Investing in Mutual Funds Glossary
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Alpha
Alpha is the return achieved over and above the return that results from the correlation between the portfolio and the market (beta)
Appreciation
An increase in a fund's value.
Ask Price
Also known as the offering price, the ask price is the amount at which a mutual fund's shares can be purchased. To calculate the ask price, add a fund's current net asset value per share to its sales charge, if any.
Asset Allocation Fund
A mutual fund that splits its investment assets among stocks, bonds and other investment vehicles in an attempt to provide a consistent return for the investor. Also referred to as a "diversification fund".
Average Annual Return
The percentage change in a mutual fund's net asset value, factoring in distributions (income, dividend, and capital gains payments).
Average Life
The weighted average maturity date of a portfolio of bonds.
Back-End Load
A fee that an investor pays when selling a mutual fund within a certain number of years - usually seven. The fee is a shown as a percentage and usually decreases yearly until the seventh year when it drops to zero. Different funds will usually have different options available to investors pertaining to how they want the back-end load to be applied.
Balanced Fund
A mutual fund that invests its assets into the money market, bonds, preferred stock, and common stock with the intention to provide both growth and income. Also known as an "asset allocation fund".
Balanced Target Maturity Fund
A fund with an investment objective which seeks both long-term growth and income, through investment in both stocks and bonds. Typically, the stock/bond ratio ranges around 60%/40%. This broader diversification across asset classes tends to further reduce risk.
Benchmark Index
A standard against which the performance of a security, index or investor can be measured. Most equity mutual funds and portfolio managers use the S&P 500 index as the benchmark.
Beta
Market risk - The day-to-day potential for an investor to experience losses from fluctuations in securities prices. This risk cannot be diversified away.
Bid Price
Also known as the "sell" price, the bid price is the price at which a fund's shares are bought back by the fund. The bid price of a fund share is usually its net asset value.
Bottom-Up
An investment strategy that first seeks individual companies with attractive investment potential, then proceeds to consider the larger economic and industry trends affecting those companies.
Breakpoint
A predetermined contribution amount in a mutual fund making the investor eligible for a reduction in sales charges. Mutual Funds are required to give a description of these breakpoints and the eligibility requirements in their fund prospectus. It is prudent for investors to be aware of these.
Capital Appreciation
The profit made on an investment, measured by the increase in a fund share's value from the time of purchase to the time of sale.
Capital Appreciation Fund
A mutual fund that attempts to increase asset value primarily through investments in growth stocks. The heavy investment in growth stocks increases the risk associated with these types of funds. Also called "aggressive growth fund".
Capital Growth
Also called capital appreciation, capital growth is an investment objective of many stock funds. Capital growth is achieved when the market values of a fund's holdings increase, causing the fund's net asset value per share to increase.
Classes of Shares
Different types of shares issued by a single mutual fund, often referred to as Class A shares, Class B shares, and so on. Each class invests in the same "pool" (or investment portfolio) of securities and has the same investment objectives and policies. But each class has different shareholder services and/or distribution arrangements with different fees and expenses and therefore different performance results.
Clone Fund
A mutual fund that replicates the performance or strategy of an existing mutual fund or index through the use of derivatives.
Closed-End Fund
A fund that offers a limited number of shares. The shares of closed-end funds, which are typically listed on one of the major stock exchanges, are bought and sold through brokers. The price of the shares is determined by the pressures of supply and demand rather than by the value of underlying assets.
Commission
A fee imposed when funds are bought or sold to compensate the broker for his or her role in the transaction.
Commodity Contract
An agreement to buy or sell a set amount of a commodity at a predetermined price and date. Buyers use these to avoid the risks associated with the price fluctuations of the product or raw material, while sellers try to lock in a price for their products. Like in all financial markets, others use such contracts to gamble on price movements.
Contingent Deferred Sales Charge (CDSC)
A type of back end load sales charge, a contingent deferred sales charge is a fee charged when shares are redeemed within a specific period following their purchase.
