When educating yourself about financial products and saving tools, you’ll likely encounter financial terminology and acronyms that you aren’t familiar with. As an educational reference, we are providing these definitions for your use. Please remember to discuss any major financial decisions with a financial advisor.

Financial Terms

Discover the definition of financial terms, words and phrases in this comprehensive financial dictionary.

A B C D E F G H I
J K L M N O P Q R
S T U V W X Y Z

Active management

The trading of securities to take advantage of market opportunities. In contrast to passive management, active managers rely on research, market forecasts, and their own judgment and experience in selecting securities to buy and sell.

Actuary

A mathematician who calculates premiums, reserves, dividends, insurance, pension and annuity rates for insurance and financial services companies.

Aggressive growth fund

An investment fund that takes higher risk of loss in return for potentially higher returns or gains.

Alpha

A measure of the difference between a fund’s actual returns and its expected performance, given its level of risk as measured by beta. A positive alpha figure indicates the fund has performed better than its beta would predict. In contrast, a negative alpha indicates the fund’s underperformance, given the expectations established by the fund’s beta. Alpha, beta and R-squared are considered MPT (Modern Portfolio Theory) statistics and are based on a least-squared regression of the fund’s return over Treasury bills (called excess return) and the excess returns of the fund’s benchmark index.

Annual rate of return

The annual rate of gain or loss on an investment, expressed as a percentage.

Annual report

A yearly report or record of the financial position and operations of an investment or company.

Annuitant

The person whose life is insured is the annuitant. The annuitant and the annuity owner aren’t necessarily the same person.

Annuitization

The time you spend contributing to your annuity is the accumulation phase. The annuitization phase begins when you start receiving money from your annuity.

Annuity

An insurance contract issued by a life insurance company. The contract provides income at regular intervals for a defined period of time, such as a specific number of years or for life.

Annuity commencement date

The date stated in the annuity contract indicating when annuity payments will begin. This is also known as the annuity start date.

Appreciation

An increase in the value of an investment.

Asset

Anything with commercial or exchange value that is owned by a business, institution or individual. Examples include cash, real estate and investments.

Asset allocation

Spreading your investments between asset categories (stocks, bonds, cash or cash equivalents) may help minimize risk. That’s because investment categories respond to changing economic and political conditions in different ways. Just keep in mind that the use of asset allocation does not guarantee returns or insulate you from potential losses.

Asset class

A group of securities or investments that have similar characteristics and behave similarly in the marketplace. Three common asset classes are equities (such as stocks), fixed income (such as bonds), and cash alternatives or equivalents (such as money market accounts).

Asset-based fees

Expenses that are based on the amount of assets in your plan. These fees are generally charged as percentages or basis points.

Automatic asset rebalancing (AAR)

An optional service that will periodically exchange money between funds in your account to maintain your original investment levels. AAR saves you the time and hassle of manually reallocating your current balance every few months.

Average annual total returns

The annual compounded returns that would have produced the cumulative total return if fund performance had been constant during a given period.

Back-end load

A fee imposed by some funds when shares are redeemed (sold back to the fund) during the first few years of ownership. This is also referred to as a contingent deferred sales charge.

Balanced fund

A fund with an investment objective of both long-term growth and income, through investment in both stocks and bonds.

Basis point

One-hundredth of one percent, or 0.01%. For example, 20 basis points equals 0.20%. Investment expenses, interest rates, and yield differences among bonds are often expressed in basis points.

Benchmark

An unmanaged group of securities whose performance is used as a standard to measure investment performance. Some well-known benchmarks are the Dow Jones Industrial Average and the S&P 500 Index.

Beta

A measure of a fund’s sensitivity to market movements. The beta of the market is 1.00 by definition. Morningstar calculates beta by comparing a fund’s excess return over Treasury bills to the market’s excess return over Treasury bills. A beta of 1.10 shows that the fund has performed 10% better than its benchmark index in up markets and 10% worse in down markets, assuming all other factors remain constant. Conversely, whereas a beta of 0.85 indicates that the fund’s excess return is expected to perform 15% worse than the market’s excess return during up markets and 15% better during down markets. Alpha, beta and R-squared are considered MPT (Modern Portfolio Theory) statistics and are based on a least-squared regression of the fund’s return over Treasury bills (called excess return) and the excess returns of the fund’s benchmark index.

