Aggressive growth mutual funds:
Funds that usually invest in smaller emerging
companies that offer maximum growth potential.
Balanced fund:
A mutual fund with a mix of stocks and bonds. It
offers safety of principal, regular income and modest
growth.
Bond:
An interest-bearing government or corporate secu-rity
in which you lend a corporation money. In turn,
that company pays you, the bondholder, interest,
usually at specific intervals, and pays the principal
amount at maturity.
Closed-end mutual funds:
Funds that issue a fixed number of shares. The price of
the share is set by the supply and demand of the
marketplace not the net asset value.
Credit quality:
The ability of issuers to pay principal and interest on
the bonds when due.
Dividend reinvestment plan:
An option that allows you to automatically reinvest
dividends.
Dow Jones industrial average:
Thirty actively traded blue-chip stocks that represent
a wide array of industries, including energy, trans-portation,
financial services and technology.
Earnings per share:
A key statistic in evaluating a stock’s outlook. It
represents a portion of a company’s profit allocated
to each outstanding share of common stock. For
example, a company that earned $1 million and has
1 million shares outstanding would report earnings of
$1 per share.
Emerging market funds:
Funds that invest in the securities of companies evolving
from an agricultural or socialist economy to an
industrialized economy. The category includes
Indonesia, Malaysia, Thailand and Turkey.
Expense ratio:
The total of a fund’s annual operating expenses as a
percentage of assets. The expense ratio can serve to
reduce the annual return of a given fund.
Fixed-income fund:
Asecurity that pays a fixed rate of return. It usually refers
to corporate, municipal and government bonds, which
pay a fixed rate of interest until the bond matures, and
to preferred stock, which pays a fixed dividend.
Fund family:
Agroup of mutual funds with a common investment
adviser.
Global funds:
Funds that invest in companies traded worldwide,
including the United States.
Growth fund:
Amutual fund that seeks long-term capital appreciation.
These funds invest principally in common stock.
Growth investment style:
A style that looks for stocks with earnings that have
grown rapidly and seem likely to continue to do so in
the future.
High-yield bonds:
Noninvestment grade corporate bonds that have a
higher risk/return potential. Usually called junk bonds.
Index funds:
These funds invest in securities tied to an index, most
commonly the S&P 500. Index funds seek to equal the
performance of the index.
International funds:
Funds that invest in companies outside of the United
States.
Keogh:
A retirement plan for self-employed individuals,
sole proprietors or partners in a business and their
employees.
Large caps:
Stocks of the largest companies (market capitalization
usually larger than $7 billion).
Limit order:
When you place a limit order, you specify the
highest price you’re willing to shell out for shares
if you are in the market to buy, and the lowest offer
you’d be willing to entertain should you be selling.
If the broker can’t meet your price or do better, the
order won’t be executed.
Liquidity:
The ability of an individual or corporation to convert
assets into cash or cash equivalents without signifi-cant
loss.
Load:
Asales charge paid by an investor who buys shares in
a mutual fund that is sold by a brokerage firm or other
sales representative.
wealth building guide
GLOSSARY OF TERMS
40
The Terms Below Will Help You As You Begin To Make Investment Decisions

Market capitalization:
The value of a corporation determined by the market
price of its outstanding common stock. It is calculated
by multiplying the number of outstanding shares by
the current price of the shares.
Market order:
A market order is an instruction to buy a certain
number of shares at the best price available. It’s a
good idea to check with your broker or with an
online service to see.
Maturity:
The date on which a bond or other debt instrument
becomes due and payable.
Mid caps:
Stocks of mid-size companies (capitalization of $1
billion to $7 billion).
Nasdaq:
The National Association of Securities Dealers Auto-mated
Quotations system, which is owned and operated
by the National Association of Securities Dealers.
Merged with the American Stock Exchange, the
Nasdaq Composite tracks the activity of, among other
issues, technology-related stocks (Over 65% of the
index is technology oriented.)
Net asset value:
The current value of one share in a fund.
No-load fund:
A mutual fund offered by an open-end investment
company that imposes no sales charge or load on its
shareholders. Investors buy shares directly from a
fund company instead of a broker.
Open-end mutual fund:
Afund that has an unfixed number of shares available
to its investors. The number of shares changes as
investors buy and sell shares.
Portfolio manager:
The person, or group of people, who work for an
investment company and decides which securities
a fund buys or sells each day.
Price/Earnings ratio (P/E):
The price of a stock divided by its earnings per share.
The P/E, also known as the P/E multiple, gives
investors an idea of how much they are paying for a
company’s earning power. The higher the P/E, the
more investors are paying, and therefore the more
earnings growth and risk they are expecting. Low
P/Es tend to be in stocks that have fallen out of favor
or blue chips with long records of earnings stability and
regular dividends.
Principal:
The initial sum of money invested in a fixed-income
security.
Prospectus:
The primary sales document for a mutual fund. It
provides all of the information you need to make an
informed decision about a fund.
SEP (Simplified Employee Pension):
A simple retirement plan, sometimes called SEP-IRA,
for self-employed individuals and small-business
owners.
Small caps:
Stocks with capitalization lower than $1 billion.
Standard & Poor’s Composite Index of 500
Stocks (S&P 500):
The index that tracks the price movements of New
York Stock Exchange-listed and Nasdaq-listed
stocks in the following proportions: 400 industrials,
60 transportation and utility companies, and 40
financial issues.
Stock:
Ownership of a corporation represented by shares
that are a claim on the corporation’s earnings and
assets. Common stock usually entitles the shareholder
to vote in the election of directors and other matters
taken up at shareholder meetings. Preferred stock
generally does not give the shareholder voting rights,
but it has a prior claim on assets and earnings.
Stop order:
Astop order helps limit your losses on a stock trade
by specifying a price at, or beyond, which your broker
has instructions to buy or sell shares. If you place a
stop order for $25 on shares of IBM at a time when
Big Blue is fetching $30 a share, the minute the
company’s shares reach $25, your broker will purchase
them for you.
Treasuries:
Bonds, notes and bills issued by the U.S. government
and backed by its full faith and credit.
Value investment style:
A style that looks for stocks whose market price
appears less than the intrinsic value of the company.
Yield:
The percentage rate of return on the principal
invested by the holder of the security.
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glossary of terms