primarily in equities.

 

EQUITY WASH RESTRICTION

A provision in certain stable-value or fixed-income products under which transfers made from the stable-value or fixed-income product are required to be directed to an equity fund or other non competing investment option of the plan for a stated period of time (usually 90 days) before those funds may be invested in any other plan provided competing fixed-income fund (such as a money market fund).

 

EXCHANGE TRADED FUND (ETF)

An investment company, such as a mutual fund, whose shares are traded throughout the day on stock exchanges at market determined prices.

 

EXPENSE RATIO

A measure of what it costs to operate an investment, expressed as a percentage of its assets or in basis points. These are costs the investor pays through a reduction in the investment’s rate of return. See Operating Expenses and Total Annual Operating Expenses.

 

FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC)

A federal agency that insures money on deposit in member banks and thrift institutions.

 

FINANCIAL INDUSTRY REGULATORY AUTHORITY (FINRA)

A self regulatory organization for brokerage firms doing business in the United States. FINRA operates under the supervision of the SEC. The organization’s objectives are to protect investors and ensure market integrity.

 

FINANCIAL STATEMENTS

The written record of the financial status of a fund or company usually published in the annual report. Financial statements generally include a balance sheet, income statement and other financial statements and disclosures.

 

FIXED ANNUITY

An annuity contract in which the insurance company makes fixed or guaranteed payments to an individual for the term of the contract.

 

FIXED INCOME FUND

A fund that invests primarily in bonds and other fixed income securities, often to provide shareholders with current income.

 

FIXED RETURN INVESTMENT

An investment that provides a specific rate of return to the investor.

 

FUND FAMILY

A group or “complex” of mutual funds, each typically with its own investment objective, and managed and distributed by the same company. Also could refer to a group of collective investment funds or a group of separate accounts managed and distributed by the same company.

 

FUND OF FUNDS

A mutual fund, collective investment fund or other pooled investment that invests primarily in other mutual funds, collective investment funds or pooled investments rather than investing directly in individual securities (such as stocks, bonds or money market securities).

GLIDE PATH

The change over time in a target date fund’s asset allocation mix to shift from a focus on growth to a focus on income.

 

GLOBAL FUND

A fund that invests primarily in securities anywhere in the world, including the United States.

 

GOVERNMENT SECURITIES

Any debt obligation issued by a government or its agencies (e.g., Treasury Bills issued by the United States).

 

GROUP ANNUITY CONTRACT

An annuity contract entered into between an insurance company and an owner for the benefit of a designated group, such as retirement plan participants.

 

GROWTH FUND

A fund that invests primarily in the stocks of companies with above average risk in return for potentially above average gains. These companies often pay small or no dividends and their stock prices tend to have the most ups and downs from day to day.

 

GROWTH AND INCOME FUND

A fund that has a dual strategy of growth or capital appreciation and current income generation through dividends or interest payments.

 

GUARANTEED INTEREST ACCOUNT

An account within a fixed annuity or a variable annuity that is guaranteed by the insurance company to earn at least a minimum rate of interest while invested in the contract.

 

GUARANTEED INVESTMENT CONTRACT

A contract issued by an insurance company that guarantees a specific rate of return on an investment over a certain time period.

 

GUARANTEED LIFETIME WITHDRAWAL BENEFIT OR GUARANTEED MINIMUM WITHDRAWAL BENEFIT

A feature that may be offered under an annuity contract in which the insurance company promises an individual may withdraw a specified amount from an account, even if the account balance is reduced to zero: (1) for the life of the individual, or the joint lives of two individuals (e.g., the individual and spouse); or (2) for a specified period of time.

 

IMMEDIATE ANNUITY

An annuity contract under which periodic income payments begin within 12 months of purchase.

 

INCEPTION DATE

The date a fund begins operations.

 

INCOME FUND

A fund that primarily seeks current income rather than capital appreciation.

 

INDEX

A benchmark against which to evaluate a fund’s performance. The most common indices for stock funds are the Dow Jones Industrial Average and the Standard & Poor’s 500 Index.

 

INDEX FUND

An investment fund that seeks to parallel the performance of a particular stock market or bond market index. Index funds are often referred to as passively managed investments.

 

INDIVIDUAL ANNUITY CONTRACT

An annuity contract generally entered into by an insurance company and a person or persons.
Inflation: The overall, generally upward price movement of goods and services in an economy. Inflation is one of the major risks to investors over the long term because it erodes the purchasing power of their savings.

 

INTEREST/INTEREST RATE

The fee charged by a lender to a borrower, usually expressed as an annual percentage of the principal. For example, someone investing in bonds will receive interest payments from the bond’s issuer.

