Glossary N – S

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Net Asset Value
The price at which a mutual fund sells or redeems its shares. The net asset value is calculated by dividing the net market value of the fund’s assets by the number of outstanding shares.

Pooled Income Fund
A trust created by a charitable organization that combines the contributions of several donors and distributes income to those donors based on the earnings of the trust. The trust is managed by the charitable organization, and contributions are partially deductible for income tax purposes.

Portfolio
All the investments held by an individual or a mutual fund.

Preferred Stock
A class of stock with claim to a company’s earnings, before payment can be made on the common stock, and that is usually entitled to priority over common stock if the company liquidates. Generally, preferred stocks pay dividends at a fixed rate.

Prenuptial Agreement
A legal agreement arranged before marriage stating who owns property acquired before marriage and during marriage and how property will be divided in the event of divorce. ERISA benefits are not affected by prenuptial agreements.

Prepaid 529
Prepaid tuition plans, a version of the 529 plan, are known as a Prepaid Educational Arrangement or PEA. There are two basic versions of the PEA. In one version, you buy units of future college tuition at today’s prices. These units are generally split up in percentages or credit hours. The other version allows you to buy contracts for a specific number of years of college (Between 1 and 5). Simply put, a PEA allows a person to buy a future college education at current college prices.

Price/Earnings Ratio (P/E Ratio)
The market price of a stock divided by the company’s annual earnings per share. Because the P/E ratio is a widely regarded yardstick for investors, it often appears with stock price quotations.

Principal
In a security, the principal is the amount of money that is invested, excluding earnings. In a debt instrument such as a bond, it is the face amount.

Private Foundation
A non-profit charitable organization formed by a individual or business. Funds donated are managed by its own trustees and distributed to desired charities.

Probate
The court-supervised process in which a decedent’s estate is settled and distributed.

Profit-Sharing Plan
An agreement under which employees share in the profits of their employer. The company makes annual contributions to the employees’ accounts. These funds usually accumulate tax deferred until the employee retires or leaves the company.

Prospectus
A document provided by mutual fund companies to prospective investors. The prospectus gives information needed by investors to make informed decisions prior to
investing in a specific mutual fund. The prospectus includes information on the minimum investment amount, the fund’s objectives, past performance, risk level, sales charges, management fees, and any other expense information about the fund, as well as a description of the services provided to investors in the fund.

Qualified Domestic Relations Order (QDRO)
At the time of divorce, this order would be issued by a state domestic relations court and would require that an employee’s ERISA retirement plan accrued benefits be divided between the employee and the spouse.

Qualified Retirement Plan
A pension, profit-sharing, or qualified savings plan that is established by an employer for the benefit of the employees. These plans must be established in conformity with IRS rules. Contributions accumulate tax deferred until withdrawn and are deductible to the employer as a current business expense.

Real Estate Investment Trust (REIT)
REITs invest in a diverse number of real estate ventures such as apartment buildings, hotels, office buildings, shopping centers, to name a few. REITs usually trade publicly, though some are private.

Reverse Mortgage
Process of converting home equity to cash. Opposite of a standard mortgage the lender makes payments to the borrower rather than the borrower making payments to the lender. Reverse mortgages are typically utilized by seniors seeking income in retirement.

Revocable Trust
A trust in which the creator reserves the right to modify or terminate the trust.

Risk
The chance that an investor will lose all or part of an investment.

Risk-Averse
Refers to the assumption that rational investors will choose the security with the least risk if they can maintain the same return. As the level of risk goes up, so must the expected return on the investment.

Rollover
A method by which an individual can transfer the assets from one retirement program to another without the recognition of income for tax purposes. The requirements for a rollover depend on the type of program from which the distribution is made and the type of program receiving the distribution.

Roth 401k
Combines several features of the already established Roth IRA. A defined contribution plan that may be established by a company for retirement. Employees may allocate a portion of their salaries into this plan, contributions are nondeductible for income tax purposes. Allows tax-free withdrawals when certain conditions are met. Income and contribution limits apply.

Roth IRA

A nondeductible IRA that allows tax-free withdrawals when certain conditions are met. Income and contribution limits apply.

Sector Investing

Investing in a specific sector of a particular group of stocks such as oil or airline stocks.

Security
Evidence of an investment, either in direct ownership (as with stocks), creditorship (as with bonds), or indirect ownership (as with options).

Simplified Employee Pension Plan (SEP)
A type of plan under which the employer contributes to an employee’s IRA. Contributions may be made up to a certain limit and are immediately vested.

Single-Life Annuity
An insurance-based contract that provides future payments at regular intervals in exchange for current premiums. Generally used as a supplement to retirement income and pays over the life of one individual, usually the retiree, with no rights of payment to any survivor.

Small Cap Company
Market capitalization of small companies, usually less than $500 million.

Socially Responsible Investing
Investing in stocks or funds that have an emphases on ethical investments.

Split-Dollar Plan
An arrangement under which two parties (usually a corporation and employee) share the cost of a life insurance policy and split the proceeds.

Spousal IRA
An IRA designed for a couple when one spouse has no earned income. The maximum combined contribution that can be made each year to an IRA and a spousal IRA is
$8,000 (in 2005 through 2007) or 100 percent of earned income, whichever is less. This total may be split between the two IRAs as the couple wishes, provided the contribution to either IRA does not exceed $4,000.