Glossary of Terms

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401(k)
Under section 401(k) of the Internal Revenue Code, employees can set aside money for retirement on a pre-tax basis through a plan sponsored by their employer. To encourage saving in these plans, the federal government offers special tax advantages for 401(k) contributions.

Alpha
A measure of an investment's return arising from specific non-market risk (manager skill).

Asset Allocation
The way your money is divided among various types of investments, such as stocks, bonds, and cash.

Balanced Fund
A fund that seeks to provide current income and long-term growth by investing in a combination of stocks, bonds, and cash.

Basis Point
One one-hundredth of one percent. For example, 30 basis points equals 0.30%.

Bear Market
A market that loses value over an extended period of time.

Beneficiary
A person designated by a participant to receive benefits if the participant dies.

Beta
A historical measure of a fund's sensitivity to market movement. A beta less than 1.0 indicates a fund is less sensitive to the market, while a beta over 1.0 indicates a fund is more sensitive to the market. Because beta is based on past performance, it is not an indication of future performance.

Blue Chip Stocks
Common stocks of nationally recognized companies with long records of growth and dividend payments, and sound reputations for quality management and products. Some examples of blue chip stocks are IBM, GE, and DuPont.

Bond
An IOU issued by a corporation, government, or government agency. The issuer makes regular interest payments on the bond and promises to pay back, or redeem, the face value of the bond at a specified point in the future, called the maturity date.

Bond Fund
A fund that is primarily invested in bonds. Bond funds generally emphasize income rather than growth.

Bull Market
A market that gains value over an extended period of time.

Capitalization
The total stock market value of all shares of a company's stock.

Commingling
Combining dollars from a qualified plan distribution with other IRA dollars. Rollovers from a qualified plan should be kept separate from regular IRA contributions so they may later be rolled into another qualified plan.

Distribution
A withdrawal from your retirement account.

Direct Rollover
A distribution from a qualified plan that is transferred directly to an IRA or other qualified plan.

Diversification
A strategy of investing in different asset classes to reduce the risks inherent in investing in a single asset class.

Dow Jones Industrial Average (DJIA)
This index tracks the daily performance of 30 major US industrial companies. This is the most widely used market indicator.

Early Withdrawal Penalty
A penalty on money withdrawn from a qualified retirement plan before age 59 ½.

Equity Fund
A fund that invests primarily in stocks.

Expense Ratio
The percentage of a fund's average net assets used to pay fund expenses.

Fixed Income Fund
A fund that is primarily invested in bonds. Bond funds generally emphasize income rather than growth.

Forfeiture
Money in a participant's retirement account that is forfeited to the plan if the participant leaves the plan without being fully vested.

Growth Stock
A stock that has above average earnings expectations. The value of these stocks can rise and fall quickly and they pay little or no dividends, but have the potential to offer higher long-term returns.

Growth Fund
A stock fund that invests primarily in growth stocks.

Hardship Withdrawal
A plan distribution based on immediate and heavy financial need. Not available in all plans. Hardship withdrawals are usually allowed only for the purchase of a primary home, prevention of eviction from or foreclosure on your primary home, payment of certain medical costs, or college tuition for you or your eligible dependents. Hardship withdrawals are subject to taxes and possible early withdrawal penalties. Your employer may be ultimately responsible for determining whether a certain instance constitutes an emergency eligible for a hardship withdrawal.

Index
An indicator that reflects the value of a representative group of securities. The Dow Jones Industrial Average and S&P 500 are good examples of stock market indices.

Index Fund
A fund that tries to match the results of a particular index.

International Fund
A fund that invests in securities traded in markets primarily outside the US.

Investment Horizon
The length of time you expect to keep a sum of money invested.

Investment Objective
The financial goal that an investor or money manager pursues.

Large-Cap Stock
The stock of a company whose market value is more than $5 billion.

Market Cap
The market value of a particular company's stock, calculated by multiplying the stock price by the number of outstanding shares.

Mid-Cap Stock
The stock of a company whose market value is between $1 and $5 billion.

Money Market Fund
A fund that invests in highly liquid short-term securities including CDs, commercial paper, and US government securities.

No-Load Fund
A fund that does not charge a sales fee for buying and selling shares.

Normal Retirement Age
The age at which a participant is eligible for full retirement benefits.

Pension plans
Also known as a defined benefit plan, a pension plan provides benefits during retirement, which may be based on years of service and earnings (in other words, the benefit is "defined" in advance). Once the person retires, the amount received is fixed and usually does not increase with inflation.

Profit Sharing Plan
This is a type of defined contribution retirement plan. Profit sharing plans generally allocate a discretionary amount of money annually to an eligible employee's account. Contributions are made to the profit sharing accounts of each eligible employee, and those contributions may then be invested in accordance with plan provisions in investments made available under the plan.

Qualified Retirement Plan
A qualified retirement plan is a retirement plan that:

• permits contributions by your employer and may permit you to make contributions.
• allows tax benefits (such as deferring payment of taxes on some contributions and earnings)
• restricts distribution of the money so it is used in retirement, except under certain circumstances
• requires a written document which describes the features of the plan

Both defined benefit plans (such as a pension plan) and defined contribution plans (such as a 401(k) plan) may be qualified retirement plans.

R-Squared
A measure of how much of a portfolio's past returns can be explained by the returns from the overall market. If a portfolio's total return were correlated exactly with the market's return, its R-Squared would be 1.0; if a portfolio's return bore no relationship to the market's returns, its R-Squared would be 0.0.

Risk Tolerance
An investor's ability to accept short-term losses for possible long-term gains.

Rollover IRA
An individual retirement account that is established for the sole purpose of receiving a distribution from a qualified plan. Also called a "Conduit IRA".

Securities
Stocks, bonds, and other investment vehicles.

Share
A unit of ownership in a corporation or mutual fund.

Small-Cap Stock
The stock of a company whose market value is less than $1 billion. Small cap-companies tend to grow faster than large-cap companies and are more volatile.

Standard Deviation
A statistical measurement of the volatility of a fund's returns over time.

Standard and Poor's (S&P) 500
An index of 500 of the largest, most actively traded stocks on the New York Stock Exchange.

Stock
A security that represents part ownership in a corporation.

Stock Fund
A fund that invests primarily in stocks.

Trustees
The parties named in a plan document who are authorized to hold the assets of the plan for the benefit of the plan participants.

Value Stocks
Stocks that are undervalued relative to their book value or earnings. These companies may appear to be good opportunities due to a change in their business, such as a new product, or change in management.

Value Fund
A stock fund that invests primarily in value stocks.

Vesting
The amount of employer contributions a participant is eligible for when leaving a qualified plan.

Volatility
The fluctuations in the market value of a security. The greater the volatility, the wider the fluctuation between high and low prices.

Wilshire 5000 Index
The Wilshire 5000 is an unmanaged, market capitalization-weighted index of approximately 7,000 U.S. equity securities.