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Adjusted Gross Income (AGI)
An interim calculation in the
computation of income tax liability. It is computed by subtracting
certain allowable adjustments from gross income.
Administrator
A person appointed by the court to
settle an estate when there is no will.
After-Tax Return
The return from an investment after the
effects of taxes have been taken into account.
Aggressive Growth Fund
A mutual fund whose primary investment
objective is substantial capital gains.
Alternative Minimum Tax
A method of calculating income tax that
disallows certain deductions, credits, and exclusions. This was
intended to ensure that individuals, trusts, and estates that
benefit from tax preferences do not escape all federal income tax
liability. People must calculate their taxes both ways and pay the
greater of the two.
Annuity
An insurance-based contract that
provides future payments at regular intervals in exchange for
current premiums. Annuity contracts are usually purchased from
banks, credit unions, brokerage firms, or insurance companies.
Asset
Anything owned that has monetary value.
Asset Allocation
The process of repositioning assets
within a portfolio to maximize return for a given level of risk.
This process is usually done using the historical performance of the
asset classes within sophisticated mathematical models.
Asset Class
A category of investments with similar
characteristics.
Audit
The examination of the accounting and
financial documents of a firm by an objective professional. The
audit is done to determine the records' accuracy, consistency, and
conformity to legal and accounting principles.
B
Balanced Mutual Fund
A mutual fund whose objective is a
balance of stocks and bonds. Such funds tend to be less volatile
than stock-only funds.
Bear Market
When the stock market appears to be
declining overall, it is said to be a bear market.
Beneficiary
A person named in a life insurance
policy, annuity, will, trust, or other agreement to receive a
financial benefit upon the death of the owner. A beneficiary can be
an individual, company, organization, and so on.
Blue Chip Stock
The common stock of a company with a
long history of profitability and consistent dividend payments.
Bond
A bond is evidence of a debt in which
the issuer promises to pay the bondholders a specified amount of
interest and to repay the principal at maturity. Bonds are usually
issued in multiples of $1,000.
Book Value
The net value of a company's assets,
less its liabilities and the liquidation price of its preferred
issues. The net asset value divided by the number of shares of
common stock outstanding equals the book value per share, which may
be higher or lower than the stock's market value.
Bull Market
When the stock market appears to be
advancing overall, it is said to be a bull market.
Buy-Sell Agreement
A buy-sell agreement is an arrangement
between two or more parties that obligates one party to buy the
business and another party to sell the business upon the death,
disability, or retirement of one of the owners.
C
Capital Gain or Loss
The difference between the sales price
and the purchase price of a capital asset. When that difference is
positive, the difference is referred to as a capital gain. When the
difference is negative, it is a capital loss.
Cash Equivalents
Short-term investments, such as U.S.
Treasury securities, certificates of deposit, and money market fund
shares, that can be readily converted into cash.
Cash Surrender Value
The amount that an insurance
policyholder is entitled to receive when he or she discontinues
coverage. Policyholders are usually able to borrow against the
surrender value of a policy from the insurance company. Loans that
are not repaid will reduce the policy's death benefit.
CERTIFIED FINANCIAL PLANNER® Practitioner
A credential granted by the Certified
Financial Planner Board of Standards, Inc. (Denver, CO) to
individuals who complete a comprehensive curriculum in financial
planning and ethics. CFP®, CERTIFIED FINANCIAL PLANNER®
and federally registered CFP (with flame logo)® are
certification marks owned by the Certified Financial Planner Board
of Standards. These marks are awarded to individuals who
successfully complete the CFP Board's initial and ongoing
certification.
Certified Public Accountant (CPA)
A professional license granted by a
state board of accountancy to an individual who has passed the
Uniform CPA Examination (administered by the American Institute of
Certified Public Accountants) and has fulfilled that state's
educational and professional experience requirements for
certification.
Charitable Lead Trust
A trust established for the benefit of a
charitable organization under which the charitable organization
receives income from an asset for a set number of years or for the
trustor's lifetime. Upon the termination of the trust, the asset
reverts to the trustor or to his or her designated heirs. This type
of trust can reduce estate taxes and allows the trustor's heirs to
retain control of the assets.
