• 401(k): A 401k is a retirement savings plan sponsored by an employer. It lets employees save and invest a part of their paycheck. A traditional 401k deferral is before taxes are taken out. Taxes aren’t paid until the money is withdrawn from the account.
  • 529 Plan: A state-sponsored college savings plan through which a donor can set up an account for children, grandchildren, other relatives, or the donor. The donor retains control of the account and can transfer it to another family member. Earnings are not taxed if they are used for qualified education expenses.
  • After-Tax Return: The return on an investment after accounting for all applicable taxes.
  • Alternative Investments: Investments outside traditional asset classes such as stocks and bonds. Examples include private equity, hedge funds, real estate, and commodities.
  • Annuity: An investment product from a life insurance company, typically providing tax-deferred earnings but may charge substantial fees. The defining characteristic of all annuities is the option for a guaranteed distribution of income for life. However, generally, people may also choose to receive the accumulated principal in a lump-sum payment.
  • Asset: Anything with commercial or exchange value owned by a business, institution or individual. Examples include cash, real estate and investments.
  • Asset Allocation: A method of investing where investors include a range of different investment classes, such as stocks, bonds, and cash equivalents, in their portfolios.
  • Asset Class: A group of securities or investments that have similar characteristics and behave similarly in the marketplace. Three common asset classes are equities (e.g., stocks), fixed income (e.g., bonds), and cash equivalents (e.g., money market funds).
  • Asset Location: A strategy that involves placing investments in different types of accounts, such as taxable or tax-advantaged accounts, to improve overall tax efficiency.
  • Asset Management: Professional management of both securities (such as stocks, bonds, limited partnerships, and mutual funds) and tangible assets like real estate to meet specified investment goals for the benefit of an investor.
  • Asset Protection: Using a set of legal techniques and statutory laws to protect wealth against liability and lawsuits.
  • AUM (Assets Under Management): The total market value of the investments managed on behalf of clients.
  • Bear Market: A condition of the market during which time the price of securities are decreasing. If the Dow Jones Industrial Average or Standard & Poor’s 500 Index drop 20% or more over a two-month period, many consider this entry into a bear market.
  • Beneficiary: A person who inherits proceeds from assets.
  • Bond: A debt security which represents the borrowing of money by a corporation, government, or other entity. The borrowing institution repays the amount of the loan plus a percentage as interest.
  • Certified Financial Planner (CFP®): A professional designation attained by a financial planner or advisor who has successfully completed the requirements set by the Certified Financial Planner Board. The CFP® designation is awarded to individuals who successfully complete the CFP Board’s initial and ongoing certification requirements.
  • Chartered Financial Analyst (CFA): A designation for investment and finance professionals that certifies their knowledge across a wide range of finance- and investment-related topics. It is awarded by the CFA Institute.
  • Direct Indexing: An investment approach that involves owning the individual securities of an index rather than investing in a mutual fund or ETF. This can offer greater customization and potential tax advantages.
  • Diversification: A technique designed to reduce risk by investing in a variety of asset classes.
  • Dividends: Shares of a company’s profits paid to investors.
  • Donor-Advised Fund (DAF): A charitable giving account that allows donors to contribute assets, receive an immediate tax deduction, and recommend grants to charities over time.
  • DOW (Dow Jones Industrial Average): An index showing the values of 30 large publicly-traded U.S. companies. Reports that the DOW is up or down refer to the average increases or decreases in stock prices of those companies.
  • Drawdown (Maximum Drawdown): The largest decline in the value of an investment or portfolio from its peak to its lowest point over a given period.
  • Dynasty Trust: A long-term trust designed to transfer wealth across multiple generations while minimizing estate and gift taxes.
  • Estate: Everything you own; all of your assets and liabilities.
  • Estate Planning: Making decisions about distributing one’s assets at death, and the strategies to carry out those decisions.
  • Family Limited Partnership (FLP): A legal structure used to manage and transfer family assets. It allows family members to retain control while gradually transferring ownership interests.
  • Fee-based financial advisor: Fee-based advisors can be compensated in different ways, including through commissions on the products they can sell to you. This can introduce additional conflicts of interest since it gives advisors incentives to sell you certain funds.
  • Fee-only financial advisor: Fee-only advisors are only compensated by the client. This arrangement can help reduce conflicts of interest when making recommendations to you.
  • Fiduciary: An individual or organization that is legally and ethically bound to act in the best interest of the client. 
  • Financial Planning: Comprehensive advice and assistance to a client for the purpose of meeting the client’s financial needs and life goals. This includes, but is not limited to, these major areas: retirement planning, investment planning, risk management and insurance planning, tax planning, and estate planning.
