Accelerated death benefit

Allows the policyholder to receive all or part of the policy's proceeds prior to death under certain circumstances (life's too short to go into them all here, but one that's included is life expectancy of 12 months or less).

Accumulation plan

A plan for the systematic accumulation of mutual fund shares through periodic investments and reinvestments of income dividends and capital gains distributions.

After-tax retirement income

The amount of spending money needed, net after tax, to provide an investor with his or her desired lifestyle. Can be thought of as their annual budget in retirement or their total planned annual spending in retirement.

Aggressive Growth Funds

Funds that invest in shares of companies with earnings and profits that are expected to grow rapidly to seek maximum capital gain and have more risk.

Alpha

That portion of an investment's historical return in excess of the risk-free interest rate that is estimated to be unrelated to market movements.

Amortization

The gradual elimination of a liability, such as a mortgage, in regular payments over a specified period of time. Such payments must be sufficient to cover both principal and interest.

Annuity

A contract that provides for a series of payments to be made or received at regular intervals. An annuity may be immediate, starting as soon as the premium has been paid, or deferred, starting at a designated later date. Annuities are commonly used to fund retirement.

Appreciating asset

An asset that is growing in worth.

Asset allocation

Investment strategy whose purpose is to enhance total return and/or reduce risk by diversifying assets among different types of stocks, bonds and money market investments; i.e., variety is the spice of investment life.

Asset classes

They're types of investments, such as stocks, bonds, real estate, and cash.

ASIC

The Australian Securities & Investments Commission is a government agency with the task of regulating the sale and distribution of insurance and investment products to consumers.

ASX

The Australian Stock Exchange operates to allow for the buying and selling of stocks in Australian companies. Average annual total return. Represents the average annual change in value of an investment over time, including changes in share price and income (dividends or interest) expressed as a percentage. In other words, it's roughly how much you made (or lost).

Balanced fund

A fund that seeks both growth and income through a portfolio that includes stocks and bonds.

Bankruptcy

A legal process available to individuals (and businesses) who are overextended financially and unable to pay their debts. Individuals can file for bankruptcy in order to legally eliminate some or all of their debts. Bankruptcy will not discharge all debts. Bankruptcy should not be taken lightly. Consult a lawyer.

Beneficiary

An individual, institution, trustee, or estate that receives, or may become eligible to receive, benefits under a will, insurance policy, retirement plan, annuity, trust, or other contract.

Beta

That portion of an investment's historical return in excess of the risk-free interest rate that is estimated to be related to market movements (expressed as a percentage of the excess return of the market over the risk-free interest rate).

Blue Chip

It refers to any company known nationally for the quality and wide acceptance of its products or services, and for its ability to make money and pay dividends.

Bond

Basically an IOU or promissory note of a corporation, usually issued in multiples of $1,000. A bond is evidence of a debt on which the issuing company usually promises to pay the bondholders a specified amount of interest for a specified length of time, and to repay the loan on the expiration date. In every case, a bond represents debt—its holder is a creditor of the corporation and not a part owner, as is the shareholder.

Broker

A registered representative who handles the public's orders to buy and sell securities, commodities, or other property. Brokers usually charge commissions for their services.

Brokerage

Security transaction executed through a "brokerage firm" or "broker/dealer" in stocks, bonds, mutual funds, options or other investment securities. This term is often mistakenly used for the brokerage firm itself. But that's not right. It's the transaction.

Bull market

A prolonged period in which investment prices rise faster than their historical average. Bull markets can happen as a result of an economic recovery, an economic boom or investor psychology.

Business cycle

A predictable long-term pattern of alternating periods of economic growth and decline, characterized by many factors, including changing employment, industrial productivity, and interest rates.

Business risk

Risk associated with the unique circumstances of a particular company, as they might affect the price of that company's shares. It's basically the old Risk vs. Reward story, except on a corporate scale.

Capital appreciation

The increase in value (price) of securities you own.

Capital gain or capital loss

Profit or loss from the sale of a capital asset. A capital gain, under current federal income tax laws, may be either short-term (less than one year) or long-term (more than one year). Tax is levied differently depending on whether it was a long or short term asset.

Capital stock

All shares representing ownership of a business, including preferred and common.

Collateral

Securities or other property pledged by a borrower to secure repayment of a loan.

Commission

The broker's basic fee for purchasing or selling securities or property as a registered representative.

Common stock

Securities that represent an ownership interest in a corporation. If the company has also issued preferred stock, both common and preferred have ownership rights. Claims of both common and preferred stockholders are junior to claims of bondholders or other creditors of the company.

Community property

Any property that a married couple has acquired during their marriage.

Compound interest

The interest that accrues when earnings for a specified period are added to the principal, so that interest for the following period is computed on the principal plus accumulated interest. Interest is calculated on reinvested interest as well as on the original amount invested

Consumer price index (CPI)

An inflationary indicator that measures the change in the cost of a fixed "basket" of products and services, including housing, electricity, food, and transportation. The CPI is published monthly by the Bureau of Statistics. Also called the cost-of-living index.

Convertible

A bond, debenture, or preferred share that may be exchanged by the owner for common stock or another security, usually of the same company, in accordance with the terms of the issue.

Corporation

The most common form of business organization, and one that is chartered by a state and given many legal rights as an entity separate from its owners. Characterised by the limited liability of its owners, the issuance of shares of easily transferable stock, and existence as a going concern.

Credit risk

The investor's risk of not receiving back the money or interest payments expected.

Current assets

Those assets of a company that are reasonably expected to be realized in cash, or sold or consumed during the normal operating cycle of the business.

Day trader

Active stock trader who holds positions for a very short time and makes several trades each day.

Death benefit

The payment made to a beneficiary from an annuity or life insurance policy when the policyholder dies. Also called face amount or face value.

Debit Card

Used much like a credit card, although purchases are deducted directly from your personal check account.

Defined benefit plan

A company retirement plan, such as a defined benefit plan, in which a retired employee receives a specific benefit based on salary history and years of service, and in which the employer bears the investment risk. Contributions may be made by the employee, the employer, or both.

Deflation

It's the opposite of inflation. Deflation is a fall in the general level of prices. It can be a very bad thing since businesses and consumers make plans based on the expectation that prices will remain stable or climb. When prices fall, it sets off a potential domino effect in the overall economy.

Depreciation

A decline in the value of property due to general wear and tear.

Disability income insurance

A kind of insurance that replaces a portion of the income lost in the event of disability. Many different kinds of disabilities qualify.

Diversification

Spreading investments among different companies in different fields. Another type of diversification is offered by the securities of many individual companies because of the wide range of their activities.

Dividend

The payment designated by the board of directors to be distributed pro rata among the shares outstanding. Preferred shares generally pay a fixed dividend, while common shares pay a dividend that varies with the earnings of the company and the amount of cash on hand. Dividends may be omitted if business is poor or the directors withhold earnings to invest in plant and equipment. Sometimes a company will pay a dividend out of past earnings even if it is not currently operating at a profit.

Dividend reinvestment plan (DRIP)

An investment account in which dividends are automatically reinvested in additional shares. With this type of account, capital gains distributions are also automatically reinvested. Dividends (but not capital gains) may be reinvested at offering price, but are more commonly reinvested at asset value.

Dollar-cost averaging

A system of buying securities at regular intervals with a fixed dollar amount. Under this system you buy by the dollar's worth rather than by the number of shares. If each investment is the same number of dollars, payments buy more shares when the price is low and less when it increases. Temporary downswings in price therefore benefit you if you continue to make periodic purchases in both good times and bad, and the price at which the shares are sold is more than their average cost. Keep in mind that periodic investment plans do not assure a profit or protect against loss in declining markets. Consider your financial ability to continue purchases through periods of low price levels.

Enduring Power of Attorney

A legal document allowing individuals to grant others general or specific powers for managing financial or medical decisions in the event that the individual becomes incapacitated and unable to make decisions.

Economic Cycle

Predictable long-term pattern changes in national income. Traditional business cycles undergo four stages: expansion, prosperity, contraction and recession. After a recessionary phase, the expansionary phase can start again. The phases of the business cycle are characterised by changing employment, industrial productivity and interest rates. Some economists believe that stock price trends precede business cycle stages.