Correlation
In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used in advanced portfolio management.
Counterparty Risk
The risk to each party of a contract that the counterparty will not live up to its contractual obligations.
Currency Contract
A contract that grants the holder the right, but not the obligation, to buy or sell currency at a specified exchange rate during a specified period of time. For this right, a premium is paid to the broker, which will vary depending on the number of contracts purchased. Currency options are one of the best ways for corporations or individuals to hedge against adverse movements in exchange rates.
Custodian
The organization (usually a bank) that keeps custody of securities and other assets of a fund.
Deferred Sales Charge
A type of back end load sales charge, a deferred sales charge is a fee charged when shares are redeemed within a specific period following their purchase.
Depreciation
A decline in an investment's value.
Derivative
In finance, a security whose price is dependent upon or derived from one or more underlying assets. The derivative itself is merely a contract between two or more parties. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes. Most derivatives are characterized by high leverage.
Diversification
The practice of spreading investments among different securities to reduce risk. Diversification works best when the returns of the securities are varied, so that losses incurred by securities falling in price are offset by gains of those rising in price. By nature, mutual funds are a diversified investment.
Dividend
Short-term profits, stock dividends or interest income which funds distribute to shareholders.
Dollar Cost Averaging
A method of investing that calls for the investment of a set dollar amount at regular intervals, regardless of the fund's share price. As a result, more fund shares are bought when prices are low than at high prices, usually bringing down an investor's average cost per share over time. Dollar cost averaging does not, however, guarantee a profit or protect against a loss.
Dow Jones Industrial Average (DJIA)
The oldest, best known, and most widely quoted stock market index. The DJIA reflects a price-weighted average of 30 actively traded blue chip stocks. These 30 securities represent between 15-20% of the market value of the New York Stock Exchange traded stocks.
Duration
The measure of the price sensitivity of a security to changes in interest rates. Calculation is based on the weighted average of the present values for all cash flows.
Equity Income Fund
A fund that seeks to provide relatively high current income and growth of income by investing a large portion of its assets in stocks.
Expected Return
1. In securities analysis, it is the expected value, or mean, of all the likely returns of investments comprising a portfolio. It is also known as "expected return".
2. In capital budgeting, it is the mean value of the probability distribution of possible returns.
Expense
A fund's cost of doing business. All of a fund's expenses are disclosed in the prospectus as a percentage of assets.
Expense Ratio
The percentage of total fund assets that is used to cover expenses associated with the operation of a mutual fund. This amount is taken out of the fund's assets and lowers the return that fund holders achieve. These expenses include management fees and operating expenses. The management fee is the fee that is charged to the fund by the portfolio manager, and it is often a fixed percentage. The operating expenses are the expenses that the fund incurs through operation and this can include brokerage fees, taxes, investor services and interest expenses.
401(k) Plan
An employer-sponsored retirement plan that enables employees to defer taxes on a portion of their salaries by earmarking that portion for the retirement plan. Several investment options, including a range of funds, are generally offered.
403(b)(7) Plan
A type of individual retirement account (IRA) designed specifically for employees of qualifying nonprofit organizations (i.e., public schools, public hospitals, churches). A 403(b)(7) plan enables these employees to defer taxes on a portion of their salaries by earmarking that portion for the retirement plan. Several investment options, including funds, are generally offered for investment.
Fixed Income Security
A security that pays a fixed rate of return. This term is usually used in reference to government, corporate or municipal bonds, which pay a fixed rate of interest until the bonds mature, and to preferred stock, which pay a fixed dividend. Fixed income securities offer the guarantee of a fixed return, but do not offer an investor much, if any, potential for growth.
Flexible Portfolio Fund
A fund that can invest in stocks, bonds and cash in whatever proportion the manager deems appropriate, providing the manager total flexibility seeking to achieve maximum returns. Flexible portfolio funds are sometimes called asset allocation funds.
