Important Investment and Financial Planning Terms To Know

Investment and Financial PlanningBy Sarah Weldman, Staff Writer

ACCRUED INTEREST

The interest due on a bond since the last interest payment was made. The buyer of the bond pays the market price plus accrued interest.

ACQUISITION

The acquiring of control of one corporation by another. In “unfriendly” takeover attempts, the potential buying company may offer a price well above current market values, new securities and other inducements to stockholders. The management of the subject company might ask for a better price or try to join up with a third company.

AMERICAN STOCK EXCHANGE AMEX

The second largest stock exchange in the United States, located in the financial district of New York City. Formerly known as the Curb Exchange from its origin on a Manhattan street.

AMORTIZATION

Accounting for expenses or charges as applicable rather than as paid. includes such practices as depreciation, depletion, write-off of intangibles, prepaid expenses and deferred charges.

ANNUAL REPORT

The formal financial statement issued yearly by a corporation. The annual report shows assets, liabilities, revenues, expenses and earnings - how the company stood at the close of the business year, how it fared profit-wise during the year, as well as other information of interest to shareowners.

BOND

Basically an IOU or promissory note of a corporation, usually issued in multiples of $1,000 or $5,000, although $100 and $500 denominations are not unknown. A bond is evidence of a debt on which the issuing company usually promises to pay the bondholders a specified amount of interest for a specified length of time, and to repay the loan on the expiration date. In every case a bond represents debt - its holder is a creditor of the corporation and not a part owner, as is the shareholder.

BROKER

An agent who handles the public’s orders to buy and sell securities, commodities or other property. A commission is charged for this service.

CAPITAL GAIN OR CAPITAL LOSS

Profit or loss from the sale of a capital asset. The capital gains provisions of the tax law are complicated. You should consult your tax advisor for specific information.

CAPITAL STOCK

All shares representing ownership of a business, including preferred and common.

DEPRECIATION

Normally, charges against earnings to write off the cost, less salvage value, of an asset over its estimated useful life. It is a bookkeeping entry and does not represent any cash outlay nor are any funds earmarked for the purpose.

DIVIDEND

The payment designated by the board of directors to be distributed pro rata among the shares outstanding. On preferred shares, it is generally a fixed amount. On common shares, the dividend varies with the fortunes of the company and the amount of cash on hand, and may be omitted if business is poor or the directors determine to withhold earnings to invest in plant and equipment. Sometimes a company will pay a dividend out of past earnings even if it is not currently operating at a profit.

EQUITY

The ownership interest of common and preferred stockholders in a company. Also refers to excess of value of securities over the debit balance in a margin account.

FIXED CHARGES

A company’s fixed expenses, such as bond interest, which it has agreed to pay whether or not earned, and which are deducted from income before earnings on equity capital are computed.

GENERAL MORTGAGE BOND

A bond that is secured by a blanket mortgage on the company’s property but may be outranked by one or more other mortgages.

GOVERNMENT BONDS

Obligations of the U.S. Government, regarded as the highest grade securities issues.

HOLDING COMPANY

A corporation that owns the securities of another, in most cases with voting control.

INDENTURE

A written agreement under which bonds and debentures are issued, setting forth maturity date, interest rate and other terms.

INDEPENDENT BROKER

Member on the floor of the NYSE who executes orders for other brokers having more business at that time than they can handle themselves, or for firms who do not have their exchange member on the floor.

INTEREST

Payments borrowers pay lenders for the use of their money. A corporation pays interest on its bonds to its bondholders.

KEOGH PLAN

Tax-advantaged personal retirement program that can be established by a self-employed individual.

LIABILITIES

All the claims against a corporation. Liabilities include accounts, wages and salaries payable; dividends declared payable; accrued taxes payable; and fixed or long-term liabilities, such as mortgage bonds, debentures and bank loans.

MONEY MARKET FUND

A mutual fund whose investments are in high-yield money market instruments such as federal securities, CDs and commercial paper. Its intent is to make such instruments, normally purchased in large denominations by institutions, available indirectly to individuals.

MORTGAGE BOND

A bond secured by a mortgage on a property. The value of the property may or may not equal the value of the bonds issued against it.

MUNICIPAL BOND

A bond issued by a state or a political subdivision, such as county, city, town or village. The term also designates bonds issued by state agencies and authorities. In general, interest paid on municipal bonds is exempt from federal income taxes and state and local taxes within the state of issue. However, interest may be subject to the alternative minimum tax AMT.

NYSE COMPOSITE INDEX

The composite index covering price movements of all common stocks listed on the New York Stock Exchange. It is based on the close of the market December 31, 1965, as 50 and is weighted according to the number of shares listed for each issue. The index is computed continuously and printed on the ticker tape. Point changes in the index are converted to dollars and cents so as to provide a meaningful measure of changes in the average price of listed stocks. The composite index is supplemented by separate indexes for four industry groups: industrial, transportation, utility and finance.

OFF-BOARD

This term may refer to transactions over-the-counter in unlisted securities or to transactions of listed shares that are not executed on a national securities exchange.

OFFER

The price at which a person is ready to sell. Opposed to bid, the price at which one is ready to buy.

PORTFOLIO

Holdings of securities by an individual or institution. A portfolio may contain bonds, preferred stocks, common stocks and other securities.

PREFERRED STOCK

A class of stock with a claim on the company’s earnings before payment may be made on the common stock and usually entitled to priority over common stock if the company liquidates. Usually entitled to dividends at a specified rate - when declared by the board of directors and before payment of a dividend on the common stock - depending upon the terms of the issue.

PRIME RATE

The lowest interest rate charged by commercial banks to their most credit-worthy customers; other interest rates, such as personal, automobile, commercial and financing loans are often pegged to the prime.

PRINCIPAL

The person for whom a broker executes an order, or dealers buying or selling for their own accounts. The term “principal” may also refer to a person’s capital or to the face amount of a bond.

REAL ESTATE INVESTMENT TRUST REIT

An organization similar to an investment company in some respects but concentrating its holdings in real estate investments. The yield is generally liberal since REITs are required to distribute as much as 90% of their income.

SECURITIES INDUSTRY AUTOMATION CORPORATION SIAC

An independent organization established by the New York and American Stock Exchanges as a jointly owned subsidiary to provide automation, data processing, clearing and communications services.

SECURITIES INVESTOR PROTECTION CORPORATION SIPC

Provides funds for use, if necessary, to protect customers’ cash and securities that may be on deposit with a SIPC member firm in the event the firm fails and is liquidated under the provisions of the SIPC Act. SIPC is not a government agency. It is a non-profit membership corporation created, however, by an act of Congress.

SELLER’S OPTION

A special transaction on the NYSE that gives the seller the right to deliver the stock or bond at any time within a specified period, ranging from not less than.

TURNOVER RATE

The volume of shares traded in a year as a percentage of total shares listed on an exchange, outstanding for an individual issue or held in an institutional portfolio. two business days to not more than 60 days.

VARIABLE ANNUITY

A life insurance policy where the annuity premium a set amount of dollars is immediately turned into units of a portfolio of stocks. Upon retirement, the policyholder is paid according to accumulated units, the dollar value of which varies according to the performance of the stock portfolio. Its objective is to preserve, through stock investment, the purchasing value of the annuity which otherwise is subject to erosion through inflation.

YIELD

Also known as return. The dividends or interest paid by a company expressed as a percentage of the current price. A stock with a current market value of $40 a share paying dividends at the rate of $3.20 is said to return 8% $3.20÷$40.00. The current yield on a bond is figured the same way.

ZERO COUPON BOND

A bond that pays no interest but is priced, at issue, at a discount from its redemption price.