 

INTEREST RATE RISK

The possibility that a bond’s or bond fund’s market value will decrease due to rising interest rates. When interest rates (and bond yields) go up, bond prices usually go down and vice versa.

 

INTERNATIONAL FUND

A fund that invests primarily in the securities of companies located, or with revenues derived from, outside of the United States.

 

INVESTMENT ADVISER

A person or organization hired by an investment fund or an individual to give professional advice on investments and asset-management practices.

 

INVESTMENT COMPANY

A corporation or trust that invests pooled shareholder dollars in securities appropriate to the organization’s objective. The most common type of investment company, commonly called a mutual fund, stands ready to buy back its shares at their current net asset value.

 

INVESTMENT OBJECTIVE

The goal that an investment fund or investor seeks to achieve (e.g., growth or income).

 

INVESTMENT RETURN

The gain or loss on an investment over a certain period, expressed as a percentage. Income and capital gains or losses are included in calculating the investment return.

 

INVESTMENT RISK

The possibility of losing some or all of the amounts invested or not gaining value in an investment.

JOINT AND LAST SURVIVOR ANNUITY

An annuity that provides periodic payments for the joint lives of two individuals with benefits payable upon the death of one individual to the surviving individual at, for example, 50 percent, 75 percent or 100 percent of the original payment amount, depending upon the terms of the contract.

 

LARGE CAPITALIZATION OR LARGE CAP

A reference to either a large company stock or an investment fund that invests in the stocks of large companies.

 

LARGE CAP FUND

A fund that invests primarily in large-cap stocks.

 

LARGE CAP STOCKS

Stocks of companies with a large market capitalization. Large caps tend to be well established companies, so their stocks typically entail less risk than smaller caps, but large caps also offer less potential for dramatic growth.

 

LIFE ANNUITY

An annuity that makes periodic payments only for the life of one individual; also known as “single life annuity.”

 

LIFECYCLE FUND

A fund designed to provide varying degrees of long term appreciation and capital preservation based on an investor’s age or target retirement date through a mix of asset classes. The mix changes over time to become less focused on growth and more focused on income. Also known as “target date retirement” or “age based” funds.

 

LIFESTYLE FUND

A fund that maintains a predetermined risk level and generally uses words such as “conservative,” “moderate” or “aggressive” in its name to indicate the fund’s risk level. Used interchangeably with “target risk fund.”

 

LIPPER

A leading mutual fund research and tracking firm. Lipper categorizes funds by objective and size, and then ranks fund performance within those categories.

 

LIQUIDITY

The ease with which an investment can be converted into cash. If a security is very liquid, it can be bought or sold easily. If a security is not liquid, it may take additional time and/or a lower price to sell it.

 

LONGEVITY RISK

The risk that you will live longer than expected with the potential result that you run out of money before you die.

MSCI EAFE INDEX

An index known by an acronym for the Europe, Australasia and Far East markets produced by Morgan Stanley Capital International (MSCI). Markets are represented in the index according to their approximate share of world market capitalization. The index is a widely used benchmark for managers of international stock fund portfolios.

 

MSCI WORLD INDEX

An index of major world stock markets, including the United States. The index is a widely used benchmark for managers of global stock fund portfolios.

 

MANAGEMENT FEE

A fee or charge paid to an investment manager for its services.

 

MARKET CAPITALIZATION OR MARKET CAP

The market value of a company. Market capitalization can be determined by multiplying the number of outstanding shares of a company’s stock by the stock’s current market price per share.

 

MARKET RISK

The possibility that the value of an investment will fall because of a general decline in the financial markets.
Maturity Date: The date on which the principal amount of a loan, bond or any other debt becomes due and is to be paid in full.

 

MID CAPITALIZATION OR MID CAP

A reference to either a medium-sized company stock or an investment fund that invests in the stocks of medium sized companies.

 

MID CAP FUND

A fund that invests primarily in mid cap stocks.

 

MID CAP STOCKS

Stocks of companies with a medium market capitalization. Mid caps are often considered to offer more growth potential than larger caps (but less than small caps) and less risk than small caps (but more than large caps).

 

MONEY MARKET FUND

A mutual fund that invests in short term, high grade, fixed income securities and seeks the highest level of income consistent with preservation of capital (i.e., maintaining a stable share price).

 

MORNINGSTAR

A leading mutual fund research and tracking firm. Morningstar categorizes funds by objective and size, and then ranks fund performance within those categories.