Bloomberg Roll Select Commodity Total Return Index

A version of the Bloomberg Commodity Index that aims to mitigate the effects of contango market structure on index performance. For each commodity, the index rolls into the futures contract showing the most backwardation or the least amount of contango, selecting from those eligible contracts with nine months or fewer until expiration.

Bond

A debt security that represents money borrowed by a corporation, government, or other entity. The borrower repays the amount of the loan, plus a percentage as interest. Income funds generally invest in bonds.

Bond fund

A fund that invests primarily in bonds and other debt instruments.

Bond rating

A rating or grade that’s intended to indicate the credit quality of a bond. The financial strength of its issuer and the likelihood that it will repay the debt are considered. Agencies such as Standard & Poor’s, Moody’s Investors Service and Fitch issue ratings for different bonds, ranging from AAA (highly unlikely to default) to D (in default).

Broker

A person who acts as an intermediary between the buyer and seller of a security, insurance product or mutual fund. This person is often paid a commission. The terms broker, broker/dealer and dealer are sometimes used interchangeably.

Brokerage window

An optional service lets you establish a self-directed brokerage account. This option carries distinct charges.

Capital appreciation fund

An investment fund that seeks growth in share prices by investing primarily in stocks whose share prices are expected to rise.

Capital gain

An increase in the value of an investment, calculated by the difference between the net purchase price and the net sales price.

Capital loss

The loss in the value of an investment, calculated by the difference between the purchase price and the net sales price.

Capital preservation

An investment goal or objective to keep the original investment amount (the principal) from decreasing in value.

Capitalization (Cap)

The total market value of a company’s outstanding equity.

Cash alternative / cash equivalent

An investment that is short term, highly liquid, and has high credit quality.

Cash refund annuity

An annuity that makes periodic payments during your lifetime, as well as a benefit to your beneficiaries upon your death. Your death benefit is equal to your premium(s) paid, minus payments made during your lifetime.

Commission

Compensation paid to a broker or other salesperson when investments are bought or sold.

Common stock

An investment that represents a share of ownership in a corporation.

Company stock fund

A fund that invests primarily in employer securities that may also maintain a cash position for liquidity purposes.

Compounding

The cumulative effect that reinvesting an investment’s earnings can have by generating additional earnings of their own.

Contract issue date

The date you sign paperwork to buy an annuity.

Corporate bond

A bond issued by a corporation, rather than by a government. The credit risk for a corporate bond is based on the repayment ability of the company that issued the bond.

Credit risk

The risk that a bond issuer will default. In other words, not repay principal or interest to the investor, as promised. This is also known as default risk.

Current yield

The current rate of return of an investment. This is calculated by dividing the investment’s expected income payments by its current market price.

Custodian

A person or entity, such as a bank or trust company, responsible for holding financial assets.

Deferred annuity

A deferred annuity lets you potentially grow your assets so they could provide a steady stream of income during retirement. When you purchase the annuity, you deposit money into it over a period of time. That money is invested. At a certain point, usually at retirement, you start receiving payments from the annuity. These payments can be made in a lump sum or in installments.

Deflation

The opposite of inflation, deflation is a decline in the prices of goods and services.

Depreciation

A decrease in the value of an investment.

Designated investment alternative

Your plan’s investment options.

Distribution

Money you take from your financial account, such as an IRA. Also called a withdrawal.

Diversification

The practice of investing in multiple asset classes and securities with different risk characteristics.

Dividend

Money an investment fund or company pays to its stockholders, typically from profits. The amount is usually expressed on a per-share basis.

Dow Jones Industrial Average (DJIA)

The Dow is a widely-followed price-weighted index of 30 of the largest, most widely-held U.S. stocks.

Duration

An estimate of bond price sensitivity to changes in interest rates. The higher the duration, the greater the change (higher risk) in relation to interest-rate movements.

Earnings

Money gained on the principal in your financial accounts, such as an IRA.

Emerging market

Generally, economies that are in the process of growth and industrialization. Developing markets, such as Africa, Asia, Eastern Europe, the Far East, Latin America and the Middle East may hold significant growth potential in the future. Investing in emerging markets may provide significant rewards, as well as significant risks.

Emerging market fund

A fund that invests primarily in emerging market countries.