Charitable Remainder Trust
A trust established for the benefit of a
charitable organization under which the trustor receives income from
an asset for a set number of years or for the trustor's lifetime.
Upon the termination of the trust, the asset reverts to the
charitable organization. The trustor receives a charitable
contribution deduction in the year in which the trust is
established, and the assets placed in the trust are exempt from
capital gains tax.
Chartered Financial Consultant (ChFC)
A professional financial planning
designation granted by The American College (Bryn Mawr, PA) to
individuals who complete a comprehensive curriculum in financial
planning. Prerequisites include passing a series of written
examinations, meeting specified experience requirements and
maintaining ethical standards. The curriculum encompasses wealth
accumulation, risk management, income taxation, planning for
retirement needs, investments, estate and succession planning.
Chartered Life Underwriter (CLU)
A professional designation granted by
The American College to individuals who complete a comprehensive
curriculum focused primarily on risk management. Prerequisites
include passing a series of written examinations, meeting specified
experience requirements, and maintaining ethical standards. The
curriculum encompasses insurance and financial planning, income
taxation, individual life insurance, life insurance law, estate and
succession planning, and planning for business owners and
professionals.
COBRA
The Consolidated Omnibus Budget
Reconciliation Act is a federal law requiring employers with more
than 20 employees to offer terminated or retired employees the
opportunity to continue their health insurance coverage for 18
months at the employee's expense. Coverage may be extended to the
employee's dependents for 36 months in the case of divorce or death
of the employee.
Coinsurance or Co-Payment
The amount an insured person must pay
for a covered medical and/or dental expense if his or her insurance
doesn't provide 100 percent coverage.
Commodities
The generic term for goods such as
grains, foodstuffs, livestock, oils, and metals which are traded on
national exchanges. These exchanges deal in both "spot" trading (for
current delivery) and "futures" trading (for delivery in future
months).
Common Stock
A unit of ownership in a corporation.
Common stockholders participate in the corporation's profits or
losses by receiving dividends and by capital gains or losses in the
stock's share price.
Community Property
State laws vary, but generally all
property acquired during a marriage - excluding property one spouse
receives from a will, inheritance, or gift - is considered community
property, and each partner is entitled to one half. This includes
debt accumulated. There are currently nine community property
states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico,
Texas, Washington, and Wisconsin.
Compound Interest
Interest that is computed on the
principal and on the accrued interest. Compound interest may be
computed continuously, daily, monthly, quarterly, semiannually, or
annually.
Consumer Price Index
The U.S. Department of Labor's main
indicator of inflation. The Consumer Price Index is calculated each
month from the cost of some 400 retail items in urban areas
throughout the United States.
D
Deduction
An amount that can be subtracted from
gross income, from a gross estate, or from a gift, thereby lowering
the amount on which tax is assessed.
Defined Benefit Plan
A qualified retirement plan under which
a retiring employee will receive a guaranteed retirement fund,
usually payable in installments. Annual contributions may be made to
the plan by the employer at the level needed to fund the benefit.
The annual contributions are limited to a specified amount, indexed
for inflation.
Defined Contribution Plan
A retirement plan under which the annual
contributions made by the employer or employee are generally stated
as a fixed percentage of the employee's compensation or company
profits. The amount of retirement benefits is not guaranteed;
rather, it depends upon the investment performance of the employee's
account.
Diversification
Investing in different companies,
industries, or asset classes. Diversification may also mean the
participation of a large corporation in a wide range of business
activities.
Dividend
A pro rata portion of earnings
distributed in cash by a corporation to its stockholders. In
preferred stock, dividends are usually fixed; with common shares,
dividends may vary with the fortunes of the company.
Dollar Cost Averaging
A system of investing in which the
investor buys a fixed dollar amount of securities at regular
intervals. The investor thus buys more shares when the price is low
and fewer shares when it rises, and the average cost per share is
lower than the average price per share. This strategy does not
protect against loss in declining markets and involves continuous
investments, regardless of fluctuating price levels.
