Annual Report: A report that public companies are required to file annually which describes the preceding year's financial results and plans for the upcoming year. Annual reports include information about a company's assets, liabilities, earnings, profits, and other year-end statistics.

Annuity: A contract by which an insurance company agrees to make regular payments to someone for life or for a fixed period in exchange for a lump sum or periodic deposits.

Asset Allocation: The placement of a certain percentage of investment capital within different types of assets (e.g., 50% in stock, 30% in bonds, and 20% in cash).

Bear Market: Term used to describe a prolonged period of declining stock prices.

Before (Pre)-Tax Dollars: Money contributed to a tax-deferred savings plan that you do not have to pay income tax on until withdrawal at a future date.

Blue-Chip Stock: Term, derived from the most expensive chips in a poker game, used to indicate the stock of companies with long records of growth and profitability.

Bond: A debt instrument or IOU issued by corporations or units of government.

Broker: A professional who transfers investors orders to buy and sell securities to the market and generally provides some financial advice.

Bull Market: Term used to describe a prolonged period of rising stock prices.

Buy and Hold: A strategy of purchasing an investment and keeping it for a number of years.

Capital Appreciation: An increase in market value of an investment (e.g., stock).

Capital Gains Distribution: Payment to investors of profits realized upon the sale of securities.

Capitalization: The market value of a company, calculated by multiplying the number of shares outstanding by the price per share. Capitalization is often called "cap" for short in the names of specific investments.

Certificate of Deposit (CD): An insured bank product that pays a fixed rate of interest (e.g., 5%) for a specified period of time.

Commission: Fee paid to a broker to trade securities, generally based on the number of shares traded (e.g., 100 shares) or the dollar amount of the trade.

Commodities: An investment in a contract to buy or sell products such as fuel oil, pork, grain, coffee, sugar, and other consumer staple items by a specified future date.

Common Stock: Securities that represent a unit of ownership in a corporation.

Compound Interest: Interest credited daily, monthly, quarterly, semiannually, or annually on both principal and previously credited interest.

Convertible Securities: Bonds or preferred stock that can be exchanged for a fixed number of shares of common stock in the same corporation.

Corporate Bonds: Debt instruments issued by for-profit corporations.

Discount Broker: A broker that trades securities for a lower commission than a full-service broker.

Diversification: The policy of spreading assets among different investments to reduce the risk of a decline in the overall portfolio from a decline in any one investment.

Dividend: A distribution of income from investments to shareholders.

Equity Investing: Becoming an owner or partial owner of a company or a piece of property through the purchase of investments such as stock, growth mutual funds, and real estate.

401(k) Plan: A retirement savings plan sponsored by for-profit companies that allows an employee to contribute pretax dollars to a company investment vehicle until the employee retires or leaves the company.

Growth Fund: Mutual fund that invests in stocks exhibiting potential for capital appreciation.

Growth Stocks: Stock of companies that are expected to increase in value.

Index: An unmanaged collection of securities whose overall performance is used as an indication of stock market trends. An example of an index is the widely quoted Dow Jones Industrial Average, which tracks the performance of 30 large company U.S. stocks.

Index Fund: Mutual fund that attempts to match the performance of a specified stock or bond market index by purchasing some or all of the securities that comprise the index.

Individual Retirement Account (IRA): A retirement savings plan that allows individuals to save for retirement on a tax-deferred basis. Individuals may contribute up to $2,000 per year in an individual account. For spousal accounts, the limit is $4,000. The amount that is tax deductible varies according to an individual. s access to pension coverage, income tax filing status, and adjusted gross income.

Investment Clubs: Organizations of investors who meet and contribute money regularly toward the purchase of securities.

Keogh Plan: A qualified retirement plan for self-employed individuals and their employees to which tax-deductible contributions up to a specified yearly limit can be made if the plan meets certain requirements of the Internal Revenue Code.

Limit Order: An order to buy or sell securities that specifies that a trade should be made only at a certain price or better.

Liquidity: The quality of an asset that permits it to be converted quickly into cash without a significant loss of value.

Load: A commission charged by the sponsor of a mutual fund upon the purchase or sale of shares.

Management Fee: The amount paid by mutual funds to their investment advisers.

Marginal Tax Rate: The rate you pay on the last (highest) dollar of personal or household (if married) earnings. Current federal marginal tax rates range from 15% to 39.6%.

Market Order: An order to buy or sell a stated amount (e.g., 100 shares) of a security at the best possible price at the time the order is received in the marketplace.

Market Value: The current price of an asset, as indicated by the most recent price at which it traded on the open market. If the most recent trade in ABC stock was at $25 for example, the market value of the stock is $25.

Maturity: The date on which the principal amount of a bond, investment contract, or loan must be repaid.

Money Market Mutual Fund: A highly liquid mutual fund that invests in short-term obligations such as commercial paper, government securities and certificates of deposit.

Mutual Fund: An investment company that pools money from shareholders and invests in a variety of securities, including stocks, bonds and money market securities.

Net Worth: The dollar value remaining when liabilities (what you owe) are subtracted from assets (what you own). Example: $200,000 of assets - $125,000 of debt = a $75,000 net worth.

Portfolio: The combined holding of stocks, bonds, cash equivalents, or other assets by an individual or household, investment club, or institutional investor (e.g., mutual fund).

Preferred Stock: A type of stock that offers no ownership or voting rights and generally pays a fixed dividend to investors.

Price/Earnings (P/E) Ratio: The price of a stock divided by its earnings per share (e.g., $40 stock price divided by $2 of earnings per share = a P/E ratio of 20).

Principal: The original amount of money invested or borrowed, excluding any interest or dividends.

Prospectus: An official booklet that describes a mutual fund. It contains information as required by the U.S. Securities and Exchange Commission on topics such as the fund. s investment objectives, investment restrictions, purchase and redemption policies, fees, and performance history.

Risk: Exposure to loss of investment capital (i.e., amount of money invested).

Risk Management: Actions taken (e.g., purchase of insurance) to provide protection against catastrophic financial losses (e.g., disability and liability). Risk management is an important investing prerequisite.

Sales Charge: The amount charged to purchase mutual fund shares. The charge is added to the net asset value per share to determine the per share offering price.

Securities: A term used to refer to stocks and bonds in general.

Simplified Employee Pension (SEP): A tax-deferred retirement plan for owners of small businesses and the self-employed.

Stock: Security that represents a unit of ownership in a corporation.

Tax Deferral: Investments where taxes due on the amount invested and/or its earnings are postponed until funds are withdrawn, usually at retirement.

Tax-Exempt: Investments (e.g., municipal bonds) where earnings are free from tax liability.

Total Return: The return on an investment including all current income (interest and dividends), plus any change (gain or loss) in the value of the asset.

U.S. Treasury Securities: Debt instruments issued by the federal government with varying maturities (bills, notes, and bonds).

Value Stock: A stock with a relatively low price compared to its historical earnings and the value of the issuing company. s assets.

Volatility: The degree of price fluctuation associated with a given investment, interest rate, or market index. The more price fluctuation that is experienced, the greater the volatility.