Official Government Website
Financial Exploitation of Certain Adults

What can we help you find?

Popular Topics

Licensee & Financial Institution Search
Consumer Education
Administrative Actions
Civil Actions
Legal Guidance
Forms
Securities FAQs
File a Complaint

Financial Terms

A

B

C

D

E

F

G

H

I

K

L

M

N

O

P

R

S

T

U

V

W

Y

Z

401(k) Plan: An employer-sponsored retirement savings plan in which employees invest part of their pay and avoid current taxes on that income. Employee contributions may be matched by employers, and earnings are not taxed until withdrawn.

529 Plan: A tax-advantaged savings plan designed to help families save money for future educational costs. There are two types of 529 plans: 529 prepaid tuition plans and 529 savings plans.

529 Prepaid Tuition Plan: A type of 529 plan that allows families to pay tuition ahead of time for specific colleges or college systems at today’s tuition rates.

529 Savings Plan: A type of 529 plan that allows you to invest your education savings in various types of investments, including mutual funds. Like a 401(k) or IRA retirement plan, your account could go up or down depending on market performance. This plan, also called an education savings plan, is typically sponsored by a state and may be available from a private investment firm. This plan can also be used to help pay tuition at public, private, or religious schools from kindergarten through 12th grade.

A

Accrued Interest: The estimated amount of interest that would be received upon a sale. In most cases, it is calculated from the date of the last coupon payment up through the closing date of the account statement.

Adjustable-Rate Mortgage (ARM): An interest rate that varies, and which the lender can increase or decrease at specified intervals based on changing market conditions.

Affinity Marketing and Affinity Fraud: Affinity fraud refers to investment scams that prey upon members of identifiable groups, such as religious or ethnic communities, the elderly, or professional associations. Salespeople try to gain trust within the group and then market products/services that may be inappropriate, or worse, fraudulent.

Amortization: The gradual and systematic reduction of debt by periodic payments that include both principal and interest.

Amortization Schedule: A schedule showing the amounts of principal and interest due at regular intervals. The remaining unpaid principal balance should be provided after each installment payment.

Annual Percentage Rate (APR): The total cost of credit, including interest, fees, and other charges, expressed as an annual rate.

Annuities: Contracts between you and an insurance company in which you make a lump sum payment or a series of payments in return for regular disbursements beginning either immediately or at some point in the future. California requires individual annuity contracts for seniors to contain a disclosure regarding the surrender charge period. Make sure to comparison shop and that you understand how the annuity works, the fees and charges involved, and all other terms and conditions.

Annual and Semi-Annual Reports: Also known as financial statements. These are the reports a mutual fund company sends to its unit holders which describe the fund’s performance over the past year or six-month period and that identifies the securities held by the fund.

Appraisal Fee: The charge to estimate the value of property, such as a house, usually for insurance, investment, or mortgage contracts.

Arbitration: A dispute resolution process in which parties agree to be bound by the decision of a neutral third person, the arbitrator, after a hearing that covers both sides of a case or dispute, usually outside the courts.

Assets: What a firm or individual owns.

Asset Allocation: An investment strategy that divides assets among major asset categories such as stocks, bonds, or cash, usually balancing risk and creating diversification.

B

Back-End Load: A sales charge levied when mutual fund units are redeemed.

Balanced Funds: A mutual fund that holds a mix of securities – usually money market, bonds and equities. The relative balance of these securities can be changed to take advantage of phases in the economic cycle.

Balance Inquiry: A basic banking function by which consumers can determine the balance of funds in an account via phone or personal computer.

Balance Sheet: A financial statement showing the nature and amount of a company’s assets, liabilities and shareholders’ equity.

Balloon Payment: An oversized payment due at the end of a loan.

Bankruptcy: The inability of a person or organization to pay their outstanding debts. The process begins with a petition filed by the debtor (which is most common), or on behalf of creditors.

Bankruptcy Protection: A process invoked by someone in bankruptcy; used because a bankruptcy filing in a court of law stops all collections activity and legal proceedings regarding debt and financial matters. Without bankruptcy protection, your assets may be in danger of being lost to your creditors through lawsuits and judgments.

Bear Market: A market in which prices are generally falling.

Bid and Ask: The bid price is the highest price anyone is willing to pay to buy a stock; while the ask is the lowest anyone will accept to sell a stock. Together, the bid and ask prices are referred to as a “quote”.

Bond: A long-term debt instrument with the promise to pay a specified amount of interest and to return the principal amount on a specified maturity date.

Bond Fund: A mutual fund whose portfolio consists primarily of bonds.

Book Value: The value of net assets that belong to a company’s shareholders, as stated on the balance sheet.

Borrower: Any person or organization that obtains funds from another for a period upon the condition to repay. A written document is signed by both lender and borrower as evidence of indebtedness.

Broker Dealers: Also called B/Ds, they are salespeople or firms that buy and sell securities for themselves and others. Broker Dealers must be registered with the federal Securities and Exchange Commission and the California Department of Financial Protection and Innovation. They are duty-bound to make recommendations in keeping with their client’s investment objectives and risk tolerance.