E
Efficient Frontier
A statistical result from the analysis
of the risk and return for a given set of assets that indicates the
balance of assets that may, under certain assumptions, achieve the
best return for a given level of risk.
Employer-Sponsored Retirement Plan
A tax-favored retirement plan that is
sponsored by an employer. Among the more common employer-sponsored
retirement plans are 401(k) plans, 403(b) plans, simplified employee
pension plans, and profit-sharing plans.
Equity
The value of a person's ownership in
real property or securities; the market value of a property or
business, less all claims and liens upon it.
EQUITY INDEXED ANNUITIES
Since 1995 offers an Investment strategy
to mirror the performance of securities. Based on the performance
of a Market Index such as S&P500,NASDAQ,DJIA. Allows stock
market-linked growth without the potential of market type losses.
This insulates the buyer from and risk of market downturns. Capture
the upside, but not downside losses.
Speak with an Expert
ERISA
The Employee Retirement Income Security
Act is a federal law covering all aspects of employee retirement
plans. If employers provide plans, they must be adequately funded
and provide for vesting, survivor's rights, and disclosures.
ESOP (employee stock ownership plan)
A defined contribution retirement plan
in which company contributions must be invested primarily in
qualifying employer securities.
Estate Conservation
Activities coordinated to provide for
the orderly and cost-effective distribution of an individual's
assets at the time of his or her death. Estate conservation often
includes wills and trusts.
Estate Tax
Upon the death of a decedent, federal
and state governments impose taxes on the value of the estate left
to others (with limitations).
Executive Bonus Plan
The employer pays for a benefit that is
owned by the executive. The bonus could take the form of cash,
automobiles, life insurance, or other items of value to the
executive.
Executor
A person named by the probate courts or
the will to carry out the directions and requests of the decedent.
F
Fixed Income
Income from investments such as CDs,
Social Security benefits, pension benefits, some annuities, or most
bonds that is the same every month.
401(k) Plan
A defined contribution plan that may be
established by a company for retirement. Employees may allocate a
portion of their salaries into this plan, and contributions are
excluded from their income for tax purposes (with limitations).
Contributions and earnings will compound tax deferred. Withdrawals
from a 401(k) plan are taxed as ordinary income, and may be subject
to an additional 10 percent federal tax penalty if withdrawn prior
to age 59 ½.
403(b) Plan
A defined contribution plan that may be
established by a nonprofit organization or school for retirement.
Employees may allocate a portion of their salaries into this plan,
and contributions are excluded from their income for tax purposes
(with limitations). Contributions and earnings will compound tax
deferred. Withdrawals from a 403(b) plan are taxed as ordinary
income, and may be subject to an additional 10 percent federal tax
penalty if withdrawn prior to age 59 ½.
Fundamental Analysis
An approach to the stock market in which
specific factors - such as the price-to-earnings ratio, yield, or
return on equity - are used to determine what stock may be favorable
for investment.
G
Gift Taxes
A federal tax levied on the transfer of
property as a gift. This tax is paid by the donor. The first $11,000
a year from a donor to each recipient is exempt from tax. Most
states also impose a gift tax. The gift tax exemption is indexed
annually for inflation.
H
Holographic Will
A will entirely in the handwriting of
the testator. Without witnesses, holographic wills are valid and
enforceable only in some states.
I
Index
A calculation that uses a selection of
stocks or bonds to gauge a certain market. The Dow Jones Industrial
Average, for example, is an index of 30 large industrial companies
on the New York Stock Exchange.
Individual Retirement Account (IRA)
Contributions to a traditional IRA are
deductible from earned income in the calculation of federal and
state income taxes if the taxpayer meets certain requirements. The
earnings accumulate tax deferred until withdrawn, and then they are
taxed as ordinary income. Individuals not eligible to make
deductible contributions may make nondeductible contributions, the
earnings on which would be tax deferred.
Inflation
An increase in the price of products and
services over time. The government's main measure of inflation is
the Consumer Price Index.