Front-End Load
One of three possible sales charge schedules imposed by funds that charge fees. A front end load, or "upfront charge" is a fee charged on the initial purchase of fund shares, and can range from 3% to 8% of the purchase amount. Funds sold under several sales charge options usually refer to the shares sold with a front end load as "Class A shares."
Fund Manager
A highly trained investment professional with a vast amount of investment experience with good performance and exceptional formal education. The fund manager's main responsiblities include investing the assets of a mutual, pension, trust, or hedge fund, implementing investment strategy and managing the day-to-day portfolio trades.
General Bond Fund
A fund that invests in bonds without any quality or maturity restrictions.
General Municipal Bond Fund
A fund that invests primarily in bonds issued by municipalities throughout the country, and which generate federally tax-exempt income.
Global Macro
A hedge fund strategy that bases its holdings - such as long and short positions in various equity, fixed income, currency, and futures markets - primarily on overall economic and political views of various countries (macroeconomic principles).
Growth
An investment objective of many stock funds. Current income, if considered at all, is a secondary concern for these funds. Capital growth is achieved when the market value of a fund's holdings increases, causing the fund's net asset value per share to increase.
Growth Fund
A diversified portfolio of stocks that has capital appreciation as its primary goal, and thereby invests in companies that reinvest their earnings into expansion, acquisitions, and/or research and development
Growth Investing
An investment strategy to increase capital by buying stocks the manager believes will go up in price, regardless of the stock's current price relative to its underlying value. Growth investing is often discussed in contrast to value investing.
Hedge Fund
An aggressively managed portfolio of investments that uses advanced investment strategies such as leverage, long, short and derivative positions in both domestic and international markets with the goal of generating high returns (either in an absolute sense or over a specified market benchmark).
Hedging
Making an investment seeking to reduce the risk of adverse price movements in an asset. Normally, a hedge consists of taking an offsetting position in a related security, such as a futures contract.
High Current Yield Fund
A fund that seeks to provide a relatively high current yield. High current yield funds tend to invest primarily in lower grade fixed income securities without any quality or maturity restrictions.
High-Yield Bond Fund
A fund that invests primarily in high yield bonds, also referred to as junk bonds. High yield bond funds generally seek high returns and tend to be one of the riskier bond fund investments.
Historical Volalitity
The realized volatility of a financial instrument over a given time period. Generally, this measure is calculated by determining the average deviation from the average price of a financial instrument in the given time period. Standard deviation is the most common but not the only way to calculate historical volatility.
Inception Date
The date a fund was first made available to investors.
Index
Indicators used to provide a point of reference for evaluating a fund's performance. The most common indices for stock funds are the Dow Jones Industrial Average and the S&P 500 Index. For fixed-income funds it is the Lehman Brothers Aggregate Bond Index.
Index Fund
A type of mutual fund that seeks to closely mirror the performance of a specific index. The fund invests in the companies within the index according to a market value weighting.
Inflation Risk
The possibility that the value of assets or income will be eroded by inflation (the rising cost of goods and services). Inflation risk is often mentioned in relation to conservative fixed income funds. While these types of fixed income funds may minimize the possibility of losing principal, they expose an investor to inflation risk.
Investment Grade
High quality bonds that are rated Baa or higher by Moody's, or BBB or higher by Standard & Poor's. Investment grade bonds are considered safe, because the rating reflects the perceived financial stability of the issuer. Usually, however, the higher the bond's rating, the lower the interest it must pay to attract buyers.
Junk Bond
Bonds rated BB or below by Standard & Poor's Corporation and Ba or below by Moody's Investor Service. Junk bonds tend to be more volatile and higher yielding than bonds with higher quality ratings.
K
The abbreviation "K" is used to indicate declared or paid this year on a cumulative issue with dividends in arrears in newspaper listings.
Kicker
Additional feature of a security that is intended to strengthen its marketability by offering the possibility of equity participation. For example, a bond may be convertible to stock if the shares reach a specified price. The kicker makes the bond more attractive to investors--the bondholder, in addition to interest payments, potentially gets ownership benefits of an equity security. Some other types of equity kickers are rights and warrants.
