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136 Cards in this Set

  • Front
  • Back
Asset Classes
A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same laws and regulations. The three main asset classes are equities (stocks), fixed-income (bonds) and cash equivalents (money market instruments).
Asset Based Pricing
A pricing structure that is entirely based on the assets under management. The fee is a flat percentage or basis points rate that is applied to the total monies under management. For example, US Bank has an Asset Based Pricing platform that is 9BPs. This means that a $1,000,000 account would be charged $900 annually ($1,000,000 * .0009).
Annuity
A financial product sold by financial institutions that is designed to accept and grow funds from an individual and then, upon annuitization, pay out a stream of payments to the individual at a later point in time. Annuities are primarily used as a means of securing a steady cash flow for an individual during their retirement years.
Annualized Return of Return
A rate of return for a given period that is less than one year, but that is computed as if the rate were for a full year. The annualized rate is essentially an estimated rate of annual return that is extrapolated mathematically. The annualized rate is calculated by multiplying the change in rate of return in one month by 12 (or one quarter by four).
Example: if one month's rate of return is 0.25% and the next month's is 0.35%, the change in the rate of return from one month to the next is 0.10% (0.35-0.25). The annualized rate of return is equal to 0.10% x 12 = 1.2%.
Active Management
An investing strategy that seeks returns in excess of a specified benchmark. Investors who believe in active management do not follow the efficient market hypothesis. They believe it is possible to profit from the stock market through any number of strategies to identify mispriced securities. This is the opposite of passive management.
Brokerage Account
An arrangement between an investor and a licensed brokerage firm that allows the investor to deposit funds with the firm and place investment orders through the brokerage, which then carries out the transactions on the investor's behalf. The investor owns the assets contained in the brokerage account and must usually claim as income any capital gains he or she incurs from the account.
Broker Dealer
A person or firm in the business of buying and selling securities operating as both a broker and a dealer depending on the transaction.
Broker
An individual or firm that charges a fee or commission for executing buy and sell orders submitted by an investor. The role of a firm when it acts as an agent for a customer and charges the customer a commission for its services. A licensed real estate professional who typically represents the seller of a property. A broker's duties may include: determining market values, advertising properties for sale, showing properties to prospective buyers, and advising clients with regard to offers and related matters.
Bond
A debt investment with which the investor loans money to an entity (company or government) that borrows the funds for a defined period of time at a specified interest rate.
Benchmark
A standard against which the performance of a security, mutual fund or investment manager can be measured. Generally, broad market and market-segment stock and bond indexes are used for this purpose.
Beneficiary IRA
An individual retirement account that is left to a beneficiary after the owner's death. If the owner had already begun receiving required minimum distributions (RMDs) at the time of his or her death, the beneficiary must continue to receive the distributions as already calculated or submit a new schedule based on his or her life expectancy.
Beneficiary
A person or entity named in a will or a financial contract as the inheritor of property when the property owner dies. A beneficiary can be a spouse, child, charity or any entity or person to whom the property owner would like to leave his or her possessions and assets.
Custodian
A financial institution that has the legal responsibility for a customer's securities. This implies management as well as safekeeping.
Custodial Account
1. An account created at a bank, brokerage firm or mutual fund company that is managed by an adult for a minor that is under the age of 18 to 21 (depending on state legislation). 2. A retirement account managed for eligible employees by a custodian.
Current Position Report
A report that shows the current holdings and their respective values in shares and dollars as of a specific date.
Cost Analysis
Analysis tool developed by Matson Money designed to show the estimated annual cost of holding a particular portfolio. The costs captured are transaction costs associated with turnover, expense ratios, and bid ask spreads.
Correlation
a statistical measure of how two securities move in relation to each other. Correlation is computed into what is known as the correlation coefficient, which ranges between -1 and +1. Perfect positive correlation (a correlation co-efficient of +1) implies that as one security moves, either up or down, the other security will move in lockstep, in the same direction. Alternatively, perfect negative correlation means that if one security moves in either direction the security that is perfectly negatively correlated will move by an equal amount in the opposite direction. If the correlation is 0, the movements of the securities are said to have no correlation; they are completely random.
Corporate
Account opened with a corporate entity as account owner. Specific paperwork is required to open this account. Depending on who is given authority to act on behalf of the corporation there may be several people that need to sign in order to initiate activity in the account.
Contra Firm
Custodian on the opposite side of a transfer as we are on. For transfers in this is the surrendering custodian. For transfers out it is the custodian receiving the funds.
Cash Equivalents
1 Month Treasury Bills
Dividend
Distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders. The dividend is most often quoted in terms of the dollar amount each share receives (i.e. dividends per share or DPS). It can also be quoted in terms of a percent of the current market price, referred to as dividend yield.
Diversification
A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique contends that a portfolio of different kinds of investments will, on average, yield higher returns and pose a lower risk than any individual investment found within the portfolio.
DFA
Dimensional Fund Advisors -
Mutual Fund Company that takes an academic approach to investing. Advisors that work with dimensional must share a fee only and passive approach to investing. Their philosophy is rooted in the concept that markets are efficient and diversification is essential. At Matson Money we work exclusively with DFAs mutual funds.
Defined Benefit
An employer-sponsored retirement plan where employee benefits are sorted out based on a formula, using factors such as salary history and duration of employment. Investment risk and portfolio management are entirely under the control of the company. There are also restrictions on when and how you can withdraw these funds without penalties.
Dealer
An individual or firm willing to buy or sell securities for their own account One who purchases goods or services for resale to consumers. A dealer differs from an agent in that a dealer acts as a principal in a transaction. That is, a dealer takes ownership of assets and is exposed to inventory risk, while an agent only facilitates a transaction on behalf of a client.
Estate
A non-qualified account opened in the name of someone’s estate owned by the estate grantor, controlled by the estate trustees. By setting the account up in an estate account can receive more favorable tax treatment and easier transfer of assets to beneficiaries than would otherwise potentially be accomplished.
Equity
Stock or any other security representing an ownership interest. Equity is a term whose meaning depends very much on the context. In general, you can think of equity as ownership in any asset after all debts associated with that asset are paid off.
Efficient Market Hypothesis
An investment theory that states that it is impossible to "beat the market" because stock market efficiency causes existing share prices to always incorporate and reflect all relevant information. According to the EMH, this means that stocks always trade at their fair value on stock exchanges, and thus it is impossible for investors to either purchase undervalued stocks or sell stocks for inflated prices. Thus, the crux of the EMH is that it should be impossible to outperform the overall market through expert stock selection or market timing, and that the only way an investor can possibly obtain higher returns is by purchasing riskier investments. Simply put, the theory says that the estimate of future prices of an asset is its current price since all knowable information has been factored into the current price.
Efficient Frontier
was developed by Nobel Prize winner, Harry Markowitz. It helps illustrate an optimal portfolio for any given level of risk
Educational IRA
A savings plan for higher education. Parents and guardians are allowed to make nondeductible contributions to an education IRA for a child under the age of 18.
Fixed Income
see bond. For our purposes we will use the two interchangeably.
FMIA
Analysis tool developed by Matrix Asset Allocation designed to educate [prospective] clients on the advantages of asset class investing. It shows the returns associated with various asset classes as well as with client hypothetical mixes representing the standard portfolios Matrix offers to investors.
Getting Income Calculation
Income/year = previous account value * withdraw %
ex: Income/year = 952,185*0.05 = $47,609
Account Value = previous account value - income * (1 + current year Return)
ex: Account Value = 952,185 - 47,609 * (1 + 0.0145) = $917,728
Gain / Loss Report
Similar to a cost basis report. Shows the gains (losses) associates with sales of mutual funds, equities and other assets during a tax year. Used in conjunction with a 1099 a client can determine their taxable gain (loss) for a particular asset. The taxable amount is the difference between the cost basis and the gross proceeds. This difference is their gain or loss.
Investment Objective
A client information form used by registered investment advisors and other asset managers that aids in determining the optimal portfolio mix for the client. An investment objective survey may come in the form of a questionnaire, where the investor will be asked things such as:
-Current liquid and net worth
-Risk aversion
-Investing time horizon
-Income levels
-Expense levels
-Planned bequeathments and/or charitable contributions
-Restrictions on security selection
Inflation Risk
Inflation seriously erodes purchasing power. Purchasing power indicates how much in goods and services your dollars can buy, and when eroded by inflation, the value of your investment diminishes. When inflation averages its 1975-2009 average of 4.17% per year, a portfolio worth $500,000 at this time would be worth only about $326,576 on the basis of purchasing power at the end of a 10-year period. As inflation cuts into the purchasing power of an account, the investment must not only achieve absolute growth but attempt to grow faster than the rate of inflation by a significant margin. Historically, the real return (after inflation) on stocks has been significantly larger than the real return on Long-Term U.S. Government Bonds and Treasury Bills. The Ibbotson study shows that during the 84-year period studied, $1 in Treasury Bills would have grown to only about $20.47 while inflation would have grown to over $12.10. A $1 Long-Term Government Bond would have grown to about $85.30.
Inflation Rate
The rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling.
IRA R/O
A transfer of funds from a retirement account into a Traditional IRA or a Roth IRA. This can occur either through a direct transfer, or by a check, which the custodian of the distributing account writes to the account holder who then deposits it into another IRA account.
In-Kind Transfer
A transfer of actual assets. This would be as opposed to liquidating the assets and transferring the resulting cash.
Journal Assets
The movement of assets from one account, plan or portfolio to another. These can either be in-kind or through a liquidation and movement of cash.
Keogh Plan
A defined-benefit plan or defined-contribution plan established by a self-employed individual for him/herself and his/her employees. This is a qualified retirement plan.
Liquidity Risk
the risk of the investor’s inability to meet essential outlays. A portfolio with higher volatility will make it more difficult for the investor to meet his/her specific funding needs at specific times. The investor’s time horizon and withdrawal needs should be considered in terms of liquidity risk. If the investor has expected cash flow needs from the portfolio, he or she risks selling assets when they are low. An investor who may need access to the funds in the portfolio within a relatively short period of time or who will be taking regular withdrawals from his/her portfolio may want to consider a less risky portfolio consisting more of Short-Term Fixed Income instruments and less of volatile equity assets.
Liquidation
Any transaction that offsets or closes out a position. For example, selling out of a mutual fund and putting it in cash would be a liquidation of the mutual fund.
Limited Power of Attorney
A legal document that empowers the trade manager to deal with the various parties of the transaction on behalf of the owner of the funds (the Principal). Transactions will not happen without this instrument.
Mutual Fund
An investment company that pools money from shareholders and invests in a variety of securities, such as stocks, bonds and money market instruments. Most mutual funds continuously offer new shares to investors.