Encryption Software

Encryption technology permits digital information to be scrambled to make it unreadable by those who do not have a complete set of digital keys. When you type confidential information on an online order form, for example, it's scrambled so your credit card number and address, etc., don't float unattended in cyberspace.

Equity

The ownership interest of common and preferred stockholders in a company. Also refers to excess of value of securities over the debit balance in a margin account. Also, the value of a property that remains after all liens and other charges against the property are paid. A property owner's equity generally consists of his or her monetary interest in property in excess of the mortgage indebtedness. In the case of a long-term mortgage, the owner's equity builds up quite gradually during the first several years because the bulk of each monthly payment is

applied, not to the principal amount of the loan, but to the interest.

Executor

An individual or institution nominated in a will and appointed by a court to settle the estate of a deceased.

Expense Ratio

Expresses the percentage of a fund's average net assets spent on the operation and management of the fund (includes management fees).

Face amount

Face amount is the amount stated on the face of the insurance policy that will be paid in case of death. It does not include additional amounts payable under accidental death or other special provisions.

Financial Plan

A plan with stated goals and objectives pertaining to current and long-term investment needs of the individual.

Firewall Protection

A software or hardware device to control or prevent access to computer on a Local Area Network (LAN) from outside computers on the Internet.

Fixed Annuity

"Fixed Annuity" is generally the term used to distinguish an annuity with a specified rate of return provided by the issuing insurance company. In a "variable annuity" the return is based on the performance of underlying equity and bond-based sub-accounts. An annuity is an insurance product that provides lifetime retirement income in previously designated monthly installments.

Frozen assets

An account whose funds may not be withdrawn until a lien is satisfied or an ownership dispute is resolved. Frozen accounts often occur after a depositor dies. They also can occur when the true owner has to be determined.

Growth fund

Funds in companies whose rate of growth over a period of time is considerably greater than that of business in general. With more potential growth comes more risk.

Growth stock

It's stock of a company with a record of relatively rapid earnings growth. Growth stocks tend to trade at above average P/E ratios

Health insurance

Insurance that provides protection against financial losses resulting from illness, injury and disability. In general, any insurance program covering medical expenses and/or income lost owing to illness or accidental injury.

Heir

Individual who will receive assets upon the death of another.

High-yield bonds

Bonds issued by corporations to finance expansion and other activities. The ability of the issuer to repay is considered to be speculative by ratings agencies, and there is greater risk of default compared to higher-quality bonds.

Historical Performance

How an investor's financial plan would have performed if applied to the actual market returns on a historical basis in all market periods from 1926 to now.

Hospice care

A formal program of care for terminally ill patients as directed by a physician. Treatment must be provided by a state-licensed or Medicare-approved hospice care organisation.

Inception date

The date on which a fund commenced operations.

Income fund

A mutual fund with a primary objective of current income.

Income taxes

Taxes on income, both earned (salaries, wages, tips, commissions) and unearned (interest from savings accounts, dividends if you hold stock). Individuals and businesses are subject to income taxes.

Index fund

A passively managed mutual fund that tries to mirror the performance of a specific index, such as the S&P 500. Since portfolio decisions are automatic and transactions are infrequent, expenses tend to be lower than those of actively managed funds. Rumor has it that fund managers responsible for index funds keep their notes on index cards and store them in old recipe boxes.

Individual retirement account (IRA)

A tax-deferred personal retirement account that allows a person to invest up to $3,000 (or 100% of compensation, whichever is less) each year. Your contribution may be tax deductible depending on your adjusted gross income, whether you're married and whether your employer offers a retirement plan at work. A Rollover IRA accepts eligible employer-sponsored retirement plan assets.

Inflation

General rise in price of goods and services resulting in a loss of purchasing power.

Initial Public Offering (IPO)

The first offering of stock of a company to the public

Insolvent

A business that is unable to meet debt obligations, which may lead to bankruptcy or forfeiture of property.

Insurable interest

The beneficiary who would suffer financial loss if the insured dies; without an insurable interest, an insurance company will not issue a policy. Gays and lesbians need to be aware that naming their partner as beneficiary is not recognized as an insurable interest by some insurance companies.