Intestate
The condition of an estate left by a
decedent without a valid will. State law then determines who
inherits the property or serves as guardian for any minor children.
Investment Category
A broad class of assets with similar
characteristics. The five investment categories include cash
equivalents, fixed principal, equity, debt, and tangibles.
Irrevocable Trust
A trust that may not be modified or
terminated by the trustor after its creation.
J
Joint and Survivor Annuity
Most pension plans must offer this form
of pension plan payout that pays over the life of the retiree and
his or her spouse after the retiree dies. The retiree and his or her
spouse must specifically choose not to accept this payment form.
Joint Tenancy
Co-ownership of property by two or more
people in which the survivor(s) automatically assumes ownership of a
decedent's interest.
Jointly Held Property
Property owned by two or more persons
under joint tenancy, tenancy in common, or, in some states,
community property.
K
Keogh Plan
This retirement plan, named for Eugene
Keogh, is designed for self-employed individuals. Up to $40,000 of
self-employed income may be deducted from compensation and set aside
into the plan.
L
Liability
Any claim against the assets of a person
or corporation: accounts payable, wages, and salaries payable,
dividends declared payable, accrued taxes payable, and fixed or
long-term obligations such as mortgages, debentures, and bank loans.
Limited Partnership
Limited partnerships pool the money of
investors to develop or purchase income-producing properties. When
the partnership subsequently receives income from these properties,
it distributes the income to its investors as dividend payments.
Liquidity
The ease with which an asset or security
can be converted into cash without loss of principal.
Living Trust
A trust created by a person during his
or her lifetime.
Lump-Sum Distribution
The disbursement of the entire value of
a profit-sharing plan, pension plan, annuity, or similar account to
the account owner or beneficiary. Lump-sum distributions may be
rolled over into another tax-deferred account.
M
Marginal Tax Bracket
The range of taxable income that is
taxable at a certain rate. Currently, there are six marginal tax
brackets: 10 percent, 15 percent, 25 percent, 28 percent, 33
percent, and 35 percent.
Marital Deduction
A provision of the tax codes that allows
all assets of a deceased spouse to pass to the surviving spouse free
of estate taxes. This provision is also referred to as the unlimited
marital deduction.
Money Market Fund
A mutual fund that specializes in
investing in short-term securities and that tries to maintain a
constant net asset value of $1.
Municipal Bond
A debt security issued by
municipalities. The income from municipal bonds is usually exempt
from federal income taxes. In many states, it is also exempt from
state income taxes in the state in which the municipal bond is
issued.
Municipal Bond Fund
A mutual fund that specializes in
investing in municipal bonds.
Mutual Fund
A collection of stocks, bonds, or other
securities purchased and managed by an investment company with funds
from a group of investors.
N
Net Asset Value
The price at which a mutual fund sells
or redeems its shares. The net asset value is calculated by dividing
the net market value of the fund's assets by the number of
outstanding shares.
P
Pooled Income Fund
A trust created by a charitable
organization that combines the contributions of several donors and
distributes income to those donors based on the earnings of the
trust. The trust is managed by the charitable organization, and
contributions are partially deductible for income tax purposes.
Portfolio
All the investments held by an
individual or a mutual fund.
Preferred Stock
A class of stock with claim to a
company's earnings, before payment can be made on the common stock,
and that is usually entitled to priority over common stock if the
company liquidates. Generally, preferred stocks pay dividends at a
fixed rate.
Prenuptial Agreement
A legal agreement arranged before
marriage stating who owns property acquired before marriage and
during marriage and how property will be divided in the event of
divorce. ERISA benefits are not affected by prenuptial agreements.
Price/Earnings Ratio (P/E Ratio)
The market price of a stock divided by
the company's annual earnings per share. Because the P/E ratio is a
widely regarded yardstick for investors, it often appears with stock
price quotations.
Principal
In a security, the principal is the
amount of money that is invested, excluding earnings. In a debt
instrument such as a bond, it is the face amount.
Probate
The court-supervised process in which a
decedent's estate is settled and distributed.