Broker: An agent who handles the public’s orders to buy and sell securities, commodities or other property. A commission is generally charged for this service.

Budget: A plan that outlines what money you expect to earn or receive (your income) and how you will save it or spend it (your expenses) for a given period of time; also called a spending plan.

Bull Market: A market in which prices are generally rising.

C

Capital: Wealth in the form of money or other assets owned by a person or organization.

Capital Gain or Loss: An income tax term referring to profit or loss resulting from the sale of an asset, such as security.

Capital Stock: All classes or types of shares representing ownership of the issues.

Cash Equivalent: Assets that can be quickly converted to cash. These include receivables, Treasury Bills, short-term commercial paper and short-term government and corporate bonds and notes.

Certificates of Deposit: CDs are short- to medium-term investments (usually one to five years) offered by banks or credit unions that pay a higher interest rate than regular savings accounts.

Certified Check: A check which guarantees payment. When a check is certified, it becomes an obligation of the bank, and the funds are immediately withdrawn from the account.

Chapter 7: A form of bankruptcy wherein a company is required to liquidate its assets to pay off its creditors.

Chapter 11: A form of bankruptcy that allows a company to remain in business while its owners attempt to pay its debts.

Chapter 13: A form of bankruptcy that allows adjustments of debts for an individual with regular income. This enables an individual debtor to repay creditors over an extended period and usually allows the debtor to retain his/her property.

Check Clearing: The process of moving cash/funds from a bank (or other depository institution) from which a check is drawn to the bank in which the check is deposited. This process results in credits to accounts at the institutions of deposit and corresponding debits to the accounts at the paying institutions.

Churning: Excessive buying and selling of stocks or other securities in a customer’s account by a broker seeking to maximize commissions, regardless of the client’s best interests.

Closed-End Funds: A fund company that issues a fixed number of shares. Its shares are not redeemable but are bought and sold on stock exchanges or the over-the-counter market.

Collateral: An asset (such as an automobile or piece of property) that a person offers to secure a loan, promising to give the asset to the lender if loan payments cannot be met. Collateral also refers to the collection of receivables, such as mortgages, which are used to back the interest and/or principal security.

Common Shares: Securities which represent part-ownership in a company and generally carry voting privileges.

Compound Interest: Interest calculated on the initial principal, including all interest accrued to a point in time.

Compounding: The process by which income is earned on income that has previously been earned.

Confirmation: This written notice provided by a brokerage acknowledges the completion of a securities transaction. It includes details such as the date of purchase, price, number of shares, commission, fees, and settlement terms.

Consumer Price Index (CPI): A statistic that is a measure of the change in the cost of living for consumers. It is used to illustrate the extent that prices have risen or the amount of inflation that has taken place over a period.

Co-Signer: A person, other than the principal borrower, who also signs for a loan. In the event the principal borrower defaults, the co-signer(s) assumes liability to repay the loan.

Credit: The trust which allows one person (or company) to lend money (or goods or services) to another person, where the second person repays the debt at a later date.

Credit Card: A card issued by a financial company which enables the cardholder to borrow funds. These funds may be used as payment for goods and services. A credit limit is predetermined and has the condition that the cardholder will pay back the original borrowed amount plus any additional agreed upon charges.

Credit History: A record of how a person has borrowed and repaid debt.

Credit Rating: An estimate of the amount of credit that can be extended to an individual or business without undue risk to the lenders.

Credit Report: A loan and bill payment history, kept by a credit bureau and used by financial institutions and other potential creditors to determine the likelihood that a borrower will repay future debt.

Credit Scoring System: A statistical system used to determine whether to grant credit to a potential borrower by assigning numerical scores to various characteristics related to creditworthiness. A credit score is primarily based on credit report information typically sourced from credit bureaus.

Creditor: A person, financial institution, or other business that lends money.

Creditworthiness: A creditor’s measure of a consumer’s debt history, future ability and willingness to repay debts, usually determined with a credit score.

Cum-Dividend: A term applied to stock at a time when the purchaser will be entitled to a forthcoming dividend.

Current Yield: The annual rate of return that an investor purchasing a security at its market price would realize. This is the annual income from security divided by the current price of security. It is also known as the return on investment.

Custodian: A financial institution, usually a bank or a trust company, that holds mutual funds, securities and cash in safekeeping.

Crypto Asset: Refers to a digital asset, which may be a medium of exchange, for which generation or ownership records are supported through a blockchain technology.

D

Data Breach: The unauthorized movement or disclosure of sensitive information to a party, usually outside the organization, that is not authorized to have or see the information. Someone who gets the data might use it for identity theft.

Day Order: An order to buy or sell a security valid only for a limited period, normally less than a day.

Day Trading: Refers to establishing and liquidating the same position or positions within one day’s trading.

