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Basic Investment Terminology

12b-1 Charge
An added annual charge in a mutual fund that charges shareholders for some of the fund's promotion expenses.
Adjusted Gross Income
Total income less allowed adjustments, which include such items as moving expenses, IRA, and Keogh contributions, and employee business expenses.
Back-End Load Mutual Fund
Additional charges and fees paid out annually rather than initially, unless money is withdrawn early, then a surrender charge or deferred sales charge takes affect
Balanced Fund
A mutual fund that invests in both stocks and bonds.
Bear Market
A declining market, may refer to entire market or individual security.
Blue-Chip Stocks
Shares of a large, mature company with a steady record of profits and dividends and a high probability of continued earnings.
A long term promissory note, prices go up when interest rates go down.
Bull Market
A rising market
Long Term Capital Gains
The difference between an asset's purchase price and selling price, on holdings of more than 12 months.
Capital Preservation
Protecting the initial investment from loss of principal, typically accomplished by investing in conservative or guaranteed vehicles.
Closed-End Mutual Fund
Issues a limited number of shares and does not redeem those that are outstanding. Trades at a premium or discount to NAV as share prices determined by pressures of supply and demand.
Cost Basis
Original price of an asset, used in determining capital gains. It usually is the purchase price, but in the case of an inheritance it is the appraised value of the asset at the time of the donor's death.
Issuing additional shares, thereby reducing proportional ownership of existing shareholders.
Pay out of realized capital gains on securities in the portfolio of the fund or closed end investment company.
Spreading of risk by putting assets in several categories of investments or with a broad range of stocks in one portfolio.
A share of a company's net profits distributed by the company to its stockholders.
Dollar Cost Averaging
A formula-investment plan requiring periodic fixed-dollar-amount investments. This practice tends to average the unit cost of an investment over time.
Embedded (Or Inherited) Unrealized Gains
Unrealized gains within a mutual fund that would create a tax liability upon sale, even for new investors that did not participate in the gains.
Emerging Markets
Developing foreign markets, involving greater volatility and higher risk than established markets.
May be stock, bond, or options (securities)
Investments that will provide capital appreciation over the long-term.
Index Fund
A fund whose portfolio is matched to an index, such as S & P, and whose performance therefore mirrors the market as a whole. (Usually have low fees and are tax efficient in bull markets.)
Inflation Protection
Investing a portion of the portfolio in growth stocks or funds in order to keep up with the rise in the price of goods and services.
Junk Bonds
High-risk bonds, usually promising a very high indicated return coupled with a larger risk of default.
Load Fund
Mutual fund with shares sold at it's NAV plus a sales charge (typically 4-8%) of the net amount invested.
Long Position
The ownership of stocks or other securities, as opposed to a short position where one has sold securities that are not owned and want the price to go down.
Low-Load Fund
Mutual funds that typically charge a 1-3% sales charge rather than a full load of 4-8%.
Market Timing
Market timing is the method of investing in certain asset classes at certain times to improve your returns - particularly stocks. Essentially, market timers try to outguess the trend of stocks or other prices. Although market timing may sound tempting, it has proven to be difficult to do well over the long-term. It may seem easy to wait for a market decline and then buy stocks before prices start going up, but much of the appreciation of stocks comes in brief, unexpected spurts that catch most investors off guard. Usually, by the time a new trend is evident, a significant portion of the appreciation has already passed.
Money-Market Account
An interest bearing account where cash is held, generally a safer haven.
Net Asset Value (NAV)
The per-share market value of a mutual fund's portfolio.
No-load Fund
A fund whose shares are bought and sold directly at the fund's NAV. Unlike a load fund, no agent or sales fee is involved, true no loads avoid deferred sales charges and 12b-1 fees.
Low-priced stocks, usually considered under $1 per share, but sometimes includes stocks below $3.
A holding of one or more securities by a single owner (institution or individual)..
Preferred Stock
Shares whose indicated dividends and liquidation values must be paid before common shareholders receive any dividends or liquidation payments.
An official document that all companies offering new securities for public sale must file with the SEC.
Liquidating a shareholder's holdings.
The degree of uncertainty and chance of loss of principal regarding an investment.
Paper assets representing a claim on something of value, such as stocks, bonds, mortgages, etc.
A securities transaction exchange whereby each shareholder ends up with more shares representing the same percentage of the firm. (Reverse split is when you get less shares).
Ownership shares in a corporation.
Tax Efficient Funds
Funds that are managed to create a minimum tax situation, but be aware of embedded unrealized gains.
Tender Offer
An offer to purchase a large block of securities made outside the general market in which the securities are traded. Such offers are often made as part of an effort to take-over a company.
Total Rate of Return
An annual return on an investment including appreciation and dividends or interest.
Characteristic of a security, commodity, or market to rise or fall sharply in price within a short period of time, driven by emotions of fear and greed.
The return of an investment expressed as a percentage of its market value.