Money Purchase Plan
A defined-contribution plan to which employer contributions are fixed.
Medallion Signature Guarantee (MSG)
A guarantee seal applied to securities, in the process of transfer, by member institutions of the Medallion program. This Medallion seal certifies that the signature is genuine and has legally binding authority. Furthermore, the guarantor of the seal assumes any financial responsibility associated with the endorsement.
Maturity Date
The date on which the principal amount of a note, draft, acceptance bond or other debt instrument becomes due and is repaid to the investor and interest payments stop. The maturity date tells you when to expect to get your principal back and how long to expect to receive interest payments.
Non Qualified Account
Any plan or account that is not eligible to receive special tax benefits. These would be personal accounts, joint accounts, UGMAs, UTMAs, etc.
Non Qualified
Accounts that are not eligible for tax-deferral benefits. Consequently, deducted contributions for non-qualified plans are taxed when income is recognized. This generally refers to when employees must pay income taxes on benefits associated with their employment.
Net Asset Value (NAV)
A mutual fund's price per share or exchange-traded fund's (ETF) per-share value. In both cases, the per-share dollar amount of the fund is calculated by dividing the total value of all the securities in its portfolio, less any liabilities, by the number of fund shares outstanding.
Over contribution
Any contribution to a tax-deductible retirement savings plan exceeding the maximum allowed contribution for a given period as determined by the retirement plan's registrar. Over contributions are subject to the retirement plan's regulations or laws. Over contributions are usually subject to some form of monetary penalty, intentioned to reduce their occurrences.
Profit Sharing
A plan that gives employees a share in the profits of the company. Each employee receives a percentage of those profits based on the company's earnings.
Price to Book
A ratio used to compare a stock's market value to its book value. It is calculated by dividing the current closing price of the stock by the latest quarter's book value per share.
Personal Account
A non qualified account for a single account owner.
Pension
A type of retirement plan, usually tax exempt, wherein an employer makes contributions toward a pool of funds set aside for an employee's future benefit. The pool of funds is then invested on the employee's behalf, allowing the employee to receive benefits upon retirement.
Passive Management
An investing strategy that mirrors a market index and does not attempt to beat the market. Also known as "passive strategy" or "passive investing". Followers of passive management believe in the efficient market hypothesis. It states that at all times markets incorporate and reflects all information, so stock picking is futile. As a result, the best investing strategy is to invest in an index fund. This is the opposite of active management.
Partnership
Business where multiple owners/partners share the profits and losses of a company. A partnership account is an account opened in the name of the business, as opposed to being in the names of the particular owners.
Qualified Retirement Account
A plan that meets requirements of the Internal Revenue Code and as a result, is eligible to receive certain tax benefits (often tax deferral). These plans must be for the exclusive benefit of employees or their beneficiaries. Examples of qualified plans would be IRAs, Roth IRA, 401-K, 403-B, SEPs, SIMPLEs, etc
Qualified
A plan that meets requirements of the Internal Revenue Code and as a result, is eligible to receive certain tax benefits. These plans must be for the exclusive benefit of employees or their beneficiaries.
Roth IRA
An individual retirement account in which investments are made with taxable dollars, but earnings are tax-free and withdrawals are tax-free after age 59 1/2.
Risk Tolerance
The degree of uncertainty that an investor can handle in regard to a negative change in the value of his or her portfolio.
Risk Reduction
One of Matrix’s major functions is to allocate investments among the different asset classes to manage risks more effectively. Effective risk management depends to a great extent upon effective asset allocation. The ideal is to design the portfolio with investments in asset classes, which have behaved with certain characteristics, which will not expose the investor to the most serious risks. The performance of the portfolio is based on the behavior of the individual asset classes and the correlation between them. Matrix attempts to reduce risk by allocating and reallocating assets in portfolios over time to take advantage of the diversification benefit of low correlations between asset classes.
Risk and Reward
A ratio used by many investors to compare the expected returns of an investment to the amount of risk undertaken to capture these returns. This ratio is calculated mathematically by dividing the amount of profit the trader expects to have made when the position is closed (i.e. the reward) by the amount he or she stands to lose if price moves in the unexpected direction (i.e. the risk).
Risk
The chance that an investment's actual return will be different than expected. This includes the possibility of losing some or all of the original investment. Risk is usually measured by calculating the standard deviation of the historical returns or average returns of a specific investment.
RIA
An advisor, registered with the Securities and Exchange Commission, who manages the investments of others.
Residuals
The small amounts of money left in a custodial account after a transfer out. The residuals are often a result of earned dividends or interest paid after the transfer out.
Required Minimum Distribution
The amount that Traditional, SEP and SIMPLE IRA owners and qualified plan participants must begin distributing from their retirement accounts by April 1 following the year they reach age 70 ½ . RMD amounts must then be distributed each subsequent year.
Rebalancing
The process of realigning the weightings of one's portfolio of assets. Rebalancing involves periodically buying or selling assets in your portfolio to maintain your original desired level of asset allocation.
Real Rate of Return
The annual percentage return realized on an investment, which is adjusted for changes in prices due to inflation or other external effects. This method expresses the nominal rate of return in real terms, which keeps the purchasing power of a given level of capital constant over time. The Real Return is not a simple subtraction of the Annualized Return less the Average Inflation. Rather it is the Annualization of Real Returns. Consequently, timing of returns and inflation both play a factor in the equation resulting in a slight difference from a straight forward subtraction.