Debit Card: A plastic payment card that can be used instead of cash when making purchases. It is similar to a credit card, except that after a transaction funds are directly withdrawn from a debit card owner’s bank account. It may also be used to withdraw cash from an automated teller machine (ATM).

Debt: An obligation to repay a sum of principal, plus interest. In corporate terms, debt often refers to bonds or similar securities.

Debt Service: The amount of money required over a period of time to repay debt, including repayment of principal and interest.

Default: Failure to repay a debt as set in the terms of a credit or loan agreement. When a loan is set into default status, the creditor may demand the remainder of the loan’s balance be paid in full.

Deferment: An action that allows you to temporarily pause or reduce the amount of your federal student loan payments for a specified period. Borrowers are not responsible for paying the interest that accrues during this time. Also see Forbearance.

Deflation: A condition of decreasing prices. Deflation is generally measured by the Consumer Price Index.

Delinquency: A situation where a borrower is late or overdue on a payment for a debt, such as a mortgage, credit card account, or other types of loans. This differs from a default (see “Default” above) as most creditors will allow a loan to remain delinquent for a period of time before considering it in default.

Depository Institution: A financial institution like a bank or credit union that is authorized to accept checking and saving deposits.

Direct Consolidation Loan: A type of loan that allows you to consolidate (combine) multiple federal education loans into one loan. The result is a single monthly payment instead of multiple payments.

Discretion: Prior formal authorization, frequently referred to as “trading authority,” that permits a broker to make transactions in a client’s account without having to first get authorization for each trade. You and your broker should discuss your overall goals and risk tolerance before you decide whether to grant this authority.

Distribution: The sale of securities. Also refers to a sum payable to shareholders representing their share of profits. A distribution of profits may be in cash or by additional shares.

Diversification: The investment in several different securities to reduce the risk of loss inherent in investing. Diversification may be among types of securities, companies, industries or geographic locations.

Dividend: A portion of a company’s profit paid to the shareholders.

Dividend Fund: A mutual fund that holds preferred and common stock that generally pays regular dividends.

Dodd-Frank Act: Federal legislation passed in 2010 as a response to the late 2000’s economic crisis, it includes a broad range of reforms affecting nearly all aspects of the U.S. financial system with the goal of preventing a repeat of the 2008 crisis, and sought to establish additional protections for consumers.

Dollar Cost Averaging: A principle of investing where equal dollar amounts are invested in a share or unit at regular intervals in the hope of reducing the average cost by acquiring more shares in periods of lower securities prices and fewer shares in periods of higher securities prices.

Down Payment: Initial cash payment made when something is bought on credit, such as a home or vehicle. The down payment reduces the amount of money that is borrowed.

Drips (Dividend Reinvestment Plan): A plan offered by some companies where the shareholder’s dividends are used to purchase additional shares in the company. Many companies will absorb the commission charge that would normally be paid by the investor for additional purchase and many companies offer discounts on shares purchased through a DRIP plan.

E

Elder Financial Exploitation: The illegal or improper use of an older adult’s funds, property, or assets by family members, caregivers, friends, or strangers who gain their trust.

Effective Rate: The annual interest rate that is earned or paid on an investment, loan or other financial product as the result of compounding over a given period.

Emergency Fund: A cash reserve that’s specifically set aside for unplanned expenses or financial emergencies. Some common examples include car repairs, home repairs, medical bills, or a loss of income.

Equity: Another word for “stock.” It represents an ownership interest by shareholders in a corporation. In a margin account, equity is the difference between the value of your stock and the amount of money you have borrowed in that account.

Equity Fund: A mutual fund whose portfolio consists primarily of common and/or preferred stock.

Estate Tax: A tax on the value of property you own at your death. It considers everything you own or have certain interests in at the date of death. There is a federal estate tax, and some states have their own estate taxes.

Estimated Income and Current Yield: In most cases, estimated income is the amount of dividend and/or interest expected to be received annually. The current yield is the annual interest on a bond divided by the market price.

Ex-Dividend: Without dividend. The buyer of shares quoted ex-dividend will not receive an already declared dividend. When shares are cum-dividend, the purchaser will receive the declared dividend.

Expense Ratio: A mutual fund company’s cost of doing business. It includes the fund’s management fee as stated in the Simplified Prospectus. Price and performance are always shown net of this percentage which is charged against assets held by the fund.

Extended Payment: A repayment plan, typically used for student loans, in which payments may be fixed or graduated, and which will ensure that the loans are paid off within 25 years.

F

FAFSA: Stands for “Free Application for Federal Student Aid” and is the official form used to apply for federal, state and school assistance to pay for college.

Federal Income Tax: The federal government collects taxes based on the earnings of individuals and businesses, called an income tax. The federal income tax pays for national programs such as defense, foreign affairs, law enforcement, and interest on the national debt.

Federal Student Loans: These loans are funded by the federal government and have terms and conditions that are set by law. Federal loans also include benefits that private student loans don’t usually offer. These benefits could include lower interest rates, repayment plans based on income, and possible loan forgiveness, such as for people who choose to work for a certain amount of time in government or for certain not-for-profit organizations or teach in a low-income school.