Employee Retirement Income Security Act of 1974 (ERISA)

A federal law that imposes various requirements on voluntary established pension plans in the private industry. ERISA establishes standards in order to provide protection for plan participants.

Equity

A security or investment representing ownership in a corporation. Equity is often used interchangeably with stock. Compare to a bond, which represents a loan to a borrower.

Equity Fund

A fund that invests primarily in equities.

Equity wash restriction

A provision in certain stable value or fixed income products that require transfers to be directed to an equity fund or other noncompeting investment option. Restrictions last for a stated period of time (usually 90 days) before those funds may be invested in any other competing fixed income fund (such as a money market fund) provided by the plan.

Exchange traded fund (ETF)

An investment company, such as a mutual fund. ETF shares are traded throughout the day on stock exchanges at market-determined prices.

Expense ratio

A measure of what it costs to operate an investment, expressed as a percentage of its assets or in basis points. You pay for these costs through a reduction in the investment’s rate of return. See operating expenses and total annual operating expenses.

Federal Deposit Insurance Corporation (FDIC)

A federal agency that insures deposits in member banks and thrift institutions.

Fiduciary

Any person or party who exercises any discretionary authority or control over the management of a plan, or the disposition of its assets. For a fee, a fiduciary gives investment advice, or has the authority to do so. A fiduciary also has discretionary responsibility in the administration of that plan.

Financial Industry Regulatory Authority (FINRA)

A self-regulatory organization for brokerage firms doing business in the United States. FINRA operates under the supervision of the U.S. Securities and Exchange Commission (SEC). FINRA protects investors and ensures market integrity.

Financial statement

The written record of the financial status of a fund or company. Financial statements are usually published in a company’s annual report. They generally include a balance sheet, an income statement, and other financial statements and disclosures.

Fixed annuity

With a fixed annuity, the insurance company guarantees the rate of return and payout. Guarantees are subject to the claims-paying ability of the issuing insurance company.

Fixed income fund

A fund that invests primarily in bonds and other fixed-income securities. Fixed income funds often provide shareholders with current income.

Fixed return investment

An investment that provides a specific rate of return to the investor.

Flat rate expenses

Base fees charged to a plan, regardless of the number of participants. Examples of flat rate expenses include preparation of IRS Form 5500, discrimination testing and vesting calculation.

Front-end load

A sales charge on mutual funds or annuities assessed at the time of purchase.

Fund family

A group or “complex” of mutual funds. Each group typically has its own investment objective, and is managed and distributed by the same company. Fund family also refers to a group of collective investment funds or a group of separate accounts managed and distributed by the same company.

Fund window

A plan feature that lets you buy investments that are not included in your plan’s general menu of designated investment alternatives.

Glide path

The shift over time in a target date fund’s asset allocation mix from a focus on growth to a focus on income.

Global fund

A fund that invests primarily in securities anywhere in the world, including the United States.

Government securities

Any debt obligations issued by a government or its agencies, such as U.S. Treasury bills.

Group annuity contract

An annuity contract between an insurance company and an owner for the benefit of a designated group, such as retirement plan participants.

Growth and income fund

A fund that has a dual strategy of growth or capital appreciation, as well as current income generation through dividends or interest payments.

Growth fund

A fund that invests primarily in the stocks of companies with above-average risk in return for potentially above-average gains. These companies often pay little or no dividends, and their stock prices tend to have the most ups and downs from day to day.

Guaranteed interest account

An account within a fixed or variable annuity that is guaranteed by the insurance company to earn at least a minimum rate of interest while invested in the contract.

Guaranteed investment contract

A contract issued by an insurance company that guarantees a specific rate of return on an investment over a certain time period.

Guaranteed lifetime withdrawal benefit

A feature sometimes offered in an annuity contract where the insurance company lets you withdraw a specified amount from an account. This benefit can apply to your entire life, the joint lives of you and another individuals (such as your spouse) or for a specified period of time. Withdrawals can be made even if the account balance is reduced to zero. This benefit it also known as a guaranteed minimum withdrawal benefit.

Immediate annuity

You can convert a lump sum into payments for life or for a certain number of years from an immediate annuity. Payments begin immediately.

Inception date

The date a fund’s operations begin.

Income fund

A fund that primarily seeks current income rather than capital appreciation.

Index

A benchmark used to evaluate a fund’s performance. The most common indexes for stock funds are the Dow Jones Industrial Average and the Standard & Poor’s 500 Index.

