Be an investor -- or just sound like
don't need to watch an infomercial or pay $19.95 to sound like an
investor. It's free right here on Bankrate.com. These 15 basic investing
terms will start you on your way to making big money with your pocket
change. And after further education on our investing
home page, you might even find yourself hobnobbing with with
the Wall Street big kahoonas. Lesson one: learn the basics. Repeat
after me, 401(k) Plan ...
401(k) plan -- An employer-sponsored
savings plan that allows employees to contribute a portion of their
gross salary to a savings or profit-sharing plan. Employee contributions
and income earned on the plan are tax-deferred until withdrawn at
age 59½. Money directed to the plan may be partially matched
by the employer, and investment earnings within the plan accumulate
tax-free until they are withdrawn. The 401(k) is named for the section
of the federal tax code that authorizes it.
Average annual yield
-- The average yield per year over the life of the investment, assuming
all principal and interest remain on deposit until maturity.
Bond Buyer's 20 bond index
-- Bond Buyer is a daily publication, commonly known as the Red
Book, featuring many essential statistics and index figures relative
to the fixed-income markets. This index tracks the prices of a selected
group of municipal bonds. The index is used to set the cost of municipal
debt. It helps indicate the direction of municipal bond prices but
otherwise has little impact on most ordinary investors.
Capital -- Money that
is used to make money, for example, to buy rental property or a
Capital asset -- An item
that you own for investment or personal purposes, such as stocks,
bonds or stamp collections. When you sell a capital asset, depending
on the price, you earn a capital gain or a capital loss. Gains are
taxed at a special rate, and losses can be used in many cases to
reduce the amount that is taxed.
Capital gain distribution
-- You receive capital gain distributions when the fund sells some
of its assets and then passes along a portion to you. This distribution
that you get is regarded by the IRS as a capital gain, not as ordinary
dividends such as the interest you get from your bank account. It
is important to separate capital gain distributions from ordinary
dividends because capital gains are taxed more favorably.
Dividend -- Distribution
of earnings to shareholders. In credit unions, it's the money paid
to members for deposits, similar to the interest banks pay to their
customers for deposits.
Effective federal funds rate
-- The average interest rate that federal funds actually trade at
in a day. The federal funds rate will remain stable for months at
a time, but the effective rate is a volatile one that will vary
every business day.
Government bond -- Debt
obligations of the U.S. government, consisting of Treasury bills,
notes and bonds, and carrying the highest credit rate possible.
Also referred to as government securities.
Money Market Mutual Fund (also
Money Market Fund or MMF) -- A mutual fund that invests in
short-term debt instruments such as Treasury bills, commercial paper
and large CDs.
-- A dividend you receive from a company, not from its earnings
but as a return of your investment in the stock. If you receive
a nontaxable distribution, you must reduce your basis in the stock
by the amount of the distribution. When you sell the stock, your
gain or loss will be calculated using the adjusted basis.
Real Estate Investment Trust
(REIT) -- A trust that invests primarily in real estate and
mortgages and passes income, losses and other tax items to its investors.
SEP IRA -- Simplified
Employee Pension IRA. Tax-deferred retirement plan for small businesses
and self-employed. The employer makes contributions. Up to 15 percent
of an employee's pretax gross wages may be contributed.
Short-term capital gain or loss
-- Your profit or loss from the sale of a capital asset that you
held for one year or less.
Tax shelter -- An investment
that is planned to result in tax-favored treatment. The IRS has
placed restrictions on tax shelters where the principal purpose
of the activity appears to be the avoidance or evasion of taxes
or where the activity might result in more deductible expenses than
the investors have at risk.
Find more investing terms in our investing
-- Posted: Sept. 30, 2002