 

MUTUAL FUND

An investment company registered with the SEC that buys a portfolio of securities selected by a professional investment adviser to meet a specified financial goal or investment objective. Mutual funds can have actively managed portfolios, in which a professional investment adviser creates a unique mix of investments to meet a particular investment objective, or passively managed portfolios, in which the adviser seeks to parallel the performance of a selected benchmark or index.

 

NASDAQ

The National Association of Securities Dealers Automated Quotation also called the “electronic stock market.” The NASDAQ composite index measures the performance of more than 5,000 U.S. and non U.S. companies traded “over the counter” through NASDAQ.

 

NET ASSET VALUE (NAV)

The net dollar value of a single investment fund share or unit that is calculated by the fund on a daily basis.

 

NEW YORK STOCK EXCHANGE (NYSE)

The oldest and largest stock exchange in the United States, founded in 1792.

 

NO LOAD FUND

A mutual fund whose shares are sold without a sales commission and which does not charge a combined 12b 1 fee and service fee of more than 25 basis points or 0.25 percent per year.

 

OPERATING EXPENSES

The expenses associated with running or operating an investment fund. Operating expenses may include custody fees, management fees and transfer agent fees. See Expense Ratio and Total Annual Operating Expenses.

 

PASSIVE MANAGEMENT

The process of or approach to operating or managing a fund in a passive or non active manner, typically with the goal of mirroring an index. These funds are often referred to as index funds and differ from investment funds that are actively managed.

 

PERIOD CERTAIN

A payment feature that may be available in an annuity contract that guarantees periodic payments for no less than a set period of time. For example, in a life annuity, periodic payments would be made for the longer of either: (1) the guaranteed period, to the individual or a beneficiary; or (2) the life of the individual.

 

PORTFOLIO

A collection of investments, such as stocks and bonds, that are owned by an individual, organization or investment fund.

 

PORTFOLIO MANAGER

The individual, team or firm making the investment decisions for an investment fund, including the selection of the individual investments.

 

PORTFOLIO TURNOVER RATE

A measure of how frequently investments are bought and sold within an investment fund during a year. The portfolio turnover rate is usually expressed as a percentage of the total value of an investment fund.

 

PRINCIPAL

The original dollar amount of an investment. May also be used to refer to the face value or original amount of a bond.

 

PROSPECTUS

The official document that describes certain investments, such as mutual funds, to prospective investors. The prospectus contains information required by the SEC, such as investment objectives and policies, risks, services and fees.

 

RATE OF RETURN

The gain or loss on an investment over a period of time. The rate of return is typically reported on an annual basis and expressed as a percentage.

 

REAL RATE OF RETURN

The rate of return on an investment adjusted for inflation.

 

REBALANCE

The process of moving money from one type of investment to another to maintain a desired asset allocation.

 

REDEMPTION

To sell fund shares back to the fund. Redemption can also be used to mean the repayment of a bond on or before the agreed upon pay off date.

 

REDEMPTION FEE

A fee, generally charged by a mutual fund, to discourage certain trading practices by investors, such as short term or excessive trading. If a redemption fee is charged it is done when the investment is redeemed or sold.

 

RETURN

The gain or loss on an investment. A positive return indicates a gain; a negative return indicates a loss.

 

RISK

The potential for investors to lose some or all of the amounts invested or to fail to achieve their investment objectives.

 

RISK TOLERANCE

An investor’s ability and willingness to lose some or all of an investment in exchange for greater potential returns.

 

ROUND TRIP RESTRICTION

A policy that limits the number of times an investor can exchange into and out of a fund within a given time frame. This is intended to discourage frequent trading that increases the costs to all the fund’s investors.

 

RUSSELL INDEXES

A group of indices that are widely used to benchmark investment performance. The most common is the Russell 2000 Index of U.S. small cap stocks, which measures the performance of the 2,000 smallest U.S. companies in the Russell 3000 Index.

 

SALES CHARGE

A charge for buying an investment.

 

SECTOR FUND

A fund that invests in a particular or specialized segment of the marketplace, such as stocks of companies in the software, healthcare or real estate industries.

 

SECURITIES AND EXCHANGE COMMISSION (SEC)

Government agency created by Congress in 1934 to regulate the securities industry and to help protect investors. The SEC is responsible for ensuring that the securities markets operate fairly and honestly.

 

SECURITY

A general term for stocks, bonds, mutual funds and other investments.

 

SHARE

A representation of ownership in a company or investment fund.

 

SHARE CLASS

Some investment funds and companies offer more than one type or group of shares, each of which is considered a class, for example: Class A, Advisor or Institutional shares. For most investment funds, each class has different fees and expenses but all of the classes invest in the same pool of securities and share the same investment objectives.