Profit-Sharing Plan
An agreement under which employees share
in the profits of their employer. The company makes annual
contributions to the employees' accounts. These funds usually
accumulate tax deferred until the employee retires or leaves the
company.
Prospectus
A document provided by mutual fund
companies to prospective investors. The prospectus gives information
needed by investors to make informed decisions prior to investing in
a specific mutual fund. The prospectus includes information on the
minimum investment amount, the fund's objectives, past performance,
risk level, sales charges, management fees, and any other expense
information about the fund, as well as a description of the services
provided to investors in the fund.
Q
Qualified Domestic Relations Order (QDRO)
At the time of divorce, this order would
be issued by a state domestic relations court and would require that
an employee's ERISA retirement plan accrued benefits be divided
between the employee and the spouse.
Qualified Retirement Plan
A pension, profit-sharing, or qualified
savings plan that is established by an employer for the benefit of
the employees. These plans must be established in conformity with
IRS rules. Contributions accumulate tax deferred until withdrawn and
are deductible to the employer as a current business expense.
Reverse Mortgages
The Home Equity Conversion Mortgage (HECM) is a reverse
mortgage designed by the U.S. Department of Housing and Urban
Development (HUD) and INSURED by the Federal Housing Administration
(FHA) to give older homeowners a vehicle for converting the equity
in their homes to cash. This is a TAX FREE loan that can be used
for ANY purpose homeowners want. This does not have to be paid back
until the owner moves or sells home.
Revocable Trust
A trust in which the creator reserves
the right to modify or terminate the trust.
Risk
The chance that an investor will lose
all or part of an investment.
Risk-Averse
Refers to the assumption that rational
investors will choose the security with the least risk if they can
maintain the same return. As the level of risk goes up, so must the
expected return on the investment.
Rollover
A method by which an individual can
transfer the assets from one retirement program to another without
the recognition of income for tax purposes. The requirements for a
rollover depend on the type of program from which the distribution
is made and the type of program receiving the distribution.
Roth IRA
A nondeductible IRA that allows tax-free
withdrawals when certain conditions are met. Income and contribution
limits apply.
S
Security
Evidence of an investment, either in
direct ownership (as with stocks), creditorship (as with bonds), or
indirect ownership (as with options).
Simplified Employee Pension Plan (SEP)
A type of plan under which the employer
contributes to an employee's IRA. Contributions may be made up to a
certain limit and are immediately vested.
Single-Life Annuity
An insurance-based contract that
provides future payments at regular intervals in exchange for
current premiums. Generally used as a supplement to retirement
income and pays over the life of one individual, usually the
retiree, with no rights of payment to any survivor.
Split-Dollar Plan
An arrangement under which two parties
(usually a corporation and employee) share the cost of a life
insurance policy and split the proceeds.
Spousal IRA
An IRA designed for a couple when one
spouse has no earned income. The maximum combined contribution that
can be made each year to an IRA and a spousal IRA is $6,000 (in 2002
through 2004) or 100 percent of earned income, whichever is less.
This total may be split between the two IRAs as the couple wishes,
provided the contribution to either IRA does not exceed $3,000.
T
Tax Bracket
The range of taxable income that is
taxed at a certain rate. Brackets are expressed by their marginal
rate.
Tax Credit
Tax credits, the most appealing type of
tax deductions, are subtracted directly, dollar for dollar, from
your income tax bill.
Tax Deferred
Interest, dividends, or capital gains
that grow untaxed in certain accounts or plans until they are
withdrawn.
Tax-Exempt Bonds
Under certain conditions, the interest
from bonds issued by states, cities, and certain other government
agencies is exempt from federal income taxes. In many states, the
interest from tax-exempt bonds will also be exempt from state and
local income taxes.
Taxable Income
The amount of income used to compute tax
liability. It is determined by subtracting adjustments, itemized
deductions or the standard deduction, and personal exemptions from
gross income.
Technical Analysis
An approach to investing in stocks in
which a stock's past performance is mapped onto charts. These charts
are examined to find familiar patterns to use an an indicator of the
stock's future performance.