Federal Work-Study: A federal program that provides part-time jobs for undergraduate and graduate students with financial need, allowing them to earn money to help pay education expenses.

Financial Aid: Money given in the form of grants, work-study, loans, and scholarships to help pay for post-secondary tuition and fees, housing, and food, books, supplies, miscellaneous expenses, and transportation.

Financial Capability: The ability to manage financial resources effectively, understand and apply financial knowledge, demonstrate healthy money habits, and successfully complete financial tasks as planned.

Finance Charge: Also known as a Financing Fee, it is an additional cost for using credit or extending credit, generally charged as a flat fee or a percentage (interest) of the funds borrowed.

Financial Fraud: The crime of gaining money or financial benefits by deception or lying.

Financial Planner: An investment professional who helps clients set and achieve financial goals through investments, tax planning, asset allocation, risk management, retirement planning and other forms of financial management.

Fixed Expenses: Expenses, like bills, that must be paid each month and generally cost the same amount. Some fixed expenses, like a utility bill, may also be variable because the amount changes each month depending on usage.

Fixed Income Investments: Investments that generate a fixed amount of income that does not vary over the life of the investment.

Fixed Rate: An interest rate that stays the same for the life of a loan, or for a portion of the loan term, depending on the loan agreement.

Forbearance: Allows borrowers to temporarily stop making payments or temporarily reduce monthly payment amounts for a specific period. Borrowers are responsible for paying the interest that accrues during this time for all loan types. Also see Deferment.

Foreclosure: The legal process (usually initiated by the creditor) used to attempt to recover outstanding debt secured by collateral. The collateral (generally property) is confiscated by the creditor and sold to repay this debt.

Front-End Load: A sales charge levied on the purchase of mutual fund units.

Futures: Contracts to buy or sell specific quantities of a commodity or financial instrument at a specified price with delivery set at a specified time in the future.

G

Graduated Payment: A repayment plan, typically used for student loans, where payments are lower at first and then gradually increase to the point where the amount will ensure the loan(s) are paid off within 10 years (within 10-30 years for Consolidated Loans).

Growth Fund: A growth fund is a type of mutual fund that usually focuses on the purchase of equities likely to have superior growth potential. These funds take higher investment risks and invest in more volatile stocks to achieve above average growth. Stock values may be appreciated or depreciated depending on the success of the companies invested in other market factors.

Gross Income: Total pay before taxes and other deductions are taken out.

Guaranteed Investment Certificates: A deposit instrument paying a predetermined rate of interest for a specified term. Available from banks, trust companies and other financial institutions.

H

Home Equity: The calculation of a home’s current market value minus any remaining loans or liens attached to it. There may be complex tax implications (see Capital Gains).

I

Identity Theft: Using your personal information — such as your name, Social Security number, or credit card number — without your permission.

Imposter Scam: An attempt to get you to send money by pretending to be someone you know or trust, like a sheriff; local, state, or federal government employee; a family member; or charity organization.

Income Driven Payment: Typically used for student loans, this is a repayment plan that sets monthly loan repayments at an amount intended to be affordable based on the borrower’s income and family size. There are four different types available, and an application is required.

Income Fund: Alternatively called a bond fund. Income funds are a type of mutual fund that holds debt instruments such as government bonds and corporate debentures. Its return is based on both interest earnings and capital gains.

Income Tax: Federal, state, and local taxes on income, both earned (salaries, wages, tips, commissions) and unearned (interest, dividends). Includes both personal and business or corporate income taxes. Not all states and localities have income taxes.

Index: Statistical measure of the state of the stock market or economy based on the performance of stocks or other components.

Index Fund: A mutual fund that matches its portfolio to that of a specific financial market index, with the objective of tracking the general performance of the market in which it invests.

Individual Retirement Account (IRA): A retirement savings and investment account that has various tax advantages. Traditional IRA contributions are tax-deductible on both state and federal tax returns for the year you make the contribution. Withdrawals from your IRA during retirement are taxed as ordinary income tax rates. Roth IRAs provide no tax break for contributions, but earnings and withdrawals are generally tax-free.

Inflation: A condition of increasing prices. Inflation is generally measured by the Consumer Price Index.

Installment Plan: A plan requiring a borrower to make regular payments at specified intervals over the life of a loan.

Interest: Payments made by a borrower to a lender for the use of the lender’s money. A Corporation pays interest on bonds to its bondholders.

Interest Rate: The percentage of interest charged for a loan, usually based on the amount of money borrowed. The interest rate can also refer to the money earned on a deposit in an account with a financial institution. (See Key Interest Rates).

International Fund: A mutual fund that invests in securities from several countries.

Investment Adviser: An individual who furnishes investment advice for a fee.

Investment Company: A corporation or trust whose primary purpose is to invest the funds of its shareholders.

Investment Fund: A term generally interchangeable with “mutual fund.”

Investment Manager: Investment counsel to a mutual fund.