 

SHAREHOLDER

An owner of shares in an investment fund or corporation.

 

SHAREHOLDER TYPE FEES

Any fee charged against an investment for purchase and sale, other than the total annual operating expenses.

 

SMALL CAPITALIZATION OR SMALL CAP

A reference to either a small company stock or an investment fund that invests in the stocks of small companies.

 

SMALL CAP FUND

A fund that invests primarily in small cap stocks.

 

SMALL-CAP STOCKS

Stocks of companies with a smaller market capitalization. Small caps are often considered to offer more growth potential than large caps and mid caps but with more risk.

 

STABLE VALUE FUND

An investment fund that seeks to preserve principal and provide consistent returns and liquidity. Stable value funds include collective investment funds sponsored by banks or trust companies or contracts issued by insurance companies.

 

STANDARD & POOR’S 500 STOCK INDEX OR S&P 500

An index comprised of 500 widely held common stocks considered to be representative of the U.S. stock market in general. The S&P 500 is often used as a benchmark for equity fund performance.

 

STOCK

A security that represents an ownership interest in a corporation.

 

STOCK FUND

A fund that invests primarily in stocks.

 

STOCK SYMBOL

An abbreviation using letters and numbers that is assigned to securities to identify them. Also see Ticker Symbol.

 

SUMMARY PROSPECTUS

A short form prospectus that mutual funds generally use with investors if they make the long form prospectus and additional information available online or on paper upon request.

 

TARGET DATE FUND

A fund designed to provide varying degrees of long term appreciation and capital preservation based on an investor’s age or target retirement date through a mix of asset classes. The mix changes over time to become less focused on growth and more focused on income. Also known as a “lifecycle fund.”

 

TARGET RISK FUND

A fund that maintains a predetermined asset mix and generally uses words such as “conservative,” “moderate” or “aggressive” in its name to indicate the fund’s risk level. Often used interchangeably with “lifestyle fund.”

 

TICKER SYMBOL

An abbreviation using letters and numbers that is assigned to securities and indices to identify them. Also see Stock Symbol.

 

TIME HORIZON

The amount of time that an investor expects to hold an investment before taking money out.

 

TOTAL ANNUAL OPERATING EXPENSES

A measure of what it costs to operate an investment, expressed as a percentage of its assets, as a dollar amount or in basis points. These are costs the investor pays through a reduction in the investment’s rate of return. See Expense Ratio and Operating Expenses.

 

TRUSTEE

A person or entity (e.g., bank, trust company or other organization) responsible for the holding and safekeeping of trust assets. A trustee may also have other duties such as investment management. A “directed trustee” is responsible for the safekeeping of trust assets but has no discretionary investment management duties or authority over the assets.

UNIT

A representation of ownership in an investment that does not issue shares. Most collective investment funds are divided into units instead of shares. See Share.

 

UNITHOLDER

An owner of units in an investment. See Shareholder.

 

UNIT CLASS

Investment funds that are divided into units (e.g., collective investment funds) instead of shares may offer more than one type or group of units, each of which is considered a class (e.g., “Class A”). For most investment funds, each class has different fees and expenses but all of the classes invest in the same pool of securities and share the same investment objectives.

 

UNIT VALUE

The dollar value of each unit on a given date.
U.S. Treasury Securities: Debt securities issued by the United States government and secured by its full faith and credit. Treasury securities are the debt-financing instruments of the United States federal government, and are often referred to as “Treasuries.”

 

VALUE FUND

A fund that invests primarily in stocks that are believed to be priced below what they are worth.

 

VARIABLE ANNUITY

An annuity contract under which the insurance company promises to make payments beginning immediately or at some future date. The value of the annuity and amount of the benefits paid by the insurance company will vary depending on the performance of the investment options.

 

VARIABLE RETURN INVESTMENT

Investments for which the return is not fixed. This term includes stock and bond funds as well as investments that seek to preserve principal but do not guarantee a particular return, e.g., money market funds and stable value funds.

 

VOLATILITY

The amount and frequency of fluctuations in the price of a security, commodity or a market within a specified time period. Generally, an investment with high volatility is said to have higher risk since there is an increased chance that the price of the security will have fallen when an investor wants to sell.

 

WRAP FEE

A fee or expense that is added to or “wrapped around” an investment to pay for one or more product features or services.

 

YIELD

The value of interest or dividend payments from an investment, usually stated as a percentage of the investment price.

12B-1 FEE

A fee assessed on certain mutual funds or share classes permitted under an SEC rule to help cover the costs associated with marketing and selling the fund. 12b-1 fees may also be used to cover shareholder servicing expenses.