Index fund

An investment fund that seeks to parallel the performance of a particular stock market or bond market index. Often referred to as passively-managed investments.

Individual annuity contract

An annuity contract between an insurance company and a person or persons.

Individual Retirement Account (IRA)

IRAs are accounts that you own and fund through your own contributions. Two common types of IRAs are:

• Traditional IRAs – Contributions are made with pre-tax dollars, and earnings are tax-deferred. This means that you don’t owe taxes until the funds are withdrawn, usually at retirement.

• Roth IRAs – Contributions are made with after-tax dollars, so you don’t pay taxes on the money as it accumulates.

Individual service expenses

Charges applied to participants who take advantage of special plan features, such as participant loans.

Inflation

The general upward price movement of goods and services in an economy. Inflation is generally one of the major risks to investors over the long term because it erodes the purchasing power of their savings.

Interest / Interest rate

The fee charged by a lender to a borrower, usually expressed as an annual percentage of the principal. For example, someone investing in bonds will receive interest payments from the bond’s issuer.

Interest rate risk

The possibility that the market value of a bond or bond fund will decrease due to rising interest rates. When interest rates (and bond yields) go up, bond prices usually go down, and vice versa.

International fund

A fund that invests primarily in the securities of companies located outside of the United States. Or whose revenues come from outside the United States.

Investment adviser

A person or organization hired by an investment fund or an individual to give professional advice on investments and asset management practices.

Investment company

A corporation or trust that invests pooled shareholder dollars in securities that are appropriate to the organization’s objective. The most common type of investment company, a mutual fund, stands ready to buy back its shares at their current net asset value.

Investment objective

The goal that an investment fund or investor seeks to achieve, such as growth or income.

Investment return

The gain or loss on an investment over a certain period, expressed as a percentage. Income and capital gains or losses are included in calculating the investment return.

Investment risk

The possibility of losing some or all of the amounts invested, or not gaining value in an investment.

Joint and last survivor annuity

An annuity that provides periodic payments for the joint lives of two individuals. Benefits are payable upon the death of one individual to the surviving individual at a percentage of the original payment amount. Death benefit amounts depend on the terms of the contract.

Large capitalization (Cap)

A reference to either a large company stock or an investment fund that invests in the stocks of large companies.

Large-cap fund

A fund that invests primarily in large-cap stocks.

Large-cap stocks

Stocks of companies with a large market capitalization. Large caps tend to be well-established companies, so their stocks typically have less risk than smaller caps, but they also offer less potential for dramatic growth.

Life annuity

An annuity that makes periodic payments only for the life of one individual. Also known as a single life annuity.

Lifecycle fund

A fund designed to provide varying degrees of long-term appreciation and capital preservation based on your age or target retirement date. As you get older or closer to retirement, a lifecycle fund’s mix of asset classes becomes less focused on growth and more focused on income. Also known as target date retirement or age-based funds.

Lifestyle fund

A fund that maintains a predetermined risk level and generally uses words like “conservative,” “moderate” or “aggressive” in its name to indicate the fund’s risk level. Used interchangeably with target risk fund.

Liquidity

The ease that an investment can be converted into cash. If a security is very liquid, it can be bought or sold easily. If a security is not liquid, it may take additional time and/or a lower price to sell it. Liquidity is the degree to which an asset or security can be bought or sold in the market without affecting the asset’s price. Liquidity is characterized by a high level of trading activity. Assets that can be easily bought or sold are known as liquid assets. The amount of liquidity in a market is vital to bond-fund managers, who need to move in and out of positions quickly, but it is less important to buy-and-hold investors, who intend to keep a bond until maturity.

Longevity risk

The risk that you will live longer than expected and run out of retirement money.

Management fee

A service fee or charge paid to an investment manager.

Market capitalization (Cap)

The market value of a company. Market capitalization can be determined by multiplying the number of outstanding shares of a company’s stock by the stock’s current market price per share.

Market risk

The possibility that the value of an investment will fall because of a general decline in the financial markets.

Maturity date

The date when the principal amount of a loan, bond or any other debt becomes due and is to be paid in full.

Mid-capitalization (Cap)

A reference to either a medium-sized company stock or an investment fund that invests in the stocks of medium-sized companies.

