Glossary P to T Wenco Financial Planning Certified Senior Advisor

points
Points are charges added to a mortgage loan by the lender and are based on the loan amount. One point is equal to 1% of the original loan balance.

policy
A contractual arrangement between the insurer and the insured describing the terms and conditions of the life insurance contract.

policy loan
The policy owner can borrow from the cash value component of many permanent insurance policies for virtually any purpose. Any policy loans that are outstanding at the time of death of the insured will be deducted from the benefit paid to the beneficiary.

political risk
The risk that stock prices may decline dramatically during periods of political unrest or crisis.

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.

power of attorney
A legal document authorizing one person to act on behalf of another.

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.

premium
The payment that the owner of a life insurance policy makes to the insurer. In exchange for the premium payment, the insurer assumes the financial risk as defined by the insurance policy associated with the death of the insured.

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.

present value
The current worth of a future payment, or stream of payments, discounted at a given interest rate over a given period of time.

price to 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 measurement for investors, it often appears with stock price quotations.

principal
The outstanding balance, excluding interest. 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 mortgage insurance
Insurance that protects the lender against the default of higher risk loans. Most lenders require private mortgage insurance on loans where the loan-to-value ratio is higher than 80%, or less than 20% equity.

probate
The process used to make an orderly distribution and transfer of property from the deceased to a group of beneficiaries. The probate process is characterized by court supervision of property transfer, filing of claims against the estate by creditors and publication of a last will and testament.

profit sharing plan
Permits discretionary annual contributions that are generally allocated on the basis of compensation. The employer will determine the amount to be contributed each year depending on the cash-flow of the company. The deduction for contributions to a Profit-Sharing Plan cannot be more than 15% of the compensation paid to the employees participating in the plan. Annual employer contributions to the account of a participant cannot exceed the smaller of $30,000 or 25 percent of a participant's compensation.

prohibited IRA transactions
Generally, a prohibited transaction is any improper (self-dealing) use of the IRA by the account owner. Some examples include borrowing money from an IRA, using an IRA to secure a loan and selling property to an IRA.

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.A detailed statement prepared by an issuer and filed with the SEC prior to the sale of a new issue. The prospectus gives detailed information on the issue and on the issuer's condition and prospects.

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. A qualified retirement plan is a retirement plan that meets certain specified tax rules contained primarily in section 401(a) of the Internal Revenue Code. These rules are called "plan qualification rules". If the rules are satisfied the plan's trust is exempt from taxes.

refinance
To retire the existing mortgage using the proceeds of a new mortgage and using the same property as collateral. This is usually done to secure a lower interest rate mortgage or to access equity from the property.

registered representative
A licensed with the NASD (National Association of Securities Dealers), through association with an NASD member broker / dealer, to act as an account representative for clients and collect commission income.

revocable trust
A trust in which the creator reserves the right to modify or terminate the trust

revolving debt
A debt or liability that does not have a fixed principal balance or payment. Examples include credit cards, home equity lines of credit, etc.

rider
A life insurance rider is an amendment to the standard policy that expands or restricts the policy's benefits. Common riders include a disability waiver of premium rider and a children's life coverage rider.

risk
Investment risk is the chance that the actual returns realized on an investment will differ from the expected return.

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

rule of 72
A way to determine the effect of compound interest. Divide 72 by the expected return on your investment. If your expected return is 8%, assuming that all interest is reinvested, you will double your money in 9 years.

safety of principal
An objective that emphasizes the security of the invested principal.

salary reduction simplified employee pension (SARSEP)
A simplified alternative to a 401(k) plan. It is a SEP that includes a salary reduction arrangement. Under this special arrangement, eligible employees can elect to have the employer contribute part of their before-tax pay to their IRA. This amount is called an "elective deferral".

SEC
The main regulatory body regulating the securities industry is called the Securities and Exchange Commission.

second mortgage
A mortgage on real property in a junior position to a primary or first mortgage. The increased risk associated with a second mortgage is often reflected in a higher interest rate and a shorter term of repayment.

securities
Stocks and bonds are traditionally referred to as securities. More specifically, stocks are often referred to as "equities" and bonds as "debt instruments."

securities and exchange commission
The main regulatory body regulating the securities industry is called the Securities and Exchange Commission.

short position
A position in an investment that would increase in value as the underlying asset(s) decrease in value. Opposite of a long position.

short sale
The sale of stock that you do not yet own in order to take advantage of an expected share price decline. If the stock declines in price, the stock is purchased at the now lower price and the short position is closed.

simplified employee pension (SEP)
A simplified alternative to a qualified profit-sharing plan. Basically, a SEP is a written arrangement that allows an employer to make contributions towards his or her own and employees' retirement, without becoming involved in a more complex retirement plan. Under a SEP, IRAs are set up for each eligible employee. SEP contributions are made to IRAs of the participants in the plan. The employer has no control over the employee's IRA once the money is contributed.

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
A stock issued by a company with less than $1.7 billion in market capitalization.

smart card
A card with an embedded computer chip which stores more information, performs more functions and is more secure than a credit card or debit card.