Killer Bees
Those who assist a corporation in fighting off a takeover bid--usually investment bankers. They concoct strategies to make the target corporation less enticing or more difficult to acquire.
Kiting
Practice of sustaining credit or of raising money by causing stock prices to rise through manipulative trading methods.
Know Your Customer
Securities industry ethics established by exchange rules, NASD Rules of Fair Practice and other authorities regulating broker-dealer practices. In order to satisfy the "know your customer" rules, when opening an account with a brokerage firm, the customer must provide information regarding his financial situation. Based upon the facts disclosed by the customer, the broker must have a reasonable belief that the recommendation they are making is suitable for the customer.
Ladder
A fixed income investment strategy that seeks to reduce interest rate risk by investing in fixed income securities with a wide variety of maturities. Though this strategy assures continuous cash flow, there may be some sacrifice of total return, since shorter-term bonds tend to have lower yields than longer-term bonds.
Large-Caps
Stocks of companies with market capitalizations of more than $1 billion. Large-caps tend to be well established companies, so that their stocks entail less risk than smaller-caps, but which also offer less potential for dramatic growth.
Leverage
1. The use of various financial instruments or borrowed capital, such as margin, to increase the potential return of an investment.
2. The amount of debt used to finance a firm's assets. A firm with significantly more debt than equity is considered to be highly leveraged.
Lipper Analytical Services Inc.
A leading mutual fund research and tracking firm. Lipper categorizes funds by objective and size, and then ranks fund performance within those categories.
Lipper Indicies
The Lipper Analytical Indices are equally weighted indices of typically the 30 largest mutual funds within their respective investment objectives. Returns are adjusted for the reinvestment of capital gains distributions and income dividends.
Liquidity
The ability to sell securities at a reasonable price with relative ease in order to raise cash. This is a major and often overlooked aspect of an individual's investment strategy. Liquidity is a concern for any monies that may be required on short notice, whether for emergencies or for planned purchases.
Load
Term used in the mutual fund industry to identify the sales charge or commission on a particular fund. Common types of loads are front-end loads, or back-end loads (deferred sales charges).
Long/Short Equity
A hedge fund strategy that involves buying certain stocks long and selling others short. There usually isn't a restriction on the country that the stocks trade in either.
Long-Term Funds
All funds other than short-term funds (i.e., money market funds).
Long Term Bond
A bond maturing in 10 or more years.
Low-Load
A sales charge of 3% or less.
Management Fee
The amount a fund pays to its investment adviser for its services. The average annual fee industry wide is about one half of one percent of fund assets. A fund's management fee must be listed in its prospectus.
Market Capitalization
Also referred to as "market cap." Market capitalization is a measure of a corporation's value, calculated by multiplying the number of outstanding shares of common stock by the current market price per share. Market capitalization is usually grouped into four main categories: large-cap, mid-cap, small-cap, and micro-cap.
Market Timing
The act of attempting to predict the future direction of the market, typically through the use of technical indicators or economic data.
Maturity Date
The date on which the principal amount of a bond is to be paid in full.
Micro-Caps
A subset of small-caps. Stocks of companies with a market capitalization of less that $50 million are "micro caps." Micro-caps tend to be new, relatively untested corporations that can offer greater growth potential than larger caps, but also entail greater risk.
Mid-Caps
Stocks of companies with a medium market capitalization, usually defined as between $500 million and $3-5 billion. 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).
Minimum Purchase
The smallest investment amount a fund will accept to establish a new account. Most fund groups also impose a minimum for additional purchases to an existing account.
Modern Portfolio Theory
A theory on how risk-averse investors can construct portfolios in order to optimize market risk for expected returns, emphasizing that risk is an inherent part of higher reward. Also called portfolio theory or portfolio management theory.
Money Market Fund
Type of mutual fund that invests in high-yielding, short-term money-market instruments, such as U.S. government securities, commercial paper, and certificates of deposit. Returns of money-market funds usually parallel the movement of short-term interest rates.