In laymen’s terms this means that you take the product of 1 plus each year’s returns. Take the results to the power of 1 over the number of periods. Then subtract 1.
Real Rate of Return (Continued)
Example, and the resulting differences in the simple subtraction versus the way we do it:

Year 1 Return = 5.5% Year 1 Inflation = 3.25%
Year 2 Return = 11.75% Year 2 Inflation = 2.5%
Year 3 Return = 8.0% Year 3 Inflation = 4.5%

Annualized Return = (((1+.055)×(1+.1175)×(1.08))1/3)-1 = .0839 or 8.39%

Annualized inflation = (((1+.0325)×(1+.025)×(1.045))1/3)-1 = .0341 or 3.41%

So, If we simply subtracted the two we would get a Real Return of 4.98% (8.39% - 3.41).
Stock
A type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings. There are two main types of stock: common and preferred. Common stock usually entitles the owner to vote at shareholders' meetings and to receive dividends. Preferred stock generally does not have voting rights, but has a higher claim on assets and earnings than the common shares. For example, owners of preferred stock receive dividends before common shareholders and have priority in the event that a company goes bankrupt and is liquidated. Also known as "shares” or "equity".
Standard Deviation
A measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is calculated as the square root of variance.
In finance, standard deviation is applied to the annual rate of return of an investment to measure the investment's volatility. Standard deviation is also known as historical volatility and is used by investors as a gauge for the amount of expected volatility.
Solicitor
For our purposes, this is anyone that solicits business on the behalf of Matson Money. This group is comprised of our advisor base. Before becoming a solicitor of Abundance Technologies, Inc / Matson Money a solicitor must attend the initial three day training and commit to the first full year beyond that. Training after that point is optional. Additionally, the solicitor must sign a Solicitor’s Agreement that outlines the relationship between Abundance Technologies, Inc. and the new “advisor.”
Simple IRA
A retirement plan that may be established by employers, including self-employed individuals. The employer is allowed a tax deduction for contributions made to the SIMPLE. The employer makes either matching or non-elective contributions to each eligible employee's SIMPLE IRA and employees may make salary deferral contributions.
SEP IRA
A type of retirement plan that an employer can establish, including self-employed individuals. The employer is allowed a tax deduction for contributions made to the SEP Plan. The employer makes contributions to each eligible employee's SEP IRA on a discretionary basis.
Transfer
The movement of assets from one account, plan or portfolio to another. These can either be in-kind or through a liquidation and movement of cash.
Total Holdings
Total holdings in a portfolio, including overlap
Time Horizon
Investors have different time periods called the “time horizon,” over which they can allow their portfolios to grow before funds must be available to fund their withdrawal needs. This is an important factor in determining the level of risk you can reasonably assume. If you are subjected to circumstances that necessitate immediate withdrawal of a major portion of your portfolio, it will reduce your time horizon just as long-term investing increases your time horizon.
Ticker Symbol
An arrangement of characters (usually letters) representing a particular security listed on an exchange or otherwise traded publicly. When a company issues securities to the public marketplace, it selects an available ticker symbol for its securities which investors use to place trade orders. Every listed security has a unique ticker symbol, facilitating the vast array of trade orders that flow through the financial markets every day. Stock symbols are the most recognized type of ticker symbol. Stocks listed and traded on U.S. exchanges such as the NYSE have symbols with up to three letters. Nasdaq-listed stocks have four-letter symbols. Mutual fund ticker symbols are usually alphanumeric and end with the letter X to differentiate them from stock symbols.
T+1 (t+2, t+3)
Abbreviations that refer to the settlement date of security transactions. The T stands for transaction date, which is the day the transaction takes place. The numbers 1, 2 or 3 denote how many days after the transaction date the settlement or the transfer of money and security ownership takes place. For determining the settlement date the only days that are counted are those on which the stock market is open.
UTMA
An extension to the Uniform Gifts to Minors Act that allows items other than cash or securities to be considered gifts.
Unclassified Asset
An asset in AssetWare that is not being given an asset class category that will be used for rebalancing purposes. An unclassified asset is usually a non-DFA asset that is being held in the account but has either not yet been liquidated or is being held in the account, but not managed as part of the underlying portfolio.
UGMA
Uniform Gifts to Minors Act an act that allows minors to own property such as securities. The IRS allows persons to give so many thousands of dollars to another person without any tax consequences. If this recipient person is a minor, the UGMA allows the minor to own the assets without an attorney setting up a special trust fund. Under the UGMA, the ownership of the funds works like it does with any other trust except that the donor must appoint a custodian (the trustee) to look after the account.
Required Minimum Distribution
The amount that Traditional, SEP and SIMPLE IRA owners and qualified plan participants must begin distributing from their retirement accounts by April 1 following the year they reach age 70 ½ . RMD amounts must then be distributed each subsequent year.
Rebalancing
The process of realigning the weightings of one's portfolio of assets. Rebalancing involves periodically buying or selling assets in your portfolio to maintain your original desired level of asset allocation.
Qualified Retirement Account
A plan that meets requirements of the Internal Revenue Code and as a result, is eligible to receive certain tax benefits (often tax deferral). These plans must be for the exclusive benefit of employees or their beneficiaries. Examples of qualified plans would be IRAs, Roth IRA, 401-K, 403-B, SEPs, SIMPLEs, etc
Qualified
A plan that meets requirements of the Internal Revenue Code and as a result, is eligible to receive certain tax benefits. These plans must be for the exclusive benefit of employees or their beneficiaries.
Price to Book
A ratio used to compare a stock's market value to its book value. It is calculated by dividing the current closing price of the stock by the latest quarter's book value per share.
Pension
A type of retirement plan, usually tax exempt, wherein an employer makes contributions toward a pool of funds set aside for an employee's future benefit. The pool of funds is then invested on the employee's behalf, allowing the employee to receive benefits upon retirement.
403b
A 403(b) plan, also known as a tax-sheltered annuity (TSA) plan, is a retirement plan for certain employees of public schools, employees of certain tax-exempt organizations and certain ministers. Individual accounts in a 403(b) plan can be any of the following types: - An annuity contract, which is provided through an insurance company, - A custodial account, which is invested in mutual funds or - A retirement income account set up for church employees. Generally, retirement income accounts can invest in either annuities or mutual funds.
401k
A qualified plan established by employers to which eligible employees may make salary-deferral (salary-reduction) contributions on a post-tax and/or pretax basis. Employers may make matching or nonelective contributions to the plan on behalf of eligible employees and may also add a profit-sharing feature to the plan. Earnings accrue on a tax-deferred basis.
1099-R
An Internal Revenue Service (IRS) form with which an individual reports his or her distributions from annuities, profit-sharing plans, retirement plans, IRAs, insurance contracts and/or pensions. The following are some of the items included on the form: the gross distribution paid during the given tax year, the amount of the distribution that is taxable, the federal income tax that has been withheld, the contributions made to the investment or premiums paid, and a code that represents the type of distributions made to the holder of the plan.
1099-Q
An IRS form that an individual who receives distributions from a Coverdell Education Savings Account (ESA) receives from his or her respective investment company. The form is used by the individual to fill out both federal and state tax returns.
1099-DIV
A form sent to investors by investment fund companies. The form is a record of all taxable capital gains and dividends paid to an investor, including those that have been re-invested in a given taxation year. The amounts stated on the form represent the amounts that fund companies are attributing to each investor's investment return for the year and reporting to the IRS. Investors use Form 1099-DIV to help report income received from investments on their tax return each year.
1035 Exchange
A tax-free exchange of an existing annuity contract for a new one. In order for the new contract to qualify as a Section 1035 Exchange, the policyholder must have exchanged his or her existing contract for an equivalent new contract. The annuitant or policyholder must also remain the same. Application of a check received for the old contract against the new contract does NOT qualify.
CRSP
The Center for Research in Security Prices (CRSP) is a provider of historical stock market data. The Center is a part of the Booth School of Business at the University of Chicago. CRSP maintains some of the largest and most comprehensive proprietary historical databases in stock market research. Academic researchers and investment professionals rely on CRSP for accurate, survivor bias-free information which provides a foundation for their research and analyses. As of 2006, CRSP claims almost 500 clients. The name is usually pronounced "crisp".
ETF
An exchange-traded fund (ETF) is an investment fund traded on stock exchanges, much like stocks.[1][2] An ETF holds assets such as stocks, commodities, or bonds, and trades close to its net asset value over the course of the trading day. Most ETFs track an index, such as a stock index or bond index. ETFs may be attractive as investments because of their low costs, tax efficiency, and stock-like features. ETFs are the most popular type of exchange-traded product. Only authorized participants, which are large broker-dealers that have entered into agreements with the ETF's distributor, actually buy or sell shares of an ETF directly from or to the ETF, and then only in creation units, which are large blocks of tens of thousands of ETF shares, usually exchanged in-kind with baskets of the underlying securities.
US Large Cap Value
A term used by the investment community to refer to companies with a market capitalization value of more than $10 billion. Large cap is an abbreviation of the term "large market capitalization". Market capitalization is calculated by multiplying the number of a company's shares outstanding by its stock price per share.