K

Key Interest Rates: The specific interest rate that determines bank lending rates and the cost of credit for borrowers. The two key interest rates in the United States are the discount rate and the Federal Funds rate.

L

Lender: The person or entity which lends money to a borrower. Borrowers should verify with a state or federal regulator that a lender is licensed before signing a contract.

Leveraging: The borrowing of money for investment purposes.

Liability: In personal finance, liability is the amount owed to a lender. Generally, liabilities may include mortgages, car and student loans, and credit card debt.

Lien: The legal right of possession a lender has to a property on which debt is owed. If the debt is not repaid, the lender can confiscate the property (car, house, etc.) and sell it to collect on the debt.

Limit Order: An order to buy or sell securities in which the client has specified the price. The order can be executed only at the specified price or a better one.

Liquidity: The ability of the market for security to absorb a reasonable amount of buying or selling without major price changes.

Liquidity Risk: The risk when a company or bank does not have enough cash, capital or liquid assets to meet short-term financial demands. Can be referenced as when a bank cannot meet their borrower’s and/or depositor’s cash demand or when a person or company has difficulty selling their assets without incurring large losses.

Load: Commissions charged on the purchase or sale of mutual fund units.

Long: A term signifying ownership of securities. “I am long 100 XYZ,” means that the speaker owns 100 shares of XYZ.

M

Management Company: The business entity that establishes, promotes and manages a fund or funds.

Management Expense Fee: The sum paid to the investment company’s advisor or manager for supervising its portfolio and administering its operations.

Management Expense Ratio: A measure of the total cost of operating a fund as a percentage of average total assets.

Margin: The amount paid by clients when they use credit to buy a security. The remainder is loaned by their brokers.

Margin Debt: The difference between the collateral deposited by the client and the amount borrowed (currently a maximum of 50 percent of the current market value of the securities) represents margin debt. Should the stock decrease in value, the investor must keep the proper maintenance level, either by putting up more money or by selling marginable securities. The use of borrowed money to purchase securities is referred to as “buying on margin.” This strategy dramatically increases both upside potential and downside risk.

Market Capitalization: Value of a corporation as determined by the market price of its issued and outstanding securities. It is calculated by multiplying the number of outstanding shares by the current market price of a share.

Market Order: An order to buy or sell security immediately at the best possible price.

Market Price: In the case of security, market price is usually considered the last reported price at which the stock or bond is sold.

Market Value: The price that the market – any market – sets at a particular time as the price at which an asset can be bought or sold.

Maturity: The date on which a loan or bond or debenture comes due and must be redeemed or paid off.

Money Market: A sector of the capital market where short-term obligations such as Treasury bills, commercial paper and bankers’ acceptances are bought and sold.

Money Market Account: Similar to checking accounts at a bank or credit union but usually paying higher interest rates than a savings account. Minimum deposit levels are higher than checking, allows for a limited number of monthly transactions.

Money Market Fund: A mutual fund made up of government Treasury-Bills and other short-term paper such as a Promissory Note and Banker’s Acceptances. Interest yield fluctuates and is generally paid monthly.

Mortgage: An agreement to borrow money from a bank or similar organization to buy a home. Usually the house/property is used as a guarantee for the loan.

Mortgage-Backed Securities (MBS): Investments or assets that are secured by a mortgage or collection of mortgages. They come in a variety of structures. For more information see the SEC page about the topic.

Mortgage Fund: A mutual fund that holds mortgages.

Mutual Fund: An investment entity that pools shareholder or unit holder funds and invests in various securities. The units or shares are redeemable by the fund on demand by the investor. The value of the underlying assets of the fund less liabilities establish the current price of units.

N

Negative Amortization: Occurs when a repayment that is made is less than the interest charged on a loan, causing the outstanding balance of the loan to increase.

Net Asset Value: Net asset value is the price set on a fund’s units by deducting liabilities from assets and dividing by outstanding units.

Net Asset Value Per Share: Net asset value of a mutual fund divided by the number of shares or units outstanding. This represents the value of a share or unit of a fund and is commonly abbreviated to NAVPS.

Net Income: Amount of money you receive in your paycheck after taxes and other deductions are taken out; also called take-home pay.

Net Worth: The value of a person’s or company’s total assets minus all debts or liabilities. It can be negative if someone owes more than they have in money or other assets.

No-Load Fund: A mutual fund that does not charge a fee for buying or selling its shares.

Nominal Interest Rates: The rates of interest paid to a loan or earned through a deposit. When borrowing, it is known as the Annual Percentage Rate (APR) that lenders usually advertise. In this situation, borrowers should also consider the effective rate. When investing, investors should consider inflation and the real rate of return.

O

Office of the Comptroller of the Currency (OCC): Under the U.S. Treasury, the OCC regulates all national banks, federal branches, and agencies of foreign banks.

Office of Thrift Supervision (OTS): Under the U.S. Treasury, the OTS is the primary federal regulator of all federal- and state-chartered savings institutions that belong to the Savings Association Insurance Fund (SAIF).

