AAA: It’s not roadside assistance. AAA refers to a credit rating, and it tells you if a company, a state or local government, or even a country are likely to repay their debts. These little grades help you decide if you want to take your hard-earned cash and give it to these people. If you want less risk, look for ratings of AAA to BBB-. Anything with a BB+ grade and below are called “junk”. But consider that old adage that the higher the risk, the greater the potential return. Sometimes it is good to have a little junk in the trunk. It’s your choice whether to keep it safe or make it more of a gamble.
APR (Annual Percentage Rate): The interest rate you’ll pay for an entire year. So, it’s a whole shabang, including fees and any other fine print charges. This helps you prepare yourself and your budget for what you are getting into for the year.
A-Share: In the world of finance, A-share does not refer to just one “share of stock”, but instead a type of stocks, such as “A-Share, B-Share and “C-Share”. A-share has two meanings, either 1) to a class of stock or 2) a multi-class mutual fund, which invests in multiple assets. Class-A shares of common or preferred stock usually have features that set it apart from the rest, such as voting rights. If you’re looking at a mutual fund “A-Share”, typically has a front-end sales load, which means you pay up-front commission to the person who sold you the fund. Sometimes people will pay a premium to hold A-shares because of special features. For example, those who hold the coveted Berkshire Hathaway A-shares (like Bill Gates) get more voting power. Those who hold B-shares still get to own a share in the iconic company but get fewer perks.
Back taxes: This is what you owe if you failed to pay taxes in the year that they were due. Back taxes aren’t limited to the federal government. If you fail to pay taxes at the state and local level, you’d owe back taxes on these as well. Say you have five years in unpaid federal and local taxes, totaling $20,000 per year. You wouldn’t just owe $100,000, you’d owe $100,000 plus hefty penalties and interest. It’s like when you fail to pay your credit card bill – not only do you owe the balance, you owe the balance plus service charges and interest, which will keep piling on until you pay. Try to avoid this situation at all costs, as fees and interest can really add up.
Blue Chip: As with poker, “blue chip” is the cutesy name for high-value companies. Blue chips are the big guys, like Microsoft or GE. They are considered bellwethers – where the blue chips go, so goes the market. There are 30 of them and they make up the mighty, mighty Dow Jones Industrial Average, of “The Dow.”
Bond: Not James. Just Bond. When a company or government needs to raise money for, say