Mid-cap fund

A fund that invests primarily in mid-cap stocks.

Mid-cap stocks

Stocks of companies with a medium market capitalization. Mid caps are often considered to offer more growth potential than larger caps, but less than small caps. They also are considered to offer less risk than small caps, but more than large caps.

Money market fund

A mutual fund that invests in short-term, high-grade fixed-income securities. Money market funds seek the highest level of income consistent with preserving capital. In other words, they try to maintain a stable share price.

Morningstar

A leading mutual fund research and tracking firm that categorizes funds by objective and size, then ranks fund performance within those categories.

Mutual fund

An investment company registered with the SEC that buys a portfolio of securities selected by a professional investment adviser. Mutual funds can have actively-managed portfolios, where a professional investment adviser creates a unique mix of investments to meet a particular investment objective. They can also have passively-managed portfolios, in which the adviser tries to match the performance of a selected benchmark or index.

NASDAQ-100 Index

An unmanaged index that includes 100 of the largest domestic and international nonfinancial securities listed on the Nasdaq Stock Market, based on market capitalization.

National Association of Securities Dealers Automated Quotation (NASDAQ)

A composite index that measures the performance of more than 5,000 U.S. and non-U.S. companies traded “over the counter” through NASDAQ.

Net asset value (NAV)

The net dollar value of a single investment fund share or unit that is calculated by the fund on a daily basis.

New York Stock Exchange (NYSE)

The oldest and largest stock exchange in the United States. The NYSE was founded in 1792.

No-load fund

A mutual fund whose shares are sold without a sales commission. No-load funds do not charge a combined 12b-1 fee and service fee of more than 25 basis points, or 0.25% per year.

Operating expenses

Costs associated with running or operating an investment fund. Operating expenses may include custody fees, management fees and transfer agent fees. Also see expense ratio and total annual operating expenses.

P/E ratio

The price of a stock divided by trailing 12-month earnings per share.

Passive management

The process or approach to operating or managing a fund in a passive or non-active manner, typically with the goal of mirroring an index. Passive management funds are often referred to as index funds and differ from investment funds that are actively managed.

Per participant charges

Charges are based on the total number of eligible employees or actual participants in the plan.

Period certain

A payment feature available in some annuity contracts that guarantees periodic payments for a set period of time. For example, in a life annuity, periodic payments would be made to you or beneficiary for the either the guaranteed period or the life of the individual. Whichever is longer.

Plan administrative expenses

Charges used to cover services provided for the day-to-day operations of the plan, such as recordkeeping, accounting, customer service support and daily valuation.

Pooled guaranteed investment contract (GIC) fund charges

Charges for a common, fixed income investment option. Includes a number of contracts issued by an insurance company or bank that pays an interest rate. Charges include investment management and administrative fees.

Portfolio

A collection of investments, such as stocks and bonds owned by an individual, organization or investment fund.

Portfolio manager

The individual, team or firm making the investment decisions for an investment fund, including the selection of individual investments.

Portfolio turnover rate

A measure of how frequently investments are bought and sold within an investment fund during a year. The portfolio turnover rate is usually expressed as a percentage of the total value of an investment fund.

Principal

Money you’ve contributed to your financial account, such as an IRA.

Prospectus

The official document that describes certain investments, such as mutual funds, to prospective investors. The prospectus contains information required by the SEC, such as investment objectives and policies, risks, services and fees.

Provider / Recordkeeping expenses

These expenses are a combination of various charges. Also known as an asset management charge (AMC) or wrap charge.

Qualified / Nonqualified

These terms identify whether contributions are made with pre-tax or post-tax dollars. Qualified contributions come from money that hasn’t been taxed yet, such as money withheld from your paycheck for your 401(k). Nonqualified contributions come from money that has already been taxed, such as the check you write for your Roth IRA.

Rate of return

The gain or loss on an investment over a period of time. The rate of return is typically reported annually and expressed as a percentage.

Real rate of return

The rate of return on an investment adjusted for inflation.

Redemption

The selling of fund shares back to the fund. This may also refer to the repayment of a bond on or before the agreed upon pay-off date.

Redemption fee

A fee, generally charged by a mutual fund, to discourage certain trading practices by investors, such as short-term or excessive trading. If a redemption fee is charged, it is done when the investment is redeemed or sold.