Odd Lot: A number of shares which is less than a board lot.

Online Banking: A service that allows you to use a secure website to manage your bank or credit union account without the aid of a teller. While you can transfer money between accounts using this service, you generally cannot deposit checks or cash.

Open-End Credit: A line of credit that may be used repeatedly up to a certain limit, also known as a charge account or revolving credit.

Open-Ended Fund: An open-ended mutual fund continuously issues and redeems units, so the number of units outstanding varies from day to day. Most mutual funds are open-ended.

Open-End Lease: A type of rental agreement that forces the lessee (the person making lease payments) to make a balloon payment at the end of the lease agreement amounting to the difference between the fair market value of the asset and your cumulative lease payments. Open-end leases are also called “finance leases.”

Open Order: An order to buy or sell security at a specified price. The order is valid until executed or cancelled.

Opportunity Cost: The cost of passing up on an investment in favor of another.

Options: Contracts which give the holder the right to buy (call options) or sell (put option) a fixed amount of a certain stock at a specified price within a specified time.

Overdraft Checking: A checking account with a line of credit that allows a person to write checks for more than the actual balance in the account, with a finance charge on the overdraft.

Over-The-Counter: The over-the-counter (OTC) or unlisted market maintained by securities dealers for issues not listed on a stock exchange.

Out-Of-Pocket Cost: The expenses and losses that are not reimbursed by insurance. This cost includes deductibles, copayments, and amounts paid for services or repairs that are excluded from coverage. It’s the amount paid before insurance coverage kicks in.

P

Peer-to-Peer Payment (P2P): A service that allows you to send money to another person without needing to write a check, swipe a physical card, or exchange cash.

Points: For stocks, points refer to how much shares cost and for calculating changes in their value. For mortgages, points are a lump sum payment made by the borrower to the lender at closing in return for a lower interest rate. Generally, each point equals 1 percent of the loan amount. Below are some types of points:

  • Discount points: Sometimes, buying mortgage points (also known as prepaying the interest) when you buy a home can save you significant money over the term of your loan. But it’s important to understand how discount points work and how long it takes for the additional upfront cost to be worthwhile.
  • Seller’s Points: To make a home loan cost less for the buyer, the seller pays a lump sum to the lender financing the loan.
  • Origination Points: Covers the lender’s cost of processing the loan. Lenders may use different terms like maximum loan charges or loan discounts.

Portfolio: All the securities which an investment company or an individual investor owns.

Preferred Shares: Shares that carry dividends at fixed rates which must be paid before any dividends are paid to common shareholders.

Prepaid Card: A charge card that provides access to money, which was loaded onto it in advance. Types include “non-reloadable” prepaid cards, which cannot be used once the initial funds on the card have been exhausted, and “reloadable” prepaid cards, which allow holders to add additional funds and continue using the card.

Prepayment: Payment of all or part of a debt before it comes due.

Prepayment Penalty: A fee lenders can charge borrowers if they pay off a loan early.

Price/Earnings Ratio: A common stock’s current market price divided by the company’s annual per share earnings.

Prime Rate: The interest rate that banks charge preferred by customers, or those with the highest credit ratings. It is used to determine borrowing costs on many short-term loan products.

Principal: Most commonly refers to the initial amount of a loan; but can also refer to the amount still owed on a loan.

Promissory Note: A written promise by a borrower to repay the money borrowed plus interest by a certain date. This is a legal contract.

Property Tax: Taxes on property, especially real estate, but also can be on boats, automobiles (often paid along with license fees), recreational vehicles, and business inventories.

Ponzi/Pyramid Schemes: Named after Charles Ponzi, these are fraudulent investment schemes which promise high returns and low risk. Promoters typically pay early investors by using money collected from newer investors. All Ponzi schemes eventually collapse because the number of new investors needed to pay earlier investors becomes unachievable, thus later investors typically lose all of their money.

Portfolio: The collection of all your investments.

Prospectus: A legal document describing securities being offered for sale to the public. It must be prepared in accordance with provincial securities commissions regulations.

R

Real Estate Fund: A mutual fund that owns real estate, often commercial properties.

Real Interest Rates: Interest rates adjusted for the expected erosion of purchasing power resulting from inflation. Technically defined as nominal interest rates minus the expected rate of inflation.

Real Return: Real Return is the net return of an investment, adjusted for inflation during the time you have held that investment but prior to tax considerations.

Realized and Unrealized Gain/Loss: The results of securities transactions are usually categorized into either realized gains or losses upon the sale of the security. An unrealized gain or loss is the appreciation or depreciation in the value of an unsold security since the time it was originally acquired (informally known as “paper gains or losses”).

Realized Earnings: Realized Earnings is investment income as earned by a fund and considered part of your income.

Redemption: A redemption is the right given to a security holder to sell, at any time, some or all of his/her units back to the fund for cash.