  • Grantor Retained Annuity Trust (GRAT): An irrevocable trust that allows a grantor to transfer asset appreciation to beneficiaries while receiving fixed payments for a set period of time.
  • Hedging: The strategy of offsetting potential losses from an investment by taking an opposite position in a related asset. 
  • Illiquidity Premium: The potential additional return investors may receive for holding investments that are not easily sold or converted to cash.
  • Inflation: Refers to a general and sustained increase in prices over time.
  • Individual retirement account (IRA): An IRA permits individuals to set aside money each year, with earnings tax-deferred until withdrawals begin at age 59 1/2 or later (or earlier, with a 10% penalty). The exact amount depends on the year and your age. IRAs can be established at a bank, mutual fund, or brokerage. A traditional IRA allows the amount deposited to be deducted from current income (subject to limitations), but any distributions are fully taxable.
  • Intentionally Defective Grantor Trust (IDGT): An irrevocable trust structured so that the grantor is responsible for income taxes, allowing assets within the trust to grow for beneficiaries without additional tax burden.
  • Mutual Fund: A type of investment vehicle funded by shareholders for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets.
  • NASDAQ: The National Association of Securities Dealers Automated Quotation, also called the “electronic stock market.” The NASDAQ composite index measures the performance of more than 5,000 U.S. and non-U.S. companies traded “over the counter” through NASDAQ.
  • Net Worth: Everything you own minus liabilities (everything you owe to others). 
  • Portfolio: A collection of investments such as stocks and bonds that are owned by an individual, organization, or investment fund.
  • Privately Held: A company whose shares cannot be bought by the general public.
  • Qualified Charitable Distribution (QCD): A direct transfer of funds from an individual retirement account to a qualified charity. These distributions can count toward required minimum distributions and may reduce taxable income.
  • Required Minimum Distribution (RMD): The minimum amount that must be withdrawn each year from certain retirement accounts once the account holder reaches a specified age.
  • Retirement Planning: A plan made and kept by an individual for setting aside income for life after you leave the workforce.
  • Registered Investment Advisor (RIA): An RIA is an investment advisor registered with the Securities and Exchange Commission or a state’s securities agency.
  • Roth Conversion Strategy: The process of transferring assets from a traditional retirement account to a Roth account, typically resulting in taxes owed at the time of conversion.
  • Roth IRA: A type of individual retirement account that you fund with after-tax income.
  • Securities: Assets bought and sold via financial markets such as stocks and mutual funds.
  • Securities and Exchange Commission (SEC): Government agency created by Congress in 1934 to regulate the securities industry and to help protect investors. The SEC is responsible for ensuring that the securities markets operate fairly and honestly.
  • Separately Managed Account (SMA): A professionally managed portfolio of individual securities owned directly by a single investor. This structure can offer more customization and greater transparency.
  • Sequence of Returns Risk: The risk that the timing of investment returns, especially early losses, can negatively impact a portfolio’s long-term performance. This is particularly relevant in the early years of retirement.
  • Sharpe Ratio: A measure used to evaluate risk-adjusted return by comparing an investment’s excess return to its level of volatility.
  • Step-Up or Step Down in Basis: An adjustment of an asset’s cost basis to its current market value at the time of inheritance. This can potentially reduce or eliminate capital gains taxes for beneficiaries.
  • Stock: Also referred to as “shares” or “equity,” stock is a type of security that signifies ownership in a corporation and represents a claim on part of the corporation’s assets and earnings. There are two main types of stock:
    • Common stock usually entitles the owner to vote at shareholders’ meetings and to receive dividends.
    • Preferred stock generally does not have voting rights, but has a higher claim on assets and earnings than the common shares.
  • Tax Alpha: The additional return generated through tax-efficient investment strategies. It reflects the value added by reducing taxes on investment gains and income.
  • Tax-Loss Harvesting: A strategy that involves selling investments at a loss to offset capital gains and reduce taxes. Losses can be used to offset gains from other investments and, in some cases, reduce ordinary income.
  • Trusts: A legal arrangement whereby a person (trustor/grantor) gives property to another person (trustee) to be managed for the benefit of the giver, another person, or an entity such as a charitable organization (beneficiary). Trusts are often used in estate planning and for asset protection.
  • Volatility: The degree to which the price of an investment fluctuates.

Disclosure:

This glossary is provided for informational purposes only and should not be construed as personalized investment advice. It should not be construed as a solicitation to offer personal securities transactions or provide personalized investment advice. The information provided does not constitute any legal, tax or accounting advice. We recommend that you seek the advice of a qualified attorney and accountant. All opinions or views reflect the judgment of the author as of the publication date and are subject to change without notice. All information presented herein is considered to be accurate at the time of writing, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted.

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