Tenancy in Common
A form of co-ownership. Upon the death
of a co-owner, his or her interest passes to his or her chosen
beneficiaries and not to the surviving owner or owners.
Term Insurance
Term life insurance provides a death
benefit if the insured dies. Term insurance does not accumulate cash
value and ends after a certain number of years or at a certain age.
Testamentary Trust
A trust established by a will that takes
effect upon death.
Testator
One who has made a will or who dies
having left a will.
Total Return
The total of all earnings from a given
investment, including dividends, interest, and any capital gain.
Trust
A legal entity created by an individual
in which one person or institution holds the right to manage
property or assets for the benefit of someone else. Types of trusts
include: Testamentary Trust – A trust established by a will that
takes effect upon death; Living Trust – A trust created by a person
during his or her lifetime; Revocable Trust – A trust in which the
creator reserves the right to modify or terminate the trust;
Irrevocable Trust – A trust that may not be modified or terminated
by the trustor after its creation
Trustee
An individual or institution appointed
to administer a trust for its beneficiaries.
Trustee-to-Trustee Transfer
A method of transferring retirement plan
assets from one employer's plan to another employer plan or to an
IRA. One benefit of this method is that no federal income tax will
be withheld by the trustee of the first plan.
U
Unified Credit
A credit that may be applied against an
individual's gift or estate taxes. The unified credit will increase
in gradual steps until it eventually exempts an estate valued up to
$3,500,000 from federal estate taxes in 2009.
Universal Life Insurance
A type of life insurance that combines a
death benefit with a savings element which accumulates tax deferred
at current interest rates. Under a universal life insurance policy,
the policyholder can increase or decrease his or her coverage, with
limitations, without purchasing a new policy.
V
Variable Universal Life Insurance
A type of life insurance that combines a
death benefit with a savings element that accumulates tax deferred
at current interest rates. Under a variable universal life insurance
policy, the cash value in the policy can be placed in a variety of
subaccounts with different investment objectives. The policyholder
can transfer funds among the subaccounts as he or she wishes. Fees
are charged after a certain number of transfers.
Volatility
The range of price swings of a security
or market over time.
W
Welfare Benefit Plan
An employee benefit plan that provides
such benefits as medical, sickness, accident, disability, death, or
unemployment benefits.
Whole Life Insurance
A type of life insurance that offers a
death benefit and also accumulates cash value, tax deferred at fixed
interest rates. Whole life insurance policies generally have a fixed
annual premium that does not rise over the duration of the policy.
Whole life insurance is also referred to as "ordinary" or "straight"
life insurance.
Will
A legal document that declares a
person's wishes concerning the disposition of property, the
guardianship of his or her children, and the administration of the
estate after his or her death.
Y
Yield
In general, the yield is the amount of
current income provided by an investment. For stocks, the yield is
calculated by dividing the total of the annual dividends by the
current price. For bonds, the yield is calculated by dividing the
annual interest by the current price. The yield is distinguished
from the return, which includes price appreciation or depreciation.
Z
Zero-Coupon Bond
This type of bond makes no periodic
interest payments but instead is sold at a steep discount from its
face value. Bondholders receive the face value of their bonds when
they mature.
My Financial Services
Privacy Policy
Got a Question?
Don Loper
Toll Free 1-866-636-7614
E-Mail:
dloper@cfiemail.com
Office of Supervisory Jurisdiction:
Centaurus Financial., 110 Schiller Street, Suite 210, Elmhurst, IL. 60126
Phone 1-(630) 530-0345.
Securities offered through: Centaurus Financial, Inc.,
333 City Blvd West, Suite 2010,
Orange, CA 92868, Member SIPC & FINRA (Previously NASD)
Phone 1-(714)456-0852,
http://www.centaurusfinancial.com
Securities offered through Centaurus Financial, Inc., a registered
broker/dealer and a
member of FINRA & SIPC. This is not an offer to sell
securities, which may be done only after proper
delivery of a prospectus and client suitability has been reviewed and determined.
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