Balanced Fund
A fund investing in stocks, bonds, and money market securities. Balanced funds offer moderate risk and consistent returns.

Bond
The debt instrument (or "IOU") of a corporation or government entity that promises to pay you a specified amount of interest for a specified time period, with principal to be repaid when the bond matures. Investment risk is low to moderate for government bonds and moderate to high for corporate bonds.

Certificates of Deposit (CDs)
Evidence of money deposited in a financial institution for a set period of time at a specified interest rate. Your risk of losing principal with CDs issued by federally insured institutions is very low.

Common Stock
Securities that represent an ownership interest and give you voting rights in the issuing corporation. Your risk with common stock is moderate to high.

Compound Interest
Interest earned not only on your original investment, but on your accrued earnings as well.

Corporate Bonds
Bonds issued by a corporation. Investment risk is greater than with similar-maturity U.S. Treasury bonds, but corporate bonds often offer somewhat higher yields than Treasury bonds.

Diversification
Investing in different companies in various industries or in several different types of investment vehicles to spread risk.

Dividend
Payments made by a corporation to its shareholders. The amount you'll receive is based on the number of shares you own.

Dollar Cost Averaging
An investment strategy through which money is invested consistently over time through periods of fluctuating prices. Steadily investing regular amounts through periods of high and low prices, you may be able to lower the average cost of your shares or units.

Fixed Income Securities
Investments with specified payment dates and amounts, primarily bonds. Risk will vary, depending on the type, quality, and maturity of the security.

Back to top

Growth Stock
The stock of a firm generally growing faster than the economy or market norm. The risk with growth stock tends to be high.

Income Stock
Common stock that pays out a relatively large portion of earnings as dividends, resulting in a high yield for investors. Income stocks offer lower risk than growth stocks.

Index Fund - Stock
A fund with an investment mix that mimics the S&Ps 500 or another stock index. Investment risk in a stock index is moderate to high.

International Fund
A fund investing in securities of countries other than the U.S. International funds may involve higher risk than domestic funds due to currency and political risks.

Money Market
The market in which large amounts of short-term funds are loaned and borrowed. Money market instruments include such investments as commercial paper, negotiable certificates of deposit, and Treasury bills. Your risk is low to moderate.

Back to top

Mutual Fund
With a mutual fund, money of numerous investors is pooled to purchase a variety of securities that are professionally managed as a single investment account. Mutual fund portfolios may contain dozens of different securities. Each fund is managed toward a particular investment objective, such as growth, income, or asset preservation.

Principal
The capital sum you invest in a plan, as distinguished from interest or profit.

Prospectus
Printed material offering a security for sale that provides full disclosure of pertinent information regarding the issue.

Return
The profit you earn through investing.

Risk
The chance that the value of an investment could decline in the marketplace.

Securities
Assets such as stocks, bonds, etc., which allow you to participate in earnings, distribution of property or other assets of the corporation issuing the security.

Stable Return Fund
A diversified portfolio of various investments generally issued by insurance companies or banks that pay a set interest rate over a set time period, with a promise to repay the principal at maturity. The issuer of the contract bears any risk associated with the securities underlying the contract. Your risk is low.

Back to top

Stocks
Also known as equities, they give you an ownership interest in the company issuing the stock. A stock does not have a fixed, objective worth. At any moment, it is only as valuable as people perceive it to be. Stocks may be either preferred or common. Given a long-term horizon, some of the risks inherent in stock investing can be reduced.

Total Return
The unrealized increase/decrease of an asset's value during a specific time period, including any income generated by the asset during that period.

Treasury Bills
Short-term U.S. government securities that have maturities of less than one year that are sold at weekly auctions at a discount and are redeemed at face value. Risk is low.

Treasury Bonds
Long-term U.S. government securities that have maturities between seven and 30 years. Risk with these investments is low to moderate.

Treasury Notes
Intermediate-term U.S. government securities that have maturities between one and seven years. Risk is slightly higher than Treasury bills and lower than Treasury bonds.

U.S. Government Agency Securities
Securities issued by government agencies rather than issued directly by the US Treasury. Agencies issuing these securities include the Federal Home Loan Banks, the Federal National Mortgage Association (Fannie Mae), and the Government National Mortgage Association (Ginnie Mae), among others. The investment risk for these securities is slightly higher than that for Treasury securities.

Back to top

Yield
The interest or dividend paid with respect to a security. Yield is usually expressed as a percentage of the price of the security. More broadly, some investment advisors include capital appreciation as part of the yield.

Growth Funds & Value Funds
Growth investing and Value investing are two styles employed by stock fund managers.

Growth funds generally focus on companies believed to have above-average potential for growth in revenue and earnings. Reflecting the market's high expectations for superior growth, the prices of such stocks are typically above average in relation to such measures as revenue, earnings, book value, and dividends.

Value funds generally emphasize stocks of companies from which the market does not expect strong growth. The prices of value stocks typically are below average in comparison to such factors as earnings and book value, and these stocks typically pay above-average dividend yields. Growth and value stocks have, in the past, produced similar long-term returns, though each category has periods when it outperforms the other.

In general, growth funds appeal to investors who will accept more volatility in hopes of a greater increase in share price. Growth funds also may appeal to investors with taxable accounts who want a higher proportion of returns to come as capital gains (which may be taxed at lower rates than dividend income). Value funds, by contrast, are appropriate for investors who want some dividend income and the potential for capital gains, but are less tolerant of share-price fluctuations.

International Stocks
Represented by companies that are domiciled outside the US. The US equity market represents less than one-half of the world equity market, thus the remaining international markets represents an important piece of the world financial picture. International equity investors are exposed to several additional types of risks, which include currency risk, exchange rate risk, political risk, liquidity, and settlement risk. While international investing entails a great deal of risk by itself, when combined with other asset classes such as US stocks and bonds, overall portfolio volatility can be reduced and return potential can be enhanced. This phenomenon exists because US and international markets are not perfectly correlated. In other words, an event that impacts US stocks may not be important to the market in India, thus their market does not move in tandem with the US market in most instances.

Back to top

Large-Cap, Mid-Cap, and Small-Cap Stocks
Stocks of publicly traded companies and mutual funds that hold these stocks-can be classified by the companies' market value, or capitalization. Generally, large-capitalization (Large-Cap) funds as those holding stocks of companies whose outstanding shares have a median market value exceeding $10 billion. Mid-cap funds hold stocks of companies with a median market value between $1 billion and $10 billion. Small-cap funds typically hold stocks of companies with a median market value of less than $1 billion.

Actively Managed Versus Indexed
Active Management: Belief that individual securities (and even entire sectors, industries and "markets") are often mis-priced, and that these mis-pricings can be identified and exploited by actively searching them out. Active managers believe that their current knowledge is, on average, better than the market's current consensus - they believe they can "beat the market."

Index Funds: Index funds are designed to mirror the performance of a published benchmark (e.g., the S&P 500 or the Russell 2000). Indexation is a form of passive management. Here, the belief is that markets are efficient - that the best estimate of a security's value is its current price. Instead of trying to "beat the market," index funds simply "buy the market."

Market Benchmarks Defined

The Consumer Price Index
The CPI measures the change in the general level of prices of capital goods by urban consumers (CPIU) and urban wage earners and clerical workers (CPIW). Index groups contained in the Consumer Price Index are food and beverage, housing, apparel and upkeep, transportation, medical care, entertainment, other goods and services. These index groups may also be subindexed.

Dow Jones Industrial Average (DJIA)
The DJIA is a measure of the relative price of 30 widely held stocks traded on the New York Stock Exchange. The value of the DJIA is determined by dividing the sum of the per share prices of the 30 stocks in the index by an adjusted denominator that accommodates for splits and changes in stock composition. Therefore the index values represent equal weighted calculations.

Lehman Aggregate Bond Index
The Lehman Brothers Aggregate Bond Index (LB Aggregate) is a broad-based index composed of US Government, US Government agency and corporate debt obligations (bonds). The LB Aggregate is a benchmark used to measure the performance of the US bond market as a whole.

Back to top

Lehman Government/Corporate Bond Index
The Shearson Lehman Government/Corporate Bond Index consists of approximately 5,300 publicly traded issues of all non-convertible bonds of the US Government or agencies and non-convertible domestic debt of three major corporate classifications: industrial, utility, financial. Bonds included are investment grade (Baa rating or higher), have minimum outstanding principal of $1 million, and a minimum one year maturity. Yankee bonds are not included. The index is capitalization weighted and includes income calculated on an accrual basis at the end of each month. The Government/Corporate Index follows the same screening process as the Shearson Lehman Aggregate Index.

MSCI EAFE
The Morgan Stanley Capital International (MSCI) Europe, Australia and Far East (EAFE) Index is a broad-based index composed of non-US stocks traded on the major exchanges around the globe. The EAFE is a representative benchmark used to measure the performance of the international stock market as a whole, in US dollar terms.

The NASDAQ Indexes
The NASDAQ Composite Index is a measure of all domestic common issues traded over-the-counter which are included in the NASDAQ system, exclusive of those listed on an exchange and those with only one market maker. It contains more securities than any other stock market index. The NASDAQ Composite Index is market value weighted. The influence of each stock on the index is proportional to its price times the number of shares outstanding. The price is the median bid price at the time the index is computed. The number of shares is adjusted immediately for stocks added to the NASDAQ system, for stocks removed from the system, and for changes in capitalization greater than 5%.

The seven NASDAQ indexes are industrial, bank, insurance, other finance, transportation, utility and composite. Securities are grouped into NASDAQ index categories using SEC classifications. The seven indices are similarly computed. The computation requires two basic calculations: a computation of the current index, and an adjustment in base period value to reflect changes in capitalization and in the number of issues which constitute the index.
*Source: NASDAQ publications.

New York Stock Exchange Composite Index (NYSE)
The NYSE is a market value weighted index of all domestic stocks listed on the New York Stock Exchange. The value of the index varies with the aggregate value of the common equity of all companies listed on the NYSE. Pricing changes in the market is the only factor, which reflects the index.

Back to top

Russell 2000
The Russell 2000 Index is a broad-based index composed of domestic stocks representing the bottom two-thirds of the list that yields the Russell 3000 Index. The Russell 3000 Index is composed of a list of the largest US companies, as determined by market value, that have stock prices above $1 (US). The Russell 2000 Index is a benchmark used to measure the performance of US small capitalization stocks.

S&P 400
The S&P 400 is a measure of domestic equity performance published by S&Ps. The S&P 400 is a measure of 400 leading industrial issues. Unlike the S&P 500, it does not include transportation, utility and finance issues.

S&P 500 Index
The S&P 500 Index is a measure of domestic equity market performance published by S&Ps. It consists of 400 leading industrial issues, 20 transportation issues, 40 utilities and 40 finance issues weighted on a market capitalization basis. The S&P 500 is a broad-based index composed of domestic stocks representing 80% of the market value of all stocks traded on the New York Stock Exchange. It is a benchmark used to measure the performance of the US stock market as a whole. The S&P 500 generally consists of larger companies available in the market. Whilshire's calculation of the index is performed on a daily basis and included dividend income accrued as of "x" dividend date. In contrast, the index is computed by S&Ps accrues dividend income only at the end of each quarter calculated as one fourth of the estimated annual dividend or yield. As a result, the Wilshire calculation is impacted more by strong up or down markets.

Back to top