Large cap companies are the big Kahunas of the financial world. Examples include Wal-Mart, Microsoft and General Electric.

Keep in mind that the dollar amounts used for the classifications "large cap", mid cap", or "small cap" are only approximations that change over time. Among market participants, their exact definitions can vary.
US Small Cap Value
A description of stock where the underlying company has a small market capitalization, and whose stock price is currently trading at or lower than its book value. Finding a stock that fits both of these criteria is difficult, but it could be a worthwhile venture, because small-value stocks generally yield high returns.

The name can be somewhat misleading as these stocks are not of lesser value; "small" in this case simply refers to the size of the company.

According to Fama and French's three factor model, small-value stocks possess the two best qualities: size and value. According to the model, small cap stocks tend to outperform large cap stocks, because small stocks in general have a greater opportunity to grow compared to their larger counterparts.
US Large Company
A company must employ at least 500 workers to be classified as large. The U.S. Census Bureau counted 16,055 of these giants within the nation's 938 metropolitan and micropolitan areas as of 2010, the latest year for which official figures are available.
The number of medium-sized firms (141,358) is nine times bigger than the corresponding total of large companies. And the pool of small businesses (6.79 million) is 423 times bigger.
US Small Cap
The US Small Cap Portfolio is a no-load mutual fund designed to achieve long-term capital appreciation. The Portfolio seeks to purchase a broad and diverse group of readily marketable securities of US small cap companies using a market cap weighted approach. The Portfolio invests in securities of US companies with market capitalizations within the smallest 10% of the market universe or smaller than the 1,000th largest US company, whichever results in a higher market capitalization break. The market universe is comprised of companies listed on the New York Stock Exchange, Nasdaq Global Market® or such other securities exchanges deemed appropriate by Dimensional.
US Micro Cap
The term microcap stock (also micro-cap) refers to the stock of public companies in the United States which have a market capitalization of roughly $50 million to $300 million. The shares of companies with a market capitalization of less than $50 million are typically referred to as nano-cap stocks. Microcap stocks are different from other stocks since they are from companies with a small market capitalization. In addition, these micro cap stock companies often have less resources to make their information available to the public. These micro cap stocks are less likely to be published and talked about by stockbrokers compared to larger public companies. Often, microcap stock companies will specialize in innovative products or services that may be unknown to the general public.
International Small Cap
Since US large-cap stocks and international large-cap stocks have high correlation, some investors look for international small cap mutual funds and ETFs to further diversify their portfolios. See: http://www.bogleheads.org/wiki/International_small_cap
International Large Cap
A company must employ at least 500 workers to be classified as large. The U.S. Census Bureau counted 16,055 of these giants within the nation's 938 metropolitan and micropolitan areas as of 2010, the latest year for which official figures are available.
The number of medium-sized firms (141,358) is nine times bigger than the corresponding total of large companies. And the pool of small businesses (6.79 million) is 423 times bigger. It is the same for International Companies
Emerging Markets
An emerging market is a country that has some characteristics of a developed market but is not a developed market. This includes countries that may be developed markets in the future or were in the past. It may be a nation with social or business activity in the process of rapid growth and industrialization. The economies of China (excluding Hong Kong and Macau, as both are developed) and India are considered to be the largest. According to The Economist, many people find the term outdated, but no new term has yet to gain much traction. Emerging market hedge fund capital reached a record new level in the first quarter of 2011 of $121 billion. The eight largest emerging and developing economies by either nominal or inflation-adjusted GDP are the BRIC countries (Brazil, Russia, India and China), as well as MIKT (Mexico, Indonesia, South Korea and Turkey).
Emerging Markets Small Cap
Emerging markets have materially underperformed their U.S. counterparts in 2013 due to fears about slowing growth and depreciating currencies. The good news is that stocks in those regions are now attractively valued, not only compared to U.S. equities but also based on their own historical valuations. Small-cap ETFs may be the best way to capitalize on the opportunity to invest in emerging markets at a convenient entry price.

