Glossary K to O Wenco Financial Planning Certified Senior Advisor

keogh plan
A tax deferred retirement plan for self-employed individuals and employees of unincorporated businesses. A Keogh plan is similar to an IRA but with significantly higher contribution limits.

leverage
The process of investing using borrowed funds. Leveraging your investments magnifies your returns, both positive and negative.

leveraged buyout (LBO)
Deals in which a company is bought with mostly borrowed money, money frequently raised through selling high-yield and high-risk junk bonds.

liability
Any claim against the assets of a person or corporation: accounts payable, wages, and salaries payable, dividends declared payable, accrued taxes payable, and fixed or long-term obligations such as mortgages, debentures, and bank loans.

liability risk
The risk that the legal system may assess punitive damages against you if property damage or personal injuries can be attributed to your carelessness or negligence.

lien
A claim against a property or asset for the payment of a debt. Examples include a mortgage, a tax lien, a court judgment, etc.

life expectancy
The average future time an individual can expect to live. Life expectancies have been increasing steadily over the past century and may continue to increase in the future. As people are living longer the cost of retirement is increasing.

life insurance
A contract between you and a life insurance company that specifies that the insurer will provide either a stated sum or a periodic income to your designated beneficiaries upon your death.

life settlement
Occurs when a person who does not have a terminal or chronic illness sells his/her life insurance policy to a third party for an amount that is less than the full amount of the death benefit. The buyer becomes the new owner and/or beneficiary of the life insurance policy, pays all future premiums, and collects the entire death benefit when the the insured dies. Some states regulate the purchase as a security while others may regulate it as insurance.

limited partnership
An investor relationship where partners pool money to develop or purchase income-producing properties. When the partnership subsequently receives income from these properties, it distributes the income to its investors as dividend payments.

liquidity
The measure of your ability to immediately turn assets into cash without penalty or risk of loss. Examples include a savings account, money market account, checking account, cash, etc.

living trust
A trust created by a person during his or her lifetime.

living will
If you become incapacitated this document will preserve your wishes and act as your voice in medical decisions, if you are unable to speak for yourself as a result of medical reasons.

loan-to-value ratio
The relationship between all outstanding and proposed loans on a property and the appraised value of the property. This ratio assists a lender in determining the risk associated with the loan. The higher this ratio, the riskier the loan.

long position
Current ownership in that investment which would increase in value as the underlying asset(s) increase in value, opposite of a short position.

lump-sum distribution
The disbursement of the entire value of a profit-sharing plan, pension plan, annuity, or similar account to the account owner or beneficiary. Lump-sum distributions may be rolled over into another tax-deferred account.

margin
The amount of money supplied by an investor as a portion of the total funds needed to buy or sell a security, with the balance of required funds loaned to the investor by a broker, dealer, or other lender.

marginal tax bracket
The range of taxable income that is taxable at a certain rate. Currently, there are six marginal tax brackets: 10 percent, 15 percent, 25 percent, 28 percent, 33 percent, and 35 percent.

margin account
A special account set up by a broker for a client who wants to buy and sell securities using margin.

margin call
A call from a broker to a client asking for more money to back up a security purchased on margin when such a security has declined in value. If more money is not supplied, the broker usually sells the security.

marital deduction
A provision of the tax codes that allows all assets of a deceased spouse to pass to the surviving spouse free of estate taxes. This provision is also referred to as the unlimited marital deduction.

market order
An order to buy at the lowest price going, or sell at the highest price possible.

market risk
Every investment carries some element of market risk, the risk that the entire market will decline, reducing the investment's value regardless of other factors.

medical power of attorney
This special power of attorney document allows you to designate another person to make medical decisions on your behalf.

minimum distributions
An individual must start receiving distributions from a qualified plan by April 1 of the year following the year in which he/she reaches age 70 ½ . Subsequent distributions must occur by each December 31st. The minimum distributions can be based on the life expectancy of the individual or the joint life expectancy of the individual and beneficiary.

money market fund
A mutual fund that specializes in investing in short-term securities and that tries to maintain a constant net asset value of $1.

money purchase plan
Contributions that are a fixed percentage of compensation and are not based on the employer's profits. With this type of plan, the employer is committed to making contributions each year even if the employer has no profits or is experiencing cash flow problems. Employee contributions are limited to 25% of compensation. Employer contributions are limited to the smaller of $30,000 or 25 percent of a participant's compensation.

mortality
The risk of death of a given person based on factors such as age, health, gender, and lifestyle.

mortgage
A legal instrument providing a loan to the mortgagee to be used to purchase a real property in exchange for a lien against the property.

mortgage broker
An intermediary between a borrower and a lender. A broker's expertise is to assist the borrower in identifying mortgage lenders and products that they might not identify otherwise.

mortgage insurance (MI)
Insurance that protects the lender against the default of higher risk loans. Most lenders require mortgage insurance on loans where the loan-to-value ratio is higher than 80% (less than 20% equity).

municipal bonds
A bond offered by a state, county, city or other political entity (such as a school district) to raise public funds for special projects. The interest received from municipal bonds is often exempt from certain income taxes.

municipal bond fund
A mutual fund that specializes in investing in municipal bonds.

mutual funds
A pooling of shareholder assets, which is professionally managed by an investment company for the benefit of the fund's shareholders. Each fund has specific investment objectives and associated risk. Mutual funds offer shareholders the advantage of diversification and professional management in exchange for a management fee.

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. The value of all the holdings of a mutual fund, less the fund's liabilities. It also describes the price at which fund shares are redeemed.

net worth
The difference between your total assets and total liabilities.

non-conforming loan
A loan that does not conform to Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC) guidelines. Such loans include jumbo loan, sub-prime loans and high risk loans.

note
A legal document that acknowledges a debt and the terms and conditions agreed upon by the borrower.

odd lot
An uneven number of securities that represents less than a board lot.

offer price.
The price that a buyer is willing to pay for an investment.

open-end fund
A mutual fund that continuously issues and redeems units, so the number of units outstanding varies from day to day. Most mutual funds are open-end funds. The opposite of closed-end fund.

origination fee
The amount charged by the lender for originating the mortgage loan. Origination fees vary by lender and are expressed in points where one point is equal to 1% of the original loan balance.

over-the-counter (OTC) market
Market created by dealer trading as opposed to the auction market, which prevails on most major exchanges.

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