Morningstar
An independent mutual fund rating agency that tracks over 7,200 mutual funds. Of those, Morningstar publishes full-page research reports on 1,500. Morningstar's rating system calls for the awarding of between 1 (the lowest) and five (the highest) stars to a fund for its risk adjusted performance over a 3, 5, and 10-year period. Approximately 10% of the funds rated earn five stars. Star ratings are recalculated monthly.
Mutual Fund
An open-end investment company that offers the investor the benefits of portfolio diversification, and professional management. The shares are redeemable on demand at their net asset value. The fund invests the pooled assets into various investment vehicles including stocks, bonds, options, commodities and money market securities. How the fund invests is determined by the fund's objectives. The mutual fund's prospectus details this type of information plus information on any fees, the management company and other relevant data.
Mutual Fund Family
A group of mutual funds supervised by the same investment company. Funds can be moved easily from one type of fund to another if conditions (market or personal) dictate a change. As a rule, investors may apply purchases in all funds (within the family) toward sales charge breakpoints.
NASDAQ Composite
A market-value weighted index of all common stocks listed on Nasdaq. The Nasdaq Composite dates back to 1971, which is when the Nasdaq exchange was first formalized. The index is used mainly to track technology stocks, and thus it is not a good indicator of the market as a whole. Unlike the Dow Jones Industrial Average (DJIA), the Nasdaq is market value-weighted, so it takes into account the total market capitalization of the companies it tracks and not just their share prices.
Net Assets
The net worth of a fund.
New York Stock Exchange
The world's largest stock exchange with well over 3,000 companies listed and a market capitalization of trillions of dollars. The NYSE is an international exchange, with nearly 400 non-American companies listed.
No Load Fund
A mutual fund whose shares are sold without a commission or sales charge. The reason for this is that the shares are distributed directly by the investment company, instead of going through a secondary party. This is the opposite of a load fund, which charges a commission upon the initial purchase at the time of sale.
Objective
A fund's investment objective states the financial goals it is aiming for, such as "growth," or "income."
Offering Price
Also known as the "ask" price, the offering price is the amount at which a mutual fund's shares can be purchased. To calculate the offering price, add a fund's current net asset value per share to its sales charge, if any.
Open-End Fund
Also known as "mutual fund." An investment company that pools money from shareholders and invests in a variety of securities, including stocks, bonds, and money market instruments. They offer growth, income, or both, and the opportunity to invest in everything from a country or industry to the movements of the markets themselves. A mutual fund continually sells new shares to investors and redeems those that are tendered by shareholders.
Option Fund
A fund which trades options to increase the value of its shares. The fund may either be conservative or aggressive. A conservative fund, commonly called an "option income fund," may buy stocks and increase shareholders' income through the premium earned by writing options on the stocks within the portfolio. An aggressive fund, commonly called an "option growth fund," may buy options in securities that the fund manager thinks will fall or rise sharply in the near term.
Performance
A measure of how well a fund is doing. Two commonly used mutual fund performance measures are yield (which measures dividends) and total return (which measures dividends plus changes in net asset value).
Pooling
Pooling is the basic concept behind mutual funds. A fund pools the money of thousands of individual and institutional investors who share common financial goals. The fund uses this pool to buy a diversified portfolio of investments
Portable alpha
The strategy of portfolio managers separating alpha from beta by investing in securities that differ from the market index from which their beta is derived. Alpha is the return achieved over and above the return that results from the correlation between the portfolio and the market (beta). In simple terms, this is a strategy that involves investing in areas that have little to no correlation with the market.
Portfolio
A collection of securities owned by an individual or an institution (like a mutual fund). A fund's portfolio may include a combination of stocks, bonds, and money market securities.
Portfolio Manager
The individual who is responsible for managing a mutual fund's assets.
Portfolio Turnover
A measure of the trading activity in the fund's portfolio of investments. In other words, how often securities are bought and sold.