Return

The gain or loss on an investment. A positive return indicates a gain, while a negative return indicates a loss.

Rider

An optional rider added to your life insurance policy or annuity contract can offer additional coverage and protection on select products.

Risk

The potential for you to lose some or all of your investments, or to fail to achieve your investment objectives.

Risk tolerance

An investor’s ability and willingness to lose some or all of an investment in exchange for greater potential returns.

R-squared

R-squared measures the relationship between a portfolio and its benchmark. It can be thought of as a percentage from 1 to 100. R-squared is not a measure of the performance of a portfolio. If a portfolio moves like the benchmark, it has a high R-squared. If it doesn’t move at all like the benchmark, it has a low R-squared.

General Range for R-Squared:

  • 70-100% = good correlation between the portfolio’s returns and the benchmark’s returns
  • 40-70% = average correlation between the portfolio’s returns and the benchmark’s returns
  • 1-40% = low correlation between the portfolio’s returns and the benchmark’s returns

R-squared can be used to ascertain the significance of a particular beta or alpha. Generally, a higher R-squared will indicate a more useful beta figure. If the R-squared is lower, then the beta is less relevant to the fund’s performance. Alpha, beta and R-squared are considered MPT (Modern Portfolio Theory) statistics and are based on a least-squared regression of the fund’s return over Treasury bills (called excess return) and the excess returns of the fund’s benchmark index.

Russell 1000® Growth Index

An unmanaged index that measures the performance of the large capitalization growth segment of the U.S. equity universe. Includes Russell 1000® Index companies with higher price-to-book ratios and higher forecasted growth values.

S&P 500® Index

An unmanaged, market capitalization-weighted index of 500 stocks of leading large-cap U.S. companies in leading industries; gives a broad look at the U.S. equities market and those companies’ stock price performance.

Sales charge

A charge for buying an investment.

SEC 30-day Yield

An unmanaged, market capitalization-weighted index of 500 stocks of leading large-cap U.S. companies in leading industries. This index gives a broad look at the U.S. equities market and the stock price performance of those 500 companies.

Sector fund

A fund that invests in a particular or specialized segment of the marketplace, such as stocks of companies in the software, health care or real estate industries.

Securities and Exchange Commission (SEC)

A 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.

Security

A general term for stocks, bonds, mutual funds and other investments.

Separate account

An insurance company account that is segregated or separated from the insurance company’s general assets. This also refers to a fund managed by an investment adviser for a single plan.

Share

A representation of ownership in a company or investment fund.

Share class

Some investment funds and companies offer more than one type or group of shares, each of which is considered a class. Examples include “class A,” “Advisor” or “Institutional” shares. Each class has different fees and expenses, but all of the classes invest in the same pool of securities and share the same investment objectives.

Shareholder

An owner of shares in an investment fund or corporation.

Shareholder-type fees

Any fee charged against an investment for purchase and sale, other than the total annual operating expenses.

Sharpe ratio

Calculated using standard deviation and excess returns over the 3-month U.S. Treasury Bill to determine reward per unit of risk. The higher the Sharpe ratio, the better the fund’s historical risk adjusted performance. The Sharpe ratio is calculated for the past 36-month period by dividing a fund’s annualized excess returns by the standard deviation of a fund’s annualized excess returns.

Single premium / Single purchase payment

A single premium annuity is a deferred annuity that lets you put money into your annuity account only once, when you first purchase the product.

Small capitalization (Cap)

Refers to either a small company stock or an investment fund that invests in the stocks of small companies.

Small-cap fund

A fund that invests primarily in small-cap stocks.

Small-cap stocks

Stocks of companies with smaller market capitalization. Small caps are often considered to offer more growth potential than large and mid caps, but they may come with more risk.

Stable value fund

An investment fund that seeks to preserve principal and provide consistent returns and liquidity. Stable value funds include collective investment funds sponsored by banks or trust companies, as well as contracts issued by insurance companies.

Standard & Poor’s 500® Index

An unmanaged, market capitalization-weighted index of leading large-cap U.S. companies in leading industries. This index gives a broad look at the U.S. equities market and the stock price performance of those 500 companies.

Standard deviation

A statistical measure of risk. It reflects the extent to which an asset’s rate of return may fluctuate from period to period. When a fund has a high standard deviation, the predicted range of performance is wide, implying greater volatility. Morningstar computes standard deviation using the trailing monthly total returns for the appropriate time period. All of the monthly standard deviations are then annualized.

