Depreciation The loss of value of a security since its purchase.

Discount Rate Rate at which the Federal Reserve loans money to banks, which in turn guides commercial banks in establishing their loan rates for customers. .

Diversification Investment in a number of different security issues to insulate a portfolio from a painful drop in one market area. This risk-reducing strategy is akin to not "keeping all your eggs in one basket."

Diversified Investment Company Fund that has not invested more than five percent of its total assets in any single company, and does not hold more than 10 percent of the outstanding voting securities of any company, as stipulated in the Investment Company Act.

Dividend Payment of income from a share of common or preferred stock.

Dollar Cost Averaging Method of accumulating capital by investing equal amounts of money at regular intervals. This attempt to average turbulence allows the purchase of more shares when the trading price is low, and fewer shares when prices rise. The collective shares are bought at an average price rather than at a particular moment when the market could be skewed, thus reducing the need to correctly time the market.

Dual-Purpose Fund Type of closed-end investment company, originally developed in England and introduced in the U.S. in 1967, designed to serve the needs of two distinct types of investors: (1) those interested only in income, and (2) those interested solely in capital growth. Two separate classes of shares are issued.

Duration Gauge of price sensitivity to interest rates. Expressed in years, duration shows the weighted average time for an investor to realize the currently stated yield.

Earnings Profit. Often expressed as Earnings Per Share (EPS), which is profit divided by number of outstanding shares of stock.

Emerging Markets Developing nations, as defined by gross domestic product and various economic measures. Usually these new markets are in Latin America, Eastern Europe, and Asia (excluding Japan). Funds that invest in emerging markets can be high risk.

Equity Money represented by stock holdings.

Equity-Income Investment category seeking income through investments in dividend producing stock.

Equity Security Technically, all securities other than debt, although it may be used to denote common stocks alone, or preferred stocks that behave like common stocks.

Exchange Privilege Right to exchange shares of one open-end fund for shares of another within the same family of funds, avoiding new sales charges.

Expense Ratio Proportion of total annual operating expenses to net assets.

Face-Amount Certificate A promise by the issuer of a security to pay the certificate holder a stated amount at a future date. The security may be purchased in periodic payments (Installment Type) or as a single payment (Fully Paid)

Fair Value Value determined by the board of directors for those securities and assets which do not have a market quotation readily available, as stipulated in the Investment Company Act.

Federal Funds Rate Rate which Federal Reserve member banks charge each other for overnight loans needed to meet reserve requirements. The rate is set daily by the market.

Fiduciary Person or entity with custody of assets for another.

Fixed Annuity Insurance contract guaranteeing that the annuitant will receive a specified amount of money each month, even if the insured person outlives his or her projected life expectancy.

Fixed Income Security Preferred stock or debt security with a stated percentage or dollar income return.

Forward Pricing Pricing mutual fund shares for sale, repurchase or redemption at the price computed after the receipt of an order. Pricing is usually done once or twice a day.

Free Partial Withdrawal Is expressed as a percentage of the investors' account values, earnings, premiums, or the greatest of some or all of these three, that investors are allowed to withdrawal free of surrender charges during a specific period of time.

Fully Managed Fund Fund without restrictions on the securities which may be held, giving the portfolio manager maximum discretion in all investments.

Fund of Funds Investment company that invests in other investment companies.

Government Agency Issues Debt securities issued by government-sponsored enterprises, Federal agencies and international institutions. These securities are not direct obligations of the Treasury but involve government sponsorship or guarantees such as GNMAs or FNMAs.

Growth Stock Stock that has shown better-than-average growth in earnings, and is expected to continue to do so through discoveries of additional resources, development of new products or expanding markets.

Hedge To offset, or a security that has offsetting qualities. For example, an "inflation hedge" would rise in value as inflation rises, counterbalancing the eroding qualities normally expected from inflation.

Hedge Fund Mutual fund or investment company which, as a regular policy, "hedges" its market commitments. It does this by holding securities it believes are likely to increase in value and at the same time shorts securities it believes are likely to decrease in value. This is an aggressive approach to capital appreciation.

High Yield Bond High-yielding debt security rated BB or below by Standard & Poor's Corporation, or Ba or below by Moody's Investor Services. Very speculative and volatile, these bonds are considered a greater risk for investors than are investment-grade issues, and therefore pay higher interest rates to attract investors. Also known as Junk Bonds because of their low credit rating.

Immediate Variable Annuity Variable annuity contract which provides for annuity payments commencing immediately rather than at a future date.

Incentive Compensation Fee paid to an investment company advisor based on fund performance relative to specified market indexes. Also called fulcrum fee.

Income Money earned through dividends or interest (but not capital gains). Gross Income is total money earned, while Net Income is the gross income minus expenses, fixed charges and taxes. Also referred to as net investment income.

Income Fund Investment company whose primary objective is generating income.

Incubator Fund Investment company which operates as a private, closed fund before offering shares to the public.

Individual Retirement Account Tax-saving retirement program for individuals, established under the Employee Retirement Security Act of 1974.

Inflation Upward movement in the price level of goods and services, which results in a decline in the purchasing power of money.

Insured Redemption Value Plan Insurance program designed to protect investors against loss in long-term mutual fund investments.

Investment Advisor See Investment Management Company.

Investment Category Stated purpose or goal of an investment company.

Investment Company Corporation or trust through which investors pool their money to obtain supervision and diversification of their investments.

Investment Company Act of 1940 Federal statute enacted by Congress in 1940 for the registration and regulation of investment companies.

Investment Company Amendments Act of 1970 Comprehensive amendment to the 1940 Act establishing new standards for management fees, mutual fund sales commissions, and the periodic payment of contractual-plan sales commissions.

Investment Grade Bond Corporate bond with a credit rating of BB or above from Standard & Poor's, or Ba and above from Moody's.

Investment Management Company Organization employed by an investment company to advise and supervise the assets of the investment company (also called Investment Advisor).

Investment Trust See Investment Company.

Issuer With reference to investment company securities, the company itself.

Continue on to J through P

back to top

Order your copy of Building Wealth in a Paycheck-to-Paycheck World by Paul Petillo. It is packed with safe, proven wealth-building strategies that cover all the major components of a balanced financial plan, including: