Words worth Knowing

Fiduciary

A Fiduciary is an individual or organization that is legally required to act in the best interest of another person or persons, putting their clients' interests ahead of their own with a duty to preserve good faith and trust.

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Key Financial Terms

Essential Definitions for a Confident Financial Future

401(k)

An employer-sponsored retirement plan allowing pre-tax or Roth contributions. Employers may match a portion of contributions.

529 Plan

A 529 Plan is a tax-advantaged savings plan designed to encourage saving for future education costs, offering tax-free growth and withdrawals when used for qualified educational expenses.

AGI

Adjusted Gross Income, your total income minus certain deductions. Used to determine eligibility for tax deductions and credits.

AMT

Alternative Minimum Tax, a parallel tax system ensuring high-income individuals pay a minimum amount of tax.

Accredited Investor

Accredited Investor

An Accredited Investor is a person or entity allowed to invest in higher-risk securities, such as private equity or hedge funds, typically due to meeting specific income or net worth criteria.

Active Investment

Active Investment

Active Investment involves a hands-on approach where portfolio managers make specific investments with the goal of outperforming market indices.

Asset Allocation

Asset Allocation

The mixture of investments that you hold inside of your investment portfolio.

Balance Sheet

The financial statement that contains details of an individual’s or company’s assets and liabilities at a specific point in time.

Bear Market

A market characterized by falling prices and investor pessimism. Often signals an economic downturn.

Bearer Bond

A Bearer Bond is a fixed-income security owned by the holder (bearer), with no registered owner, making it transferable and payable to anyone in possession of the physical certificate.

Black Friday

Black Friday refers to the day after Thanksgiving in the U.S., known for major retail sales and the start of the holiday shopping season, often resulting in significant consumer spending.

Bond

A financial instrument where an investor lends money to a borrower, who agrees to repay the borrowed amount with interest at a later date.

Bull Market

A market characterized by rising prices and investor optimism. Generally indicates economic growth.

CFP

Certified Financial Planner, a professional who helps individuals with personal financial planning and decision-making.

CPA

A licensed professional qualified to perform accounting, taxation.

Certificates of Deposit

Certificates of Deposit

A savings vehicle issued by a bank, offering a fixed interest rate in exchange for keeping your money deposited for a set term.

Charitable Remainder Trust (CRT)

Charitable Remainder Trust (CRT)

A trust that provides income to beneficiaries for a set term, with the remainder going to charity.

Compound Interest

Compound Interest

When you earn interest on both the money you’ve saved and the past interest you’ve earned.

Custodian

A financial institution that holds and safeguards assets, such as stocks and bonds, on behalf of clients.

Debt Ceiling

A maximum limit on the amount of debt a government can issue to fund its operations.

Direct Indexing

Direct Indexing

Direct Indexing involves creating a personalized index by directly investing in individual securities rather than a mutual fund or ETF, allowing for customized tax and investment strategies.

Diversification

Diversification

Spreading investments across different assets to reduce risk.

Dividend

A portion of a company's earnings paid to shareholders, usually in cash or additional shares.

Dollar Cost Averaging

Dollar Cost Averaging

Investing a fixed amount at regular intervals, regardless of market conditions. Can reduce the impact of market fluctuations.

Donor Advised Fund (DAF)

Donor Advised Fund (DAF)

A Donor Advised Fund (DAF) is a charitable giving vehicle where donors contribute assets, receive an immediate tax deduction, and recommend grants to charities over time.

ETF

Exchange Traded Fund, a type of investment fund that holds a basket of assets and trades like a stock on an exchange.

Equity

Typically, the value you may realize in owning shares of a company.

FDIC

Federal Deposit Insurance Corporation, a U.S. agency that insures deposits at banks and savings institutions.

Fiduciary

A Fiduciary is an individual or organization that is legally required to act in the best interest of another person or persons, putting their clients' interests ahead of their own with a duty to preserve good faith and trust.

Fixed Interest Rate

Fixed Interest Rate

The interest rate on a loan or security that does NOT change.

Halloween Effect

Halloween Effect

The Halloween effect is the idea that markets perform better from November to April, supporting the adage "Sell in May and go away."

Incentive Stock Option (ISO)

Incentive Stock Option (ISO)

A type of employee stock option that provides tax advantages if specific holding and timing requirements are met.

Index Funds

A type of mutual fund or ETF designed to track a specific market index, such as the S&P 500.

Inflation

The rate at which the general level of prices for goods and services is rising, causing a decrease in purchasing power.

Initial Public Offering (IPO)

Initial Public Offering (IPO)

The first sale of a company's stock to the public, marking the transition from private to public ownership.

Intentionally Defective Grantor Trust (IDGT)

Intentionally Defective Grantor Trust (IDGT)

A trust used in estate planning to transfer wealth while freezing estate tax value.

Irrevocable Life Insurance Trust (ILIT)

Irrevocable Life Insurance Trust (ILIT)

A trust designed to hold life insurance policies, keeping proceeds out of the taxable estate.

Irrevocable Trust

Irrevocable Trust

An Irrevocable Trust is a legal arrangement where the grantor permanently relinquishes control over assets, offering benefits like estate tax reduction and asset protection.

Liquidity

The ease with which an asset can be converted into cash without affecting its market price.

Living Trust

A Living Trust is a legal document created during an individual's lifetime where assets are placed into the trust for easy transfer to beneficiaries without probate after death.

Market Capitalization

Market Capitalization

The measurement of a company’s size, calculated by multiplying the share price by the number of shares.

Money Market

A financial market for short-term debt securities. Money market funds invest in these low-risk instruments.

Monte Carlo Simulation

Monte Carlo Simulation

Monte Carlo Simulation is a statistical technique used in financial planning to model the probability of different outcomes in an investment portfolio by running multiple simulations based on random variables.

Municipal Bond

Debt security issued by a state or local government.

Mutual Funds

An investment vehicle pooling money from many investors to buy a diversified mix of assets, like stocks and bonds.

Net Worth

Net Worth is the total value of an individual's or entity's assets minus liabilities, representing the financial position and overall wealth.

Nominal Yield

The interest rate stated on a bond or other fixed-income security, expressed as a percentage of the face value. It does not account for the effects of inflation on the investment's actual returns.

Non-qualified Stock Option (NSO)

Non-qualified Stock Option (NSO)

An employee stock option that does not qualify for special tax treatment and is taxed when exercised.

Passive Investment

Passive Investment

Passive Investment is a strategy that aims to match the returns of a market index by investing in the same securities as the index, typically through index funds or ETFs.

Portfolio

A collection of financial assets. This can include stocks, bonds, mutual funds, exchange-traded funds (EFTs), real estate, and other types of investments.

Power of Attorney (POA)

Power of Attorney (POA)

A legal document granting someone authority to act on another person’s behalf in financial or medical matters.

Private Equity

Private Equity involves investment funds that buy and restructure companies not publicly traded, aiming to improve operations and increase value before selling them.

Quarterly Tax Estimates

Quarterly Tax Estimates

Periodic tax payments made by self-employed individuals or those with significant non-wage income.

RIA

Registered Investment Advisor, a professional who provides financial advice and manages investments for clients, regulated by the SEC or state securities authorities.

ROTH IRA

A retirement savings account allowing post-tax contributions. Withdrawals are generally tax-free.

RSU

Restricted Stock Unit, a form of employee compensation involving company stock that vests over time.

Real Yield

The returns that a bond investor earns from interest payments after accounting for inflation. It shows how much your investment's value will actually grow, letting you know its true earning power.

Rebalance

Adjusting an investment portfolio to realign with the portfolio’s intended allocation.

Registered Investment Advisor

Registered Investment Advisor

A Registered Investment Advisor (RIA) is a firm or individual registered with the SEC or state regulators to provide financial advice and investment management services to clients, and is bound by state and federal laws.

Revocable Trust

Revocable Trust

A Revocable Trust, or living trust, is a flexible estate planning tool where the grantor can alter or revoke the trust during their lifetime, providing asset management and probate avoidance.

Risk Tolerance

An individual's willingness to take on financial risk in pursuit of investment returns. Influences asset allocation decisions, and may change from time to time.

Special Needs Trust

Special Needs Trust

A Special Needs Trust is designed to provide financial support for individuals with disabilities without jeopardizing their eligibility for government benefits.

Spousal Lifetime Access Trust (SLAT)

Spousal Lifetime Access Trust (SLAT)

A trust that provides benefits to a spouse while keeping assets outside the taxable estate.

Stock Option

A contract giving the right to buy or sell a stock at a set price within a specific time frame.

Stocks

Represent ownership in a company. Investors may profit from capital gains and dividends.

Tax Bracket

Income range used to determine the tax rate applied to your income. The higher your income, the higher the tax rate.

Tax Credit

A dollar-for-dollar reduction of your tax liability. Can be refundable or nonrefundable.

Tax Deduction

An expense subtracted from taxable income, reducing the amount of income subject to tax.

Tax Deferred

Tax Deferred refers to investment earnings such as interest, dividends, or capital gains that accumulate tax-free until the investor withdraws and takes possession of them, typically at retirement.

Tax Loss Harvest

Tax Loss Harvest

A strategy that involves selling an underperforming investment to offset capital gains and reduce taxes.

Taxable Brokerage Account

Taxable Brokerage Account

An investment account subject to taxes on interest, dividends, and capital gains. No contribution limits.

Traditional IRA

Traditional IRA

A retirement savings account allowing pre-tax contributions. Withdrawals are taxed as ordinary income.

Transfer on Death (TOD)

Transfer on Death (TOD)

A designation allowing assets to pass directly to a beneficiary without probate after the owner’s death.

Treasury Bond

Long-term debt securities issued by the U.S. Department of the Treasury.

Variable Interest Rate

Variable Interest Rate

AKA an adjustable interest rate, is an interest rate or loan that fluctuates over time. The rate can vary either over a short period (monthly) or over a longer period of time (every few years).

Venture Capital

Venture Capital

Venture Capital is financing provided by investors to startups and small businesses with high growth potential in exchange for equity or ownership stakes.

Wash Sale Rule

The Wash Sale Rule prohibits investors from claiming a tax deduction for a security sold at a loss if a substantially identical security is purchased within 30 days before or after the sale.

Yield

Yield is the annual income you earn from an investment, expressed as a percentage of the investment's original cost.

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