Stock

A security that represents an ownership interest in a corporation.

Stock fund

A fund that invests primarily in stocks.

Stock symbol

An abbreviation using letters and numbers assigned to securities to identify them. See ticker symbol.

Summary prospectus

A short-form prospectus that mutual funds may use with investors. A summary prospectus is used if a long-form prospectus and additional information is available online or on paper, upon request.

Target date fund

A fund designed to provide varying degrees of long-term appreciation and capital preservation based on your age or target retirement date. As you get older or closer to retirement, a lifecycle fund’s mix of asset classes becomes less focused on growth and more focused on income. Also known as a lifecycle fund.

Target risk fund

A fund that maintains a predetermined asset mix and generally uses words such as “conservative,” “moderate” or “aggressive” in its name to indicate the fund’s risk level. Also known as a lifestyle fund.

Ticker symbol

An abbreviation using letters and numbers assigned to securities and indexes to identify them. See stock symbol.

Time horizon

The amount of time you expect to hold an investment before taking money out.

Total annual operating expenses

A measure of what it costs to operate an investment. These expenses are typically expressed as a percentage of an investment’s assets, a dollar amount or in basis points. You pay these costs through a reduction in the investment’s rate of return. See expense ratio and operating expenses.

Transaction-based expenses

Fees based on the execution of a particular plan service or transaction.

Trustee

A person or entity, such as a bank, trust company or other organization, that is responsible for the holding and safekeeping of trust assets. The trustee may have other duties, such as investment management. A trustee serving as a “directed trustee” is responsible for the safekeeping of trust assets, but has no discretionary investment management duties or authority over the assets.

U.S. Treasury securities

Debt securities issued by the United States government and secured by its full faith and credits. U.S. Treasury securities are the debt-financing instruments of the U.S. government. Often referred to as treasuries.

Unit

A representation of ownership in an investment that doesn’t issue shares. Most collective investment funds are divided into units instead of shares. See share.

Unit class

Investment funds divided into units, instead of shares. Collective investment funds and other funds may offer more than one type or group of units, each of which is considered a class, such as “Class A”. For most investment funds, each class has different fees and expenses, but all of the classes invest in the same pool of securities and share the same investment objectives.

Unit value

The dollar value of each unit on a given date.

Unitholder

An owner of units in an investment. See shareholder.

Value fund

A fund that invests primarily in stocks that are believed to be priced below what they’re really worth.

Variable annuity

A variable annuity is a long-term investment product that provides a variable rate of return based on the performance of the investments you select. A variable annuity is a contract between you and an insurance company, and it’s sold by prospectus. While it may take some time, you should read the prospectus. The prospectus describes risk factors, fees and charges that may apply to you.

Variable annuity charges

Variable annuities have fees and charges that include mortality and expense, investment management and administrative fees, contract fees and the expense of the underlying investment options. Variable annuities also have insurance-related charges, such sales expenses and surrender and transfer charges when an employee is terminated or withdraws from the plan’s investment.

Variable return investment

Investments for which the return is not fixed. Variable return investments include stock and bond funds, as well as investments seeking to preserve principal but not guaranteeing a particular return. Examples include money market funds and stable value funds.

Volatility

The amount and frequency of fluctuations in the price of a security, commodity or market within a specified time period. Generally, an investment with high volatility is said to have higher risk because there’s an increased chance that the price of the security will have fallen when an investor wants to sell.

Withdrawal

Also called a distribution, a withdrawal is the money you take from your financial account, such as an IRA. For retirement accounts, distributions made prior to age 59½ may be subject to a 10% penalty tax. All taxable distributions at any age are subject to ordinary income tax, and surrender charges may apply. You may incur fees or penalties when you make a withdrawal, depending on the type of product and whether the account is qualified or non-qualified.

Wrap fee

A fee or expense that is added to, or “wrapped around,” an investment to pay for one or more product features or services.

Yield

The value of interest or dividend payments from an investment. The yield is usually stated as a percentage of the investment price.

12b-1 Fee

A fee assessed on certain mutual funds or share classes permitted under an SEC rule to help cover the costs associated with marketing and selling the fund. 12b-1 fees may also be used to cover shareholder servicing expenses.