Refinance: To repay a loan by taking out another loan. Usually done to get a lower interest rate. Refinancing also resets the repayment period. A consumer might change a four-year loan to a ten-year loan with lower interest and monthly payments. Caution is advised as some new loans may not be good for the borrower. Always verify the license of the lender offering refinancing services.

Registered Representative: An investment salesperson or broker who is licensed by the SEC (Securities and Exchange Commission) and by the NYSE (New York Stock Exchange).

Reinvestment: Using dividends, interest, and/or capital gains distributions generated by a mutual fund investment to purchase additional shares, rather than receiving the distributions in cash. With stocks, using dividends to purchase additional shares instead of receiving payments in cash.

Renegotiable Rate: A type of home mortgage where monthly payments stay the same for a term, usually of three to five years, while the loan’s interest rate is renegotiated at the end of every term until the loan is paid off. Also called a “rollover mortgage.”

Right: A temporary privilege granted to existing common shareholders to purchase additional shares directly from the company at a stated price.

Risk: The possibility of loss; the uncertainty of future returns.

Risk Tolerance: The degree to which an investor is willing to risk losing some (or all) of their original investment in exchange for a chance to earn a higher rate of return. In general, the greater the potential gain from an investment, the greater the risk of losing money or value.

Romance Scam: When a new friend says they like or love you, but they really just want your money—and may not be who they say they are.

S

Sales Charge: In the case of mutual funds, there are commissions charged to purchasers of fund units, usually based on the purchase or redemption price. Sales charges are also known as “loads.”

Sales Tax: A tax on retail products based on a set percentage of the retail price.

Savings: Money you have set aside in a secure place, such as in a bank account, that you can use for future emergencies or to make specific purchases.

Savings Account: An account at a bank (sometimes called a share savings account at a credit union) used to set aside money and that pays you interest.

Scam: A dishonest trick used to cheat somebody out of something important, like money. Scams can happen in person, through social media, or by phone, email, postal mail, or text

Securities Act: Legislation regulating the underwriting, distribution and sale of securities.

Secured Credit Card: Credit card that typically requires a cash security deposit. The larger the security deposit, the higher the credit limit. Secured cards are often used to build credit history.

Secured Loans: Loans in which your property (a thing you own) is used as collateral; if you cannot pay back the loan, the lender takes your collateral to get their money back. The lender can also engage in debt collection, can file negative information on your credit report, and might sue you.

Service Charge: A service charge or a penalty, usually by a bank, such as an ATM fee or an overdraft fee.

Settlement Date: The date on which a securities buyer must pay for a purchase, or a seller must deliver the securities sold. In general, settlement must be made on or before the third business day following the transaction date.

Short-term Interest Rates: An interest rate on short-term borrowings or fixed income assets with a maturity of less than one year. This rate is usually lower than those of longer-term investments and is also known as the “money-market rate” and the “treasury bill rate”.

Simple Interest: Interest that is based on, and paid on, only the original amount of money that was borrowed or invested, and not on any accumulated debt or earnings. On a simple interest loan, the payment first goes toward that month’s interest, and the remainder goes toward the principal. Each month’s interest is paid in full so it never accrues.

Securities: Any investment opportunity in which the investor has a reasonable expectation of making a profit as a result of the managerial or entrepreneurial efforts of others, but where the investor generally has little power over management and limited access to the enterprise’s business records. As a general rule, all securities products and the people who sell them in California must be registered with the California Department of Financial Protection and Innovation (or DFPI).

Standard Payment: The equal installments of monthly payments required to pay off a loan over the set term at the current interest rate.

Stock: A share that represents ownership in the company that issues it. The price of a company’s stock goes up and down, usually depending on the value of the company and how investors speculate the company will perform in the future.

Shares: A document signifying part-ownership in a company. The terms “share” and “stock” are often used interchangeably.

Short Sales: The sale of shares which the seller does not own. The seller is speculating that the price will fall, in the hope of later purchasing the same number of securities at a lower price, thereby making a profit. Sellers must advise their brokers when they are selling short.

Small Cap Fund: A small Cap Fund is a mutual fund that holds the stocks of small, capitalized companies as opposed to large “blue chip” companies.

Specialty Fund: A Specialty Fund is a mutual fund that focuses its holdings in specific types or geographic areas.

Stock Yield: The annual dividend as a percentage of the price of the stock. For example, a stock selling at $40 a share with an annual dividend of $2 a share yields five percent.

Systematic Withdrawal Plans: A withdrawal feature offered by companies whereby unitholders can receive regular payment from their investments.

T

Tariff: A tax on products imported from foreign countries. This tax can increase the costs of those products, which ultimately can be passed on to consumers at higher prices.

Taxes: Required payments of money to governments, which use the funds to provide public goods and services for the benefit of the community.

Tax Credit: A dollar-for-dollar reduction in a tax. It can be deducted directly from taxes owed. Tax credits can reduce the amount of tax you owe or increase your tax refund, and some credits may result in a refund even if you don’t owe any tax.

Tax Deduction: An amount (often a personal or business expense) that reduces income subject to tax.