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 individual can set up and contribute to an IRA for his/her spouse. This is called a "Spousal IRA" and can be established if certain requirements are met. In the case of a spousal IRA, the individual and spouse must have separate IRAs. A jointly owned IRA is not permitted.

stock
Stock certificates represent an ownership position in a corporation. Stockholders are often entitled to dividends, voting rights, and financial participation in company growth.

stock dividends
The investor's share of the income earned by the company issuing the stock.

stock exchange
A market for trading of equities, a public market for the buying and selling of public stocks.

stop-loss order
This is when you tell your broker to sell the stock if it drops to a certain price.

succession planning
Planning for a business to pass to the next generation of owner/managers.

surrender value
When a policy owner surrenders his/her permanent life insurance policy to the insurance company, he or she will receive the surrender value of that policy in return. The surrender value is the cash value of the policy plus any dividend accumulations, plus the cash value of any paid-up additions minus any policy loans, interest, and applicable surrender charges.

tax bracket
The range of taxable income that is taxed at a certain rate. Brackets are expressed by their marginal rate.

tax credit
An income tax credit directly reduces the amount of income tax paid by offsetting other income tax liabilities.

tax deduction
A reduction of total income before the amount of income tax payable is calculated.

tax-deferred
Refers to the deferral of income taxes on interest earnings until the interest is withdrawn form the investment. Some vehicles or products that enjoy this special tax treatment include permanent life insurance, annuities, and any investment held in IRA's.

tax-exempt bonds
Under certain conditions, the interest from bonds issued by states, cities, and certain other government agencies is exempt from federal income taxes. In many states, the interest from tax-exempt bonds will also be exempt from state and local income taxes.

taxable income
The amount of income used to compute tax liability. It is determined by subtracting adjustments, itemized deductions or the standard deduction, and personal exemptions from gross income.

technical analysis
An approach to investing in stocks in which a stock's past performance is mapped onto charts. These charts are examined to find familiar patterns to use an an indicator of the stock's future performance.

tenancy in common
Two or more people who own the same piece of property, with the inherent condition that if one of the tenants die, his or her interest passes to his or her chosen beneficiaries and not to the surviving owner or owners.

term insurance
Coverage that pays a death benefit only if the insured dies within a specified period of time. Term policies do not have a cash value component and must be renewed periodically as dictated by the insurance contract.

testamentary trust
A trust created under the terms of a will and that takes effect upon the death of the testator.

testator
One who has made a will or who dies having left a will.

ticker symbol
A combination of letters that identifies a stock-exchange security.

title
A legal document establishing property ownership.

title search
A detailed examination of legal records to determine the history and legal ownership of a property.

top heavy plans
Each year, a qualified plan must be tested to determine whether it is "top-heavy". Generally, a "top-heavy" plan is one in which more than 60 percent of the benefits under the plan are for key employees (usually owners and officers). Additional requirements apply to a top-heavy plan such as faster vesting and mandatory employer contributions.

total disability
In order to make a disability claim a person must meet the definition of disability set forth in the insurance contract. There are two general definitions of disability used in today's contracts. The first definition is that the insured is unable to perform all of the substantial and material duties of his/her own occupation. The second, and more restrictive, definition is that the insured is unable to perform any occupation for which he/she is reasonably suited by education, training, or experience.

total return
The total of all earnings from a given investment, including dividends, interest, and any capital gain.

treasury bill
Short-term securities (maturities of less than one year) offered and guaranteed by the federal government. They are issued at a discount and pay their full face value at maturity.

treasury bond
Bonds issued with maturities of more than 10 years and are offered and guaranteed by the U.S. Government. They are issued at a discount and pay their full face value at maturity.

treasury note
Notes issued with maturities between one and 10 years and are offered and guaranteed by the U.S. Government. They are issued at a discount and pay their full face value at maturity.

trust
A legal entity created by an individual in which one person or institution holds the right to manage property or assets for the benefit of someone else. Types of trusts include: Testamentary Trust - A trust established by a will that takes effect upon death; Living Trust - A trust created by a person during his or her lifetime; Revocable Trust - A trust in which the creator reserves the right to modify or terminate the trust; Irrevocable Trust - A trust that may not be modified or terminated by the trustor after its creation.

trustee
An individual or institution appointed to administer a trust for its beneficiaries.

trustee-to-trustee transfer
A method of transferring retirement plan assets from one employer's plan to another employer plan or to an IRA. One benefit of this method is that no federal income tax will be withheld by the trustee of the first plan.

TSA (tax-sheltered annuity)
Tax deferred annuity retirement plan available to employees of public schools and colleges, and certain non-profit hospitals, charitable, religious, scientific and educational organizations.

Copyright © 2000-2005 - Wenco Financial Advisors Inc. - All Rights Reserved
Terms and Conditions of Use - Privacy Policy
For problems, errors, or comments, email Webmaster.
Page Last Updated: 01/25/05 01:00:29 PM
http://www.wenco-financial.com/