Interest

Amount charged by a lender to a borrower for the use of money. Interest rates are normally expressed on an annual basis.

Interest rate risk

If you have securities that you bought for the fixed income feature (such as bonds and preferred stock), if the interest rate changes your piece of the pie will move in the opposite direction.

Internal Revenue Service (IRS)

The federal agency responsible for administering and enforcing the Treasury Department's revenue laws, through the assessment and collection of taxes, determination of pension plan qualification, and related activities.

Intestate

Dying without a legal will. Distribution of the property is overseen by a probate court.

Investment

A current commitment of money for a period of time, to obtain future payments or wealth to compensate the investor for the time the funds were committed, for the inflation that may affect them, and for the uncertainty of repayment.

Investment company

A company owning a diversified portfolio of securities that are professionally chosen and managed on the basis of certain investment criteria

Investment objective

The result desired by an investor or fund, such as current income or capital appreciation

Investment-grade bond

A bond which is relatively safe, having a high bond rating as provided by various ratings agencies.

Investments

Assets held to assist in achieving financial objectives.

Investor

An individual whose principal concerns in the purchase of a security are regular dividend income and/or capital appreciation without unnecessary risk.

Key person insurance.

Protects businesses from the loss of individuals whose capital, knowledge, client base or experience are vital to the company. This can include a director, a specialised employee or a supplier.

Lapsed policy

A policy terminated at the end of the grace period because of non-payment of premiums.

Large-Cap stock

Stock of a company that has a total market value (market capitalization) which is larger than most. Usually at least $5 billion. Large companies have usually been around awhile and will continue to be around awhile, which makes their stock tend to increase in value (with normal fluctuation, of course).

Leverage

The degree to which an investor or business is utilizing borrowed money.

Liabilities

A broadly defined term implying legal or financial responsibilities to others.

Liability insurance

Coverage to protect against the liability the insured becomes legally obligated to pay due to bodily injury, property damage, or professional liability or libel.

Lien

A claim by one person on the property of another as security for money owed.

Life insurance

Insurance coverage against death of a person to be paid to a beneficiary when the insured dies. See term insurance.

Line of credit

The maximum pre-approved amount that a person may borrow without completing a new credit application.

Liquid

Description of the condition in which an individual has adequate cash and near-cash assets to meet current debt.

Long-term capital gain or loss

A capital gain or loss on an investment which was held for at least some minimum amount of time (often a year and a day). A long-term gain usually results in a lower tax rate than a short-term gain.

Long-term care

Physical, mental and social assistance provided to people who are unable to provide for themselves as a result of disability or a prolonged illness. Care ranges from providing personal care at home, such as bathing and dressing, to skilled nursing services in a nursing home.

Management fee

The fee paid to the investment manager of an investment fund. It is usually about one-half of one percent, or maybe one percent, of average net assets annually. Not to be confused with the sales charge, which is the onetime commission paid at the time of purchase as a part of the offering price

Market risk

Risk that is common to an entire class of assets or liabilities.

Money Market

Portfolios of high-quality, short-term securities. Marked by high liquidity and superior returns, they're an alternative to bank savings accounts. However, they are not guaranteed and could lose value.

Moody's

Moody's Investors Service is a leading global credit rating, research and risk analysis firm which publishes credit opinions, research, and ratings on fixed-income securities, issuers of securities and other credit obligations. Credit ratings and research help investors analyse the credit risks associated with fixed-income securities.

Morningstar

A leading provider of investment fund and stock information. An independent company, Morningstar does not own, operate, or hold any interest in investment funds, stocks, or insurance products.

Net asset value (NAV)

A term usually used in connection with investment funds, meaning net asset value per share. It is common practice for these funds to compute their net asset value daily by totalling the market value of all securities owned, deducting liabilities, and dividing the balance by the number of shares outstanding. The resulting figure is the net asset value per share.

Net worth

The amount by which a person's total assets exceeds total liabilities.

New issue

A stock or bond sold by a corporation for the first time. Proceeds may be issued to retire outstanding securities of the company, for new plant or equipment, or for additional working capital.