Principal
The basic amount actually invested, exclusive of earnings.
Prospectus
The official document that describes a mutual fund. A prospectus describes the fund's objectives, history, manager background and financial statements.
Quant Fund
An investment fund that selects securities based on quantitative analysis. In such funds, the managers build computer-based models to determine whether or not an investment is attractive. In a pure "quant shop" the final decision to buy or sell is made by the model. However, there is a middle ground where the fund manager will use human judgment in addition to a quantitative model.
R-Squared
A statistical measure that represents the percentage of a fund's or security's movements that are explained by movements in a benchmark index. For fixed-income securities the benchmark is the T-bill, and for equities the benchmark is the S&P 500.
Real Return
The actual return earned on an investment after factoring in the rate of inflation.
Record Date
The date on which a shareholder must officially own a stock's shares in order to receive a company's declared dividend or to vote on company issues.
Relative Return
The return that an asset achieves over a period of time compared to a benchmark. The relative return is the difference between the absolute return achieved by the asset and the return achieved by the benchmark.
Repurchase Agreement (REPO)
A contract under which an investor sells a United States security to a bank or Corporation, and agrees to repurchase the security later at a specified time and price. Purchaser earns interest competitive with money market rates.
Right of Accumulation (ROA)
A right that allows a shareholder to receive reduced sales charges when the amount of mutual funds purchased, plus the amount already held, equals an ROA breakpoint. In addition, there is no time limit on how long the mutual fund needs to be held to qualify for a ROA.
Rollover
The reinvestment of funds into another, often similar, investment. Often used when securities are maturing, or when moving an Individual Retirement Account
Russell 2000 Index
A commonly cited index of small-cap stocks.
S&P 500 Index
An unmanaged group of stocks often considered representative of the stock market in general. This index is composed of 400 industrial, 20 transportation, 40 utility, and 40 financial companies.
SEC Yield
A standardized calculation that the Securities and Exchange Commission requires mutual funds to use when advertising rates of income return. This standardized rate ensures that investors are comparing "apples to apples" when comparing ads from different mutual fund companies.
Sales Charge
An amount charged to purchase shares in many mutual funds sold by brokers or other sales agents. The maximum allowable charge is 8.5% of the initial investment.
Shareholder
An investor. The shareholder is the owner of shares of a mutual fund.
Short Selling
The selling of a security that the seller does not own, or any sale that is completed by the delivery of a security borrowed by the seller. Short sellers assume that they will be able to buy the stock at a lower amount than the price at which they sold short.
Short-Term Fund
A fund that invests primarily in securities with maturities of less than one year.
Small Company Growth Fund
A fund that seeks aggressive growth of capital by investing primarily in stocks of relatively small companies with the potential for rapid growth.
Small-Caps
Shorthand for small capitalization stocks, small-caps usually have a market capitalization of $500 million or less. In general, small caps tend to be less established companies that offer more growth potential than larger capitalized companies, but which also entail greater risk.
Statement of Additional Information (SAI)
An attachment to the fund's prospectus that contains more detailed, supplementary information. Also referred to as "Part B," the SAI is available at no charge upon request from a fund.
A tool showing a fund's characteristics such as the investment philosophy, underlying investments and risks. This helps investors and investment companies easily understand and convey information about the fund.
Swap
Traditionally, the exchange of one security for another to change the maturity (bonds), quality of issues (stocks or bonds), or because investment objectives have changed. Recently, swaps have grown to include currency swaps and interest rate swaps
Systematic Withdrawal System
An optional service often available to shareholders that would arrange for a fixed amount to be redeemed from an account and sent to the shareholder on a regular basis (usually monthly, quarterly, or semi-annually).
12b-1 Fee
An annual charge assessed to shareholders in order to pay for distribution, marketing, advertising, and promotional costs of a mutual fund. The 12b- 1 fee is included in a mutual fund's annual expense ratio.
Taxable Equivalent Yield
The yield that would have to be earned on a security to pay as much, after tax, as what is earned from a tax-exempt bond.
