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Terms & Definitions

401k – employees who participate in 401K plans have their employers contribute a percentage of their salaries into a retirement account. Employers may match a percentage of the employee’s contribution (e.g., the employee deposits 6% of their salary and the employer adds another 3%)

401k rollover – withdrawing money out of a retirement plan and depositing the funds into a traditional IRA or another qualified retirement plan.

Bonds (Debt Securities) – investors who purchase bonds are making a loan to the issuer. Bondholders receive or earn interest from the issuer.

Cash Value (Surrender Value) – The amount of money that an insurance company will return to the policyholder upon cancellation of the insurance policy before death. In addition, policyholders may borrow a portion of the cash value for a loan.

Commercial paper – unsecured debt securities issued by a corporation or bank to finance short-term credit needs. Maturities typically range from 2 to 270 days,

Diversification – spreading investments to different companies and/or different industries. Diversification helps to minimize business or sector risk.

Estate account – an account managed for the beneficiaries of an estate

Face Value (Death Benefit) – The money left behind for the beneficiary in the event of a policyholder’s death.

Fixed annuities – retirement plans issued by insurance companies that provide a fixed payout to the holder.

Government security – securities that are issued by the U.S. Government (T-bills, T-notes, T-bonds and GNMA)

Hedge fund – a fund that uses leverage (purchasing on margin), options, short sales and other speculative investment strategies. Hedge funds usually protect investors in bearish markets

Individual retirement accounts (IRAs) – tax-deferred retirement accounts set up by individual investors. The maximum contribution is $4,000 per year or 100% of earned income, whichever is less.

Money Market – a type of mutual find that invests in short term debt securities.

Mutual funds – a type of investment company that is a continuous offering of new shares. Investors buy the shares through the issuer and redeem the shares through the issuer. Mutual funds are not traded between investors.

Terms

National Association of Securities Dealers (NASDAQ) – regulator of the OTC market that regulates all brokerage firms and employees.

New York Stock Exchange (NYSE) – the largest and oldest securities exchange in the United States established in 1792. The NYSE is an auction market where buyers and sellers get together to bid and offer securities.

Non-qualified retirement plans – retirement plans where contributions are made from after tax dollars. The first money withdraw is taxed (money earned from investment). The last money withdraw is not taxed. The plans are taxed on a LIFO basis.

Prime rate – the interest rate that banks charge their customers (usual corporations) for loans.

Qualified retirement plans – plans where money is contributed from pre-tax dollars. All money withdrawn is fully taxed.

Roth IRA – retirement account set up by individual investors. Contributions to Roth IRA’s are made from after-tax dollars. Withdrawals made from IRAs are tax-free.

Securities and Exchange Commission (SEC) – the federal agency that administers the U.S. securities laws. The SEC was created under the Securities Exchange Act of 1934.

Security – an investment in a business or government with third party management with an expectation of profit.

Separate Account – an account created by an insurance company which is segregated from the general funds maintained by the company. Separate accounts are used for variable annuities and variable life polices where the investors choose the investments.

Stock – a security that represents ownership or equity of a company.

Term life insurance – insurance that has a death benefit, but no cash value.

Treasury Bill (T-bill) – short term debt securities backed by the U.S. Government with 1, 3, or 6 month maturity. A T-bill does not have coupon rate.

Treasury Bond (T-bond) – a long term debt securities backed by the U.S. Government. T-bonds are issued with 10-30 year maturities.

Treasury Note (T-note) – a long term debt securities backed by the U.S. Government. T-notes are issued with maturities of 1-10 years.

Universal Life Insurance – a life insurance policy where policyholders may vary the amount of premiums paid and the timing of the payments.

Variable Annuity – a retirement plan issued by insurance company where payouts vary based on the performance of the separate account.

Variable Life Insurance – life insurance that provides a separate account that allows policyholders to choose investments. Variable Universal

Variable Universal Life Insurance – a type of life insurance policy that has characteristics of variable life insurance policies and universal life insurance policies.

Whole Life – life insurance that provides cash value with fixed premiums payments and fixed death benefits.