Nursing home care

As it relates to long-term care, 24-hour care provided in state-licensed facilities with medical personnel on staff. Patients require varying degrees of ongoing care for physical or mental impairments.

Online brokerage

Brokerage firms that provide their services over the Internet.

Open account

When referring to investment funds, a type of account in which the investor may add or withdraw shares at any time. In such an account, dividends may be paid in cash or reinvested at the account holder's option.

Par

It's the nominal dollar amount assigned to a security by the issuer. For an equity security, par is usually a very small amount that bears no relationship to its market price, except for preferred stock, in which case par is used to calculate dividend payments. For a debt security, par is the amount repaid to the investor when the bond matures (usually, corporate bonds have a par value of $1,000).

Partnership

A type of unincorporated business organization in which multiple individuals, called general partners, manage the business and are equally liable for its debts; other individuals called limited partners may invest but not be directly involved in management and are liable only to the extent of their investments.

Performance

Investment results measured in percentage returns. If there are no contributions or withdrawals, annualized or compound returns may be used to measure the dollar amount of investment return. If there are contributions or withdrawals, the dollar amount of investment return is dependent on the individual returns year by year as applied to the value of the portfolio each year as impacted by contributions or withdrawals.

Policy lapse

A period during which an insurance policy is not in effect due to a failure to pay premiums required to keep policy in force.

Portfolio

A group of securities held by an investor. They might include stocks, bonds, preferred stock or cash.

Power of attorney

A legal document giving another the power to act as one's attorney or agent in handling all personal affairs. The power may be general or specific and is revoked upon the death of the principal.

Preferred stock

A class stock with a claim on the company's earnings before payment may be made on the common stock and usually entitled to priority over common stock if the company liquidates. Usually entitled to dividends at a specified rate, when declared by the board of directors and before payment of a dividend on the common stock, depending on the term of the issue.

Price-earnings (P/E) ratio

The price of a share of stock divided by earnings per share for a 12-month period. For example, a stock selling for $100 a share and earning $5 a share is said to be selling at a price-earnings ratio of 20 to 1.

Privacy Policy

A web site's statement to users of what information it collects and what it will do with the information after it has been collected. Be sure to check the privacy policy on sites you frequent.

Probate

A judicial procedure to test the authenticity and validity of an estate, will, guardianship or trust agreement.

Prospectus

The document that offers securities for sale to the public. It must explain the offer, including the terms, planned use of the money, historical financial statements and other info that could help investors decide whether the investment is suitable for them.

Put

An option to sell a specified number of shares at a definite price within a specified period of time. The opposite of a call.

Rally

A brisk rise following a decline in the general price level of the market or in an individual stock.

Reinstatement

Restoration of a lapsed policy. The company requires evidence of insurability and payment of past-due premiums plus interest.

Residual value

A term used to describe the estimated worth of an automobile at the end of a lease term. The residual value is used to calculate what a base monthly lease payment will be.

Retirement Income

The amount of income needed, on an annual basis, to live once the investor has retired. Can be pre tax (the amount needed for spending plus the taxes due on that amount) or after tax (the amount needed for spending to meet their lifestyle excluding taxes).

Return

The dividends or interest paid by a company expressed as a percentage of the current price. A stock with a current market value of $20 a share that has paid $1 in dividends in the preceding 12 months is said to return 5 percent ($1/$20). The current return on a bond is figured the same way. Another term for yield.

Reverse Mortgage

An arrangement in which a homeowner borrows against the equity in his/her home and receives regular monthly payments from the lender.

Risk

Uncertainty that an asset will earn its expected rate of return, and is generally measured using standard deviation.

Risk Insurance

Insurance is a risk management arrangement where one party, the insured, pays a small amount or premium under a binding contract with another party, the insurer, in order to protect or indemnify the insured from a potentially larger financial loss upon the occurrence of a specified insured event.

Risk tolerance

Technically, it's the measure of an investor's ability to accept risk. Investors are often categorized as risk indifferent, risk averse or risk-seeking.