Total Expense Ratio (TER)
A measure of the total costs associated with managing and operating an investment fund such as a mutual fund. These costs consist primarily of management fees and additional expenses such as trading fees, legal fees, auditor fees and other operational expenses. The total cost of the fund is divided by the fund's total assets to arrive at a percentage amount, which represents the TER:
Total Return
A measure of a fund's performance that takes three factors into account: income dividends, capital gains distributions, and share price appreciation/depreciation.
Transfer
The process of changing ownership of an account within the same fund.
Transfer Agent
The organization employed by a mutual fund to prepare and maintain records relating to the accounts of its shareholders. Some funds serve as their own transfer agents.
Treasuries
Fixed income securities issued by the U.S. government. Treasuries include: Treasury Bills (T-Bills), Treasury Notes, and Treasury Bonds.
Turnover Rate
The rate at which the fund buys and sells securities each year. For example, if a fund's assets total $100 million and the fund bought and sold $100 million of securities that year, its portfolio turnover rate would be 100%.
U.S. Treasury Fund
A fund that invests primarily in financial instruments issued or guaranteed by the U.S. Treasury or its agencies.
Underwriter
The organization that acts as the distributor of a mutual fund's shares to broker/dealers and investors.
Unit Trust
An unincorporated mutual fund structure that allows funds to hold assets and pass profits through to the individual owners, rather than reinvesting them back into the fund.
Value Investing
The investment style of attempting to buy underpriced stocks that have the potential to perform well and increase in price.
Variable Annuity
A type of insurance contract that guarantees future payments to the holder, or annuitant. Capital accumulates tax-free, often through investment in a mutual fund, and is converted to an income stream at a future date (usually retirement). All monies held in the annuity accumulate on a tax-deferred basis.
Volatility
Volatility is the relative rate at which the price or value of an investment asset tends to rise and fall. The more rapid the rate, the more volatile the investment asset.
Voluntary Accumulation Plan
A plan to acquire additional shares in a mutual fund on a more or less regular basis, at the discretion of the shareholder.
Withdrawal Plan
A payment structure arranged with a mutual fund in which the investor receives a set amount of funds from the fund on a periodic basis. This is also called a "systematic withdrawal plan".
Wrap Account
An account in which a brokerage manages an investor's portfolio for a flat quarterly or annual fee. This fee covers all administrative, commission, and management expenses. Sometimes this also includes funds of funds.
X (Ex-Interest)
A security that is trading without the interest. The abbreviation "X" is used in newspaper listings and in bond tables.
XD (Ex-Dividend)
A security that is trading without the quarterly dividend. The abbreviation "XD" is used in newspaper stock listings.
XR (Ex-Rights)
A security that is trading without rights attached. The abbreviation "XR" is used in newspaper stock listings.
XW (Ex-Warrants)
A security that is trading without warrants attached. The abbreviation "XW" is used in newspaper stock listings.
Yield
Current income (interest or dividends) paid by a fund, expressed as a percentage of the investment's price.
Yield Curve
A curve on a graph that plots the interest rate (yield) of a bond on the vertical axis and the length of time until maturity on the horizontal axis. Their relationship is frequently referred to as the yield curve. Three basic types of curves exist. A normal curve is when interest yields are higher for longer term bonds and lower for shorter term bonds. A flat curve is when yields are about the same for longer term and shorter term bonds. Finally, an inverted curve is when the short term yields are higher than the yields on longer term bonds.
Yield to Maturity (YTM)
The effective annual rate of return earned by a bond if held to maturity. This rate takes into account the amount paid for the bond, the length of time to maturity, and assumes coupon payments can be reinvested at the yield to maturity.
Zero Coupon Bond
Bond issued at a discount which accrues interest that is paid in full at maturity.
Zero-Sum World
A situation in which one participant's gains result only from another participant's equivalent losses. The net change in total wealth among participants is zero; the wealth is just shifted from one to another.
