Commonly Used Terms:
It is one thing to know what a technical term or phrase means; it is quite another to understand and intertwine it into our experience.
Therefore, GHI Corp leave the formal financial definitions to the writers of dictionaries or textbooks and offer instead the following less conventional explanation for some of the financial terms that you will come across in the financial world.
GHI Corp has prepared a glossary of the most common investing terms:
Alternative Minimum Tax (AMT): A tax that Congress passed to prevent wealthy taxpayers from using deduction and exemption to carve away their tax liability to almost nothing.
Annuity: A guarantee issued by a life insurance company to pay you a stipulated amount monthly, quarterly, or yearly as long as you live. Therefore you cannot out live your money.
Asset: Anything that a person own that has monetary value.
Asset allocation: A way to diversify your investment, enhance return and lower risk
Bond: A debt instrument that guarantees to pay principle and interest at maturity (TSY, CD's, CORP BOND, MUNIE BONDS.)
Defined Benefit Plan: A retirement plan where the employer makes contributions on your behalf. This is based on your age, years of service and earnings. ( The traditional pension plan)
Defined Contribution Plan: A plan where the employer offers a retirement plan and the employees make contributions. [401K]
Equity: An instrument that shows that you are an owner of a company. When the company does well you do well and vice versa.
Estate Taxes: Taxes that have to be paid when someone dies, unless they are exempt.
Exchange Traded Funds: Better known as ETF's, they are based on exactly the same principle as index mutual funds, in that they are a basket of securities assembled to replicate the performance of a given market benchmark and they trade on the stock markets exchanges. They are a lot like stock.
Executor/Executrix: This person makes sure that the provisions of your Will are honored.
529 Plan: A plan that is a gift you can make out, usually to your child or someone else's child for college, with tax strings attached, for the benefit of tax-free growth in the account, you do, however, have to abide by certain IRS provisions.
Fixed Income: A debt instrument that is guarantee to pay back the principle and interest at a given date (TSY, CD's, CORP BOND, MUNIE BONDS)
Guardian: A person appointed by the court for a individual who has not yet reached the age of financial majority (eighteen or twenty-one depending on the state) or who is physically or mentally handicapped.
Investment Advisor: Any person who makes investment recommendation in return for a flat fee.
Liability: A source of funds used to acquire an asset
Long Term Care Insurance: Insurance that provides income in the event that you are unable to carry out normal daily activities on your own.
Mutual Funds: A pool or basket of securities selected by a computer program or an investment manager to offer diversified investment strategies.
Non-Qualified Plan: A plan that all capital gains in growth are taxable if funds are withdrawn. This is in contrast to retirement plans that are qualified by the IRS to defer taxes until the money is withdrawn
Qualified Plan: This is a plan that comes from the IRS. Such plans are governed under special tax provisions that allow the plan to grow without being taxed until the money is withdrawn.
Power of Attorney: A document that delegates decision-making authority to another individual.
Trust: A legal mechanism whereby assets are set aside for a specific purpose. Funds are managed and disbursed according to the provisions specified by the creator or grantor of the trust.
Withdrawal: The act of taking your own money from a saving or retirement account.