Risks and valuation in emerging markets
The SPDR S&P 500 (NYSEMKT: SPY ) ETF, which tracks the S&P 500 index, is up by more than 17% this year. But emerging markets have not joined the party. The Ishares MSCI Emerging Markets Index Fund (NYSEMKT: EEM ) , following the MSCI Emerging Markets Index, is down by almost 10% in the same period.
One-Year Fixed Income
The One-Year Fixed Income Portfolio is a no-load mutual fund designed to achieve stable real return in excess of the rate of inflation with a minimum of risk. Generally, the Portfolio will acquire high quality obligations which mature within one year from the date of settlement. However, when greater returns are available, substantial investments may be made in securities maturing within two years from the date of settlement as well. In addition, the Portfolio may concentrate investments in the banking industry under certain circumstances. The Portfolio normally maintains a weighted average maturity that will not exceed one year and principally invests in certificates of deposit, commercial paper, bankers' acceptances, notes and bonds.
Two-Year Global Fixed Income
The Two-Year Global Fixed Income Portfolio is a no-load mutual fund designed to maximize total returns consistent with preservation of capital. The Portfolio generally invests in a universe of US and foreign debt securities maturing in two years or less. Currently, most investments are made in developed countries, but other countries may be added in the future. The fixed income securities in which the Portfolio invests are considered investment grade at the time of purchase. The Portfolio will also enter into forward foreign currency contracts to hedge against fluctuations in currency exchange rates.
Intermediate Government Fixed Income
The Intermediate Government Fixed Income Portfolio is a no-load mutual fund designed to earn current income consistent with preservation of capital. Ordinarily, the Portfolio will invest in non-callable obligations issued or guaranteed by the US Government and US government agencies, AAA-rated, dollar-denominated obligations of foreign governments, obligations of supranational organizations, and futures contracts on US Treasury securities. Generally, the Portfolio will purchase securities with maturities of between five and fifteen years from the date of settlement. The Portfolio will not shift the maturity of its investments in anticipation of interest rate movements and ordinarily will have an average weighted maturity, based upon market values, of between three and ten years.
Five Year Global Fixed Income
The Five-Year Global Fixed Income Portfolio is a no-load mutual fund designed to provide a market rate of return for a fixed income portfolio with low relative volatility of returns. Generally, the Portfolio will invest in US and foreign debt securities which mature within five years from the date of settlement. Currently, most investments are made in developed countries, but other countries may be added in the future. Investments in obligations of other foreign issuers rated AA or better, corporate debt obligations, bank obligations, commercial paper, repurchase agreements, obligations of other domestic and foreign issuers, securities of domestic or foreign issuers denominated in US dollars but not trading in the United States, and supranational organizations may also be included. The Portfolio will also enter into forward foreign currency contracts to hedge against fluctuations in currency exchange rates.
Composite Index
A grouping of equities, indexes or other factors combined in a standardized way, providing a useful statistical measure of overall market or sector performance over time.

Also known simply as a "composite".

Usually, a composite index has a large number of factors which are averaged together to form a product representative of an overall market or sector. For example, the Nasdaq Composite index is a market capitalization-weighted grouping of approximately 5,000 stocks listed on the Nasdaq market. These indexes are useful tools for measuring and tracking price level changes to an entire stock market or sector. Therefore, they provide a useful benchmark against which to measure an investor's portfolio. The goal of a well diversified portfolio is usually to outperform the main composite indexes.
Russell 1000 Value Index
The Russell 1000 Index is a stock market index that represents the highest-ranking 1,000 stocks in the Russell 3000 Index, which represents about 90% of the total market capitalization of that index. The Russell 1000 Index has a weighted average market capitalization of $81 billion; the median market capitalization is approximately $4.6 billion. The smallest company in the index has a market capitalization of $1.8 billion.
The ticker symbol is ^RUI.
Russell 2000 Index
The Russell 2000 Index is a small-cap stock market index of the bottom 2,000 stocks in the Russell 3000 Index.
The Russell 2000 is by far the most common benchmark for mutual funds that identify themselves as "small-cap", while the S&P 500 index is used primarily for large capitalization stocks. It is the most widely quoted measure of the overall performance of the small-cap to mid-cap company shares. The index represents approximately 8% of the total market capitalization of the Russell 3000 Index. The average market capitalization for a company in the index is[when?] around $1.26 billion. The median market cap is[when?] around $528 million. The market cap of the largest company in the index is around $5.0 billion. Its first trades above the 1,000 level occurred May 21-22, 2013.
Similar small-cap indices include the S&P 600 from Standard & Poor's, which is less commonly used, along with those from other financial information providers.
The ticker symbol on most systems is ^RUT.
Sponsored depositary receipts
An American depositary receipt (ADR) issued by a bank on behalf of the foreign company whose equity serves as the underlying asset. A sponsored ADR creates a legal relationship between the ADR and the foreign company, which absorbs the cost of issuing the security. Unsponsored ADRs can only trade on the over-the-counter market, while sponsored ADRs can be listed on major exchanges.

Foreign companies use ADRs in order to tap into capital markets abroad. Investors who may typically focus on domestically listed companies are given the opportunity to obtain returns from higher growth emerging markets, such as those in China or India. Despite being listed in America, a company using a sponsored ADR will still have its revenue and profit denominated in its home currency.

There are three levels of sponsored depository receipts. A Level I sponsored ADR can only be traded over-the-counter (OTC) and cannot be listed on a U.S. exchange,
Unsponsored depositary receipts
An American depositary receipt (ADR) issued by a depositary bank without the involvement or participation - or even the consent - of the foreign issuer whose stock underlies the ADR. The issuer therefore has no control over an unsponsored ADR, in contrast to a sponsored ADR where it retains control. Unsponsored ADRs are usually established by depositary banks in response to investor demand. Shareholder benefits and voting rights may not be extended to the holders of these particular securities. Unsponsored ADRs generally trade over-the-counter (OTC) rather than on United States exchanges.

The number of unsponsored ADR issues surged after Oct. 10, 2008, when the Securities and Exchange Commission (SEC) amended an exemption applicable to foreign issuers, which allowed them to have their securities traded in the U.S. OTC market without the registration required under Section 12(g) of the SEC Act of 1934.
Composite Index
A grouping of equities, indexes or other factors combined in a standardized way, providing a useful statistical measure of overall market or sector performance over time.

Usually, a composite index has a large number of factors which are averaged together to form a product representative of an overall market or sector. For example, the Nasdaq Composite index is a market capitalization-weighted grouping of approximately 5,000 stocks listed on the Nasdaq market. These indexes are useful tools for measuring and tracking price level changes to an entire stock market or sector. Therefore, they provide a useful benchmark against which to measure an investor's portfolio. The goal of a well diversified portfolio is usually to outperform the main composite indexes.
MSCI EAFE Index
The MSCI EAFE Index is a stock market index that is designed to measure the equity market performance of developed markets outside of the U.S. & Canada. It is maintained by MSCI Barra, a provider of investment decision support tools; the EAFE acronym stands for Europe, Australasia and Far East.
The index is market-capitalization weighted (meaning that the weight of securities is based on their respective market capitalizations). It first ranks each stock in the investable universe from largest to smallest by market capitalization. The largest 70% will comprise the MSCI EAFE Large Cap (new index), the largest 85% will comprise the MSCI EAFE Standard, and the largest 99% will comprise the MSCI Investable Market index (“IMI”). The 71st to 85th percentiles represent the MSCI EAFE Mid Cap, and the 85th to 99th percentiles represent the MSCI EAFE Small Cap.
The index includes a selection of stocks from 21 developed markets, but excludes those from the U.S. and Canada.
MSCI EAFE Value Index
The MSCI EAFE Value Index captures large and mid cap securities exhibiting overall value style characteristics across Developed Markets countries* around the world, excluding the US and Canada. The value investment style characteristics for index construction are defined using three variables: book value to price, 12-month forward earnings to price and dividend yield. With 489 constituents, the index targets 50% coverage of the free float-adjusted market capitalization of the MSCI EAFE Index.
MSCI EAFE Small Index
Small caps represent a material component of the global equity universe. The MSCI ACWI Small Cap Index, for example, includes over 6,400 securities across Developed and Emerging Markets and $4.4 trillion in free-float market capitalization2; 4,400 of these small caps are outside the US.

The small cap segment also has distinct characteristics that merit exploration. Small caps tend to have different sources of return than their large and mid cap brethren, along with different sector compositions, different levels of foreign exposure, different strategic stakeholder profiles and different fundamental characteristics.
MSCI Emerging Markets Free Index
The MSCI Emerging Markets Index captures large and mid cap representation across 21 Emerging Markets (EM) countries. With 822 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country.
Reinvestment Risk
The risk that future coupons from a bond will not be reinvested at the prevailing interest rate when the bond was initially purchased. Reinvestment risk is more likely when interest rates are declining. Reinvestment risk affects the yield-to-maturity of a bond, which is calculated on the premise that all future coupon payments will be reinvested at the interest rate in effect when the bond was first purchased. Zero coupon bonds are the only fixed-income instruments to have no reinvestment risk, since they have no interim coupon payments.

Two factors that have a bearing on the degree of reinvestment risk are:

Maturity of the bond - The longer the maturity of the bond, the higher the likelihood that interest rates will be lower than they were at the time of the bond purchase.
Prepayment Risk
The risk associated with the early unscheduled return of principal on a fixed-income security. Some fixed-income securities, such as mortgage-backed securities, have embedded call options which may be exercised by the issuer, or in the case of a mortgage-backed security, the borrower.

The yield-to-maturity of such securities cannot be known for certain at the time of purchase since the cash flows are not known. When principal is returned early, future interest payments will not be paid on that part of the principal. If the bond was purchased at a premium (a price greater than 100) the bond's yield will be less than what was estimated at the time of purchase.

For a bond with an embedded call option, the higher a bond's interest rate relative to current interest rates, the higher the prepayment risk.
Extension Risk
The risk of a security's expected maturity lengthening in duration due to the deceleration of prepayments. Extension risk is mainly the result of rising interest rates, and is generally associated with mortgage-related securities. The opposite of extension risk is prepayment risk, which generally occurs in a declining interest rate environment, and is associated with people paying off their loans too quickly.

As interest rates rise, the likelihood of prepayment decreases as people will be less likely to refinance their homes. If the loans in a pool underlying a mortgage-related security are being prepaid at a slower rate, investors are unable to capitalize on higher interest rates because their investments are locked in at a lower rate for a longer period of time. As interest rates decline, however, the likelihood of prepayment increases because refinancing becomes more attractive. When a loan is refinanced, the original loan
Credit Risk
Credit risk refers to the risk that a borrower will default on any type of debt by failing to make required payments.[1] The risk is primarily that of the lender and includes lost principal and interest, disruption to cash flows, and increased collection costs. The loss may be complete or partial and can arise in a number of circumstances. For example:
A consumer may fail to make a payment due on a mortgage loan, credit card, line of credit, or other loan
A company is unable to repay asset-secured fixed or floating charge debt
A business or consumer does not pay a trade invoice when due
A business does not pay an employee's earned wages when due
A business or government bond issuer does not make a payment on a coupon or principal payment when due
An insolvent insurance company does not pay a policy obligation
An insolvent bank won't return funds to a depositor
A government grants bankruptcy protection to an insolvent consumer or business
Derivative Contracts
A derivative is a financial contract which derives its value from the performance of another entity such as an asset, index, or interest rate, called the "underlying". Derivatives are one of the three main categories of financial instruments, the other two being equities (i.e. stocks) and debt (i.e. bonds and mortgages). Derivatives include a variety of financial contracts, including futures, forwards, swaps, options, and variations of these such as caps, floors, collars, and credit default swaps. Most derivatives are traded over-the-counter (off-exchange) or on an exchange such as the Chicago Mercantile Exchange, while most insurance contracts have developed into a separate industry.
Many money managers use derivatives for a variety of purposes, such as hedging--by taking a position in a derivative, losses on portfolio holdings may be minimized or offset by profits on the derivative. Likewise, derivatives can be used to gain quicker and more efficient access to markets.
Exchange traded
An exchange-traded fund (ETF) is an investment fund traded on stock exchanges, much like stocks.[1][2] An ETF holds assets such as stocks, commodities, or bonds, and trades close to its net asset value over the course of the trading day. Most ETFs track an index, such as a stock index or bond index. ETFs may be attractive as investments because of their low costs, tax efficiency, and stock-like features. ETFs are the most popular type of exchange-traded product.
Over the counter common (OTC)
A decentralized market, without a central physical location, where market participants trade with one another through various communication modes such as the telephone, email and proprietary electronic trading systems. An over-the-counter (OTC) market and an exchange market are the two basic ways of organizing financial markets. In an OTC market, dealers act as market makers by quoting prices at which they will buy and sell a security or currency. A trade can be executed between two participants in an OTC market without others being aware of the price at which the transaction was effected. In general, OTC markets are therefore less transparent than exchanges and are also subject to fewer regulations.
Warrants
A derivative security that gives the holder the right to purchase securities (usually equity) from the issuer at a specific price within a certain time frame. Warrants are often included in a new debt issue as a "sweetener" to entice investors.
Rights
A security giving stockholders entitlement to purchase new shares issued by the corporation at a predetermined price (normally at a discount to the current market price) in proportion to the number of shares already owned. Rights are issued only for a short period of time, after which they expire.

Also known as "subscription rights" or "share purchase rights."
Depository receipts
A negotiable financial instrument issued by a bank to represent a foreign company's publicly traded securities. A depository receipt trades on a local stock exchange, but a custodian bank in the foreign country holds the actual shares. Depository receipts can be sponsored or unsponsored depending on whether the company that issued the shares enters into an agreement with the custodian bank that issues the depository receipt.
Trust Certificates
A bond or debt investment, usually in a public corporation, that is backed by other assets which serve a purpose similar to collateral. If the company experiences difficulty making payments, the assets may be seized or sold to help specific trust certificate holders recover a portion of their investment. The potential type of company assets used to create a trust certificate can vary, but most typically are other shares of company stock or physical equipment.
Euro-dollars
Eurodollars are time deposits denominated in U.S. dollars at banks outside the United States, and thus are not under the jurisdiction of the Federal Reserve. Consequently, such deposits are subject to much less regulation than similar deposits within the U.S., allowing for higher margins. The term was originally coined for U.S. dollars in European banks, but it expanded over the years to its present definition—a U.S. dollar-denominated deposit in Tokyo or Beijing would be likewise deemed a Eurodollar deposit. There is no connection with the euro currency or the eurozone.
More generally, the euro- prefix can be used to indicate any currency held in a country where it is not the official currency: for example, euroyen or even euroeuro.
Yankee Bonds
A bond denominated in U.S. dollars that is publicly issued in the U.S. by foreign banks and corporations. According to the Securities Act of 1933, these bonds must first be registered with the Securities and Exchange Commission (SEC) before they can be sold. Yankee bonds are often issued in tranches and each offering can be as large as $1 billion.
Futures
A financial contract obligating the buyer to purchase an asset (or the seller to sell an asset), such as a physical commodity or a financial instrument, at a predetermined future date and price. Futures contracts detail the quality and quantity of the underlying asset; they are standardized to facilitate trading on a futures exchange. Some futures contracts may call for physical delivery of the asset, while others are settled in cash. The futures markets are characterized by the ability to use very high leverage relative to stock markets.

Futures can be used either to hedge or to speculate on the price movement of the underlying asset. For example, a producer of corn could use futures to lock in a certain price and reduce risk (hedge). On the other hand, anybody could speculate on the price movement of corn by going long or short using futures.
Credit Swaps
A credit default swap (CDS) is a financial swap agreement that the seller of the CDS will compensate the buyer in the event of a loan default or other credit event. The buyer of the CDS makes a series of payments (the CDS "fee" or "spread") to the seller and, in exchange, receives a payoff if the loan defaults. It was invented by Blythe Masters from JP Morgan in 1994.
In the event of default the buyer of the CDS receives compensation (usually the face value of the loan), and the seller of the CDS takes possession of the defaulted loan. However, anyone can purchase a CDS, even buyers who do not hold the loan instrument and who have no direct insurable interest in the loan (these are called "naked" CDSs). If there are more CDS contracts outstanding than bonds in existence, a protocol exists to hold a credit event auction; the payment received is usually substantially less than the face value of the loan.