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Glossary content provided by Financial
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debit cards
Debit cards allow the cost of a purchase to be automatically
deducted from the customer's bank account and credited to
the merchant.
debt markets
The fixed income sector of the capital markets devoted to
trading debt securities issued by corporations and governments.
debt to income ratio
The ratio of a person's total monthly debt obligations compared
to their total monthly resources is called their debt to income
ratio. This ratio is used to evaluate a borrower's capacity
to repay debts.
decedent
The term decedent refers to a person who has died.
decreasing term
A term life insurance featuring a decreasing death benefit.
Decreasing term is well suited to provide for an obligation
that decreases over the years such as a mortgage.
deed of trust
A document used to convey title (ownership) to a property
used as collateral for a loan to a trustee pending the repayment
of the loan. The equivalent of a mortgage.
deferral
A form of tax sheltering in which all earnings are allowed
to compound tax-free until they are withdrawn at a future
date. Placing funds in a qualified plan, for example, triggers
deductions [not all qualified plans provide for tax deductions;
contributions may, however, be excluded from gross income,
i.e. 401(k) plans] for the current tax year and postpones
capital gains or other income taxes until the funds are withdrawn
from the plan.
deferred compensation
Income withheld by an employer and paid at some future time,
usually upon retirement or termination of employment.
defined benefit plan
A defined benefit plan pays participants a specific retirement
benefit that is promised (defined) in the plan document. Under
a defined benefit plan benefits must be definitely determinable.
For example, a plan that entitles a participant to a monthly
pension benefit for life equal to 30 percent of monthly compensation
is a defined benefit plan.
defined contribution plan
In a defined contribution plan, contributions are allocated
to individual accounts according to a pre-determined contribution
allocation. This type of plan does not promise any specific
dollar benefit to a participant at retirement. Benefits received
are based on amounts contributed, investment performance and
vesting. The most common type of defined contribution plan
is the 401(k) profit-sharing plan.
deflation
A period in which the general price level of goods and services
is declining.
depreciation
Charges made against earnings to write off the cost of a fixed
asset over its estimated useful life. Depreciation does not
represent a cash outlay. It is a bookkeeping entry representing
the decline in value of an asset over time.
direct deposit
A means of authorizing payment made by governments or companies
to be deposited directly into a recipient's account. Used
mainly for the deposit of salary, pension and interest checks.
disability insurance
Insurance designed to replace a percentage of earned income
if accident or illness prevents the beneficiary from pursuing
his or her livelihood.
disposable income
After-tax income available for spending, saving or investing.
diversification
Spreading investment risk among a number of different securities,
properties, companies, industries or geographical locations.
Diversification does not assure against market loss.
dividend reinvestment plan
(drip)
An investment plan that allows shareholders to receive stock
in lieu of cash dividends.
dividends
A distribution of the earnings of a company to it's shareholders.
Dividends are "declared" by the company based on
profitability and can change from time to time. There is a
direct relationship between dividends paid and share value
growth. The most aggressive growth companies do not pay a
dividend, and the highest dividend paying companies may not
experience dramatic growth.
dollar cost averaging
Buying a mutual fund or securities using a consistent dollar
amount of money each month (or other period). More securities
will be bought when prices are low, resulting in lowering
the average cost per share. Dollar cost averaging neither
guarantees a profit nor eliminates the risk of losses in declining
markets and you should consider your ability to continue investing
through periods of market volatility and/or low prices.
down payment
The down payment on a property is the amount of cash applied
to the purchase, with the remainder of the purchase accomplished
through a mortgage or other debt.
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earnest money
Similar to a deposit, earnest money is the money given by
the buyer to the seller of a property as an assurance of their
intentions to purchase the property.
earnings per share (eps)
Total net profits divided by the number of outstanding common
shares of a company.
economic cycle
Economic events are often felt to repeat a regular pattern
over a period of anywhere from two to eight years. This pattern
of events ends to be slightly different each time, but usually
has a large number of similarities to previous cycles.
effective tax rate
The percentage of total income paid in federal and state income
taxes.
efficient market
The market in which all the available information has been
analyzed and is reflected in the current stock price.
employee stock ownership plans
(esops)
An ESOP plan allows employees to purchase stock, usually at
a discount, that they can hold or sell. ESOPs offer a tax
advantage for both employer and employee. The employer earns
a tax deduction for contributions of stock or cash used to
purchase stock for the employee. The employee pays no tax
on these contributions until they are distributed.
escrow funds
Escrow funds are funds accumulated and held in an account
for the periodic payment of property taxes and insurance.
estate
A decedent's estate is equal to the total value of their assets
as of the date of death. The estate includes all funds, personal
effects, interest in business enterprises, titles to property,
real estate, stocks, bonds and notes receivable.
estate planning
The orderly arrangement of one's financial affairs to maximize
the value transferred at death to the people and institutions
favored by the deceased, with minimum loss of value because
of taxes and forced liquidation of assets.
excess distributions
An individual may have to pay a 15% tax on distributions received
from qualified plans in excess of $150,000 during a single
year. The tax, however, does not apply to distributions due
to death, distributions that are rolled over, and distributions
of after-tax contributions.
executor
The person named in a will to manage the estate of the deceased
according to the terms of the will.
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face amount
The face amount stated in a life insurance policy is the amount
that will be paid upon death, or policy maturity. The face
amount of a permanent insurance policy may change with time
as the cash value in the policy increases.
fair market value
The fair market value of a property or other asset is the
price that a buyer and seller can establish in an arms-length
transaction where neither one is compelled to buy or to sell.
family trust
An inter vivos trust established with family members as beneficiaries.
federal housing administration
(fha)
The Federal Housing Administration (FHA) is a government agency
that sets standards for underwriting residential mortgage
loans made by private lenders and insures such transactions.
federal national mortgage association
(fnma or fannie mae)
FNMA is a private corporation that acts as a secondary market
investor in buying and selling mortgage loans.
fiduciary
An individual or institution occupying a position of trust.
An executor, administrator or trustee.
financial planner
A person who helps you plan and carry out your financial future.
fixed investment
Any investment paying a fixed interest rate such as a money
market account, a certificate of deposit, a bond, a note,
or a preferred stock. A fixed investment is the opposite of
a variable investment.
fixed rate mortgage
With a fixed rate mortgage, your interest rate will remain
the same for the entire term of the loan. Although the rate
will begin slightly higher than a comparable adjustable rate
mortgage (ARM), the interest rate you pay can never go up
for as long as you have the mortgage.
fluctuation
A variation in the market price of a security.
foreclosure
A foreclosure is the legal process by which a borrower losses
their ownership interest in a collateralized property due
to default on the attached loan.
fund manager
A person who manages the assets of a mutual fund.
fundamental analysis
Fundamental analysis is a technique of estimating a stock's
future value based on the in-depth study of the stock's underlying
financial statements. Fundamental analysis is the opposite
of technical analysis.
future value
The future worth of a payment, or stream of payments, projected
at a given interest rate for a given period of time.
futures market
A market in which contracts for future delivery of a commodity
are bought and sold.
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