Tax Refund: Money owed to taxpayers when their total tax payments are greater than the total tax. Refunds are received from the government.

Tax-Related Identity Theft: When someone steals your Social Security number to file a tax return claiming a fraudulent refund; may also be called tax-filing-related identity theft.

T-Bond: See U.S. Treasury Bonds.

Term: The time frame or period from when a loan (or other contract) is issued until it is fully paid.

Terms: Conditions and requirements included in a loan agreement that usually specify the loan amount, term, interest rate, and other enforceable conditions agreed to by the borrower and the lender.

Thrift Institution: A general term encompassing savings banks, savings and loan associations, and credit unions. These institutions primarily accept consumer deposits and make home mortgages.

Transaction Account: A bank account from which payments can be made to a third party. The most common type is a checking account where one can write a check or use a debit card to deduct an amount from the account and give it to a third party.

Truth in Lending Act (TILA): The Federal Consumer Credit Protection Act passed in 1989 requiring disclosures of credit terms using a standard format. The law protects consumers against inaccurate and unfair credit billing and credit card practices. It also requires lenders to provide consumers with loan cost information so that they can comparison shop for certain types of loans.

Time Value of Money: The idea that money today is worth more than the same amount in the future, due to its potential earning power.

Total Return: Total Return is the change in value of the fund plus any distribution (i.e. capital gain, interest, and dividends) divided by the value of the fund at the beginning of the period (i.e. cost).

Trade Date v. Settlement Date: The trade date is the day a trade is executed. The settlement date is the agreed upon date when payment must be made and/or securities presented. For purchases of securities, the brokerage firm must receive payment no later than three business days after the trade date (T+3). Currently, the industry is progressing to a T+1 settlement cycle in 2005.

Transfer Agent: A trust company appointed by a company to keep a record of the names, addresses and numbers of shares held by its shareholders. Transfer agents are often responsible for distributing dividend checks.

Treasury Bills (T-Bills): Treasury Bills are short-term government issued debt instruments whose return is determined by prevailing market rates of return.

U

U.S. Treasury Bonds: Also known as “T-Bonds,” these are fixed-interest bonds issued by the U.S. government with a maturity of more than 10 years. These bonds pay its investor interest which are only taxed at the federal level and are generally considered low-risk investments as its issuer (the U.S. government) has a low risk of default.

Unbanked: Unbanked households don’t have a checking or savings account at an institution that is insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA).

Underbanked: A person who has an account at a bank or credit union but also uses an alternative financial service like a payday loan, check cashing, or a pawn shop loan.

Unsecured Loan: A loan (such as most types of credit cards) that does not use property as collateral. Lenders consider these loans to be more risky than secured loans, so they may charge a higher rate of interest for them. If the loan is not paid back as agreed, the lender can also start debt collection, file negative information on your credit report, and might sue you.

Underwriting: The purchase for the resale of a new issue of securities by an investment dealer or group of dealers.

V

Variable Rate: Unlike a fixed-rate agreement, a variable rate agreement has an interest rate that may change (up or down) over the life of the loan. The rate is often tied to an index that reflects changes in market rates of interest. A fluctuation in the rate causes changes in either the payments or the length of the loan term. Limits are often placed on the degree to which the interest rate or the payments can vary.

Virtual Currency: Also known as “digital currencies,” this is a digital representation of value that is used as a medium of exchange, a unit of account, and/or a store of value used mostly as a way for people to track, store, and send payments over the Internet. Beware: virtual currencies are not backed by any government or central bank and do not have legal tender status in the United States.

W

Wage: Compensation received by employees for services performed. Usually, wages are computed by multiplying an hourly pay rate by the number of hours worked.

Warrant: A certificate giving the holder the right to purchase a security (such as a stock) at a set price within a specified period of time.

Wraparound: A loan where the borrower refinances a previous loan at an interest rate between the current market rate and the interest rate at which the first loan was made, which is hopefully lower. This allows the borrower to refinance the first loan without being forced to accept a significantly higher interest rate.

Wire Transfer Fraud: Tricking someone into wiring or transferring money to steal from them. One common example of a wire transfer fraud is the “grandparent scam.” This is when a scammer posing as a grandchild or a friend of a grandchild calls to say they are in a foreign country, or in some kind of trouble, and need money wired or sent right away.

Withholding (“pay-as-you-earn” taxes): Money that employers withhold from employees’ paychecks. This money is deposited to the government and is credited against the employees’ tax liability when they file their returns. Employers withhold money for federal income taxes, Social Security and Medicare taxes, and state and local income taxes in some states and localities.

Y

Yield: Yield is most commonly associated with a money market fund’s return. “Current Yield” is based on daily return, “Effective Yield” on the annual compounded return. Yield to Maturity: The annual rate of return an investor would receive if a bond were held until maturity.

Z

Zero-Coupon Bond: A corporate or municipal debt security sold at a deep discount to its face value that does not pay periodic interest. The profit is realized when the bond is redeemed at maturity for its full-face value.

ver: 4.1.6 | last updated: