Educational Terms
Account Terms
12-b1 Fee: Annual fee or charge against the mutual fund’s assets covering the mutual funds cost of advertising and marketing. This usually in addition to the management fee.
401K: Employer sponsored retirement fund specifically for their employees to contribute a portion of their salary which is tax deferred until withdrawal. These plans list various investment options to promote growth of capital.
403b/ TSA: A tax sheltered annuity arrangement intended for retirement of employees of certain tax exempt organizations such as education, religious and charitable organizations.
Individual: Taxable investment account for the allowance of various financial assets to be bought / sold. Funds are contributed after-tax dollars and are subject to short term/ Long term tax consequences. Margin are allowed on these accounts.
IRA: Individual Retirement Account is owned by one person which allows for the contribution of funds which are tax deductible, into a tax-deferred account for investing purposes. Funds grow without tax ramifications until retirement or early withdrawal. 10% tax penalty is assessed if withdrawn prior to the age of 59 and a 1/2. Contributions are capped. Be sure to check with a professional for the annual contribution limits. Limits can change year by year to adjust for inflation.
Joint Tenants In Common: Similar to JWROS, upon death of the individual, the assets are passed to the decedents estate and not to the surviving spouse or member.
JWROS: Joint With Rights of Survivorship is a taxable investment account that is owned by more than 1 person. Usually is owned by an individual and their spouse. Upon death of the spouse, the ownership and assets are transferred to the surviving widow.
Management Fee: A fee that is generally assessed by the investment firm for financial services provided. Usually incurs as a specific percentage of assets.
Roth IRA: A retirement account which allows for after-tax contributions to grow tax free. Similar to IRA’s, Roth IRA’s carry contribution limits. Roth IRA’s have income limits and disqualifies certain investors of contributing to this account if their income exceeds specific amounts. Consult with a professional prior to contributing to a Roth as tax penalties may be incurred.
TOD Agreement: Transfer On Death Agreement allows for a beneficiary to be established on an investment account to avoid the need for probate. This would be applicable for basic securities such as stocks, bonds and mutual funds.
UGMA Minor accounts): Uniform “Gifts” to Minors Act allows the opening of a securities account. Limits gifts/ transfers to only bank deposits, securities and insurance policies. This type of account terminates at the age of majority. (Depending on the state, but most age of majority’s are met at the age of 18). *Minor accounts that receive income from investments/ assets such as this, would potentially disqualify the minor of receiving financial aid for higher education purposes.
UTMA (Minor accounts): Uniform “Transfers” to Minors Act allows the opening of a securities account. Unlike the UGMA, the UTMA allows for virtually any type of asset including real estate to be transferred to a minor. (UTMA’s usually has a later transfer age, such as 25. Be sure to check with your state of residence). *Minor accounts that receive income from investments/ assets such as this, would potentially disqualify the minor of receiving financial aid for higher education purposes.
Macro Terms
Bank Reserve Requirement: Minimum cash level that must be maintained at the banking institution level.
Central Banks: Federal bank or a domestic country/ region bank in which oversees all banking and credit policies. Economic growth and stability of financial markets is a main priority of central banks.
Examples: Federal Reserve Bank of the U.S., European Central Bank, Bank of England, Reserve Bank of India, Peoples Bank of China and the Bank of Japan
Discount Rate: Rate that is charged by the Federal Reserve to domestic commercial banks.
Fed Balance Sheet: Ledger that displays total asset, liability and equity amounts that the Federal Reserve is holding onto. Increase in the balance sheet could promote economic growth as opposed to a decrease in the balance sheet would negate economic growth. These actions would fall under the policies of “OMO” or Open Market Operations.
Fed Funds Rate: Rate that is charged by commercial banks to other commercial banks.
Fiscal Policy: Policies set forth by the central government in order to control economic growth through government expenditures and taxes.
FOMC: Federal Open Market Committee refers to members from the board of governors of the national Federal Reserve banks in the corresponding parts of the U.S.
GDP: Gross Domestic Product measures the economic output of a country by tabulating all final sales of goods and services by individuals and businesses within country.
ISM: Represents the strength of the U.S. manufacturing sector. Institute of Supply Management conducts a survey across the country to gauge the growth or contraction within this sector. Manufacturing is a majority of the U.S. GDP.
Monetary Policy: A set of actions set by a government reserve bank of a country such as the Federal Reserve, in order to control the country’s money supply through the banking system.
Money Supply: total amount of domestic currency within the country’s economy. A higher supply of money could spur economic growth but could lead to inflation.
CPI: Consumer Price Index measures the increase or decrease of the prices of goods and services throughout the economy from a consumer level.
PPI: Producer Price Index measures the increase or decrease of prices which producers are paying. If producer prices begin to increase, they are more likely to pass the increase prices to the consumer.
Prime Rate: Rate by which consumer banks and financial institutions charge their customers.
Retail Sales: A macro economic factor which measures the strength or weakness of the consumer across various segments of the economy.
Stimulus: Purchases of financial assets from commercial banks by the Federal Reserve in order to increase the money supply inside banks. Increasing the money supply is intended to incentive banks to increase lending in the economy.
Tightening: Selling of financial assets by the Federal Reserve or central bank. The intentions are to decrease the money supply in order to slow the economy to counter the effects of inflation.
Yield Curve: Data plot which displays interest rates from short to long term. A normal yield curve would display lower rates in the short term to higher in the long term.
Inverted Yield Curve: A data plot which shows interest rates from short to long term. Unlike the normal yield curve, inversion would refer to the short term rates being higher than the long term rates. This would not be ideal for banks.