Savings account

A bank account established for the purpose of putting aside money for future spending goals. Savings accounts normally earn a relatively low rate of interest.

Security

An investment instrument, other than an insurance policy or annuity, issued by a corporation, government, or other organisation which offers evidence of debt or equity.

Share

Certificate representing one unit of ownership in a corporation or limited partnership.

Short-term capital gain or loss

A capital gain or loss on an investment that was held for less than some minimum amount of time (often a year and a day). A short-term gain usually results in a higher tax rate than a long-term gain.

Short-term investments

Relatively stable investments that can be easily changed into currency, such as a checking account, Treasury bills, a money market account, or even a short-term bond fund.

Simple interest

It's the interest charge computed on the original principal. It is compared with compound interest, which is applied to the original principal and accumulated interest.

Small-Cap Stock

Ownership in a company in which the total value of outstanding stock is smaller than most companies. Typically less than $1.5 billion.

Sole proprietorship

A business structure in which an individual and his or her company are considered a single entity for tax and liability purposes.

Standard & Poor's

Standard & Poor's Ratings Services rates conventional-term debt and general-obligation corporate and bonds. Standard & Poor's operates without government mandate, is independent of any investment banking firm or similar organization, and does not engage in trading or underwriting activities.

Standard deviation

This is a statistic used as a measure of dispersion in a distribution. See risk.

Stock

Ownership shares of a corporation that provides the lender with a claim on a company's earnings and assets. Stock may be issued in different forms, including common and preferred. Holders of common stock are the last to be paid any profits from the company but are likely to profit most from the company's growth. Owners of preferred stock are paid a fixed dividend before owners of common stock, but the amount of the dividend doesn't usually grow if the company grows.

Stock dividend

A dividend paid in securities rather than cash. The dividend may be additional shares of the issuing company or shares of another company (usually a subsidiary) held by the issuing company.

Stock exchange

An organisation with physical facilities for the buying and selling of securities in a two-way auction.

Tax deductible

An item or expense subtracted from adjusted gross income to reduce the amount of income subject to tax.

Tax lien

A debt attached against property for failure to pay taxes. It can result in the sale of the property in order to settle the debt, but the lien will be removed if the taxes are paid.

Tenants in common

A form of registration of property, frequently used with securities. An undivided estate in property where, upon the death of the owner, the undivided estate becomes the property of heirs or devisees and not of the surviving coowner.

Term insurance

Life insurance under which the benefit is payable only if the insured dies during a specified period of time.

Treasury bill

Government security with a maturity usually of under one year. These bills usually pay no interest, but yield the difference between its par value and its discounted purchase price.

Treasury bond

Government security with a maturity of more than 10 years. Pays interest periodically.

Treasury note

Government security which matures between 1 and 10 years. Pays interest periodically.

Trusts

A legal arrangement in which an individual (the trustor) gives fiduciary control of property to a person or institution (the trustee) for the benefit of beneficiaries.

Value stocks

Stocks that have and are expected to continue to show low levels of profit growth. These stocks often trade at below-average P/E ratios.

Vested

The rights of an individual to receive benefits from employment, such as pension, sick leave and vacation. Pension benefits are vested when the employee has worked a specified number of years. The person may then leave the employer for another job and still collect the accumulated amount at retirement.

Volatility

The extent to which the value of an investment changes. Often used as a description of risk and measured as Standard Deviation.

Waiver of premium

A provision that sets certain conditions under which an insurance policy would be kept in full force by the company without the payment of premiums. It is used most frequently for those policyholders who become totally and permanently disabled, but may be available in certain other cases.

Weak Dollar

A weak dollar means that the Australian dollar can't buy very much of another currency. The strength of the dollar has an impact on imports and exports because goods and services from a foreign nation are usually purchased in the currency of the producing nation.

Will

A written document specifying that a person, called a testator, is disposing of his or her property, upon death, to the parties named. To be enforceable, the will must be signed and witnessed.

Yield

Also known as return. The dividends or interest paid by a security expressed as a percentage of the current price. A stock with a current market value of $20 a share that is currently paying dividends at the rate of $1 a year is said to return 5 percent ($1/$20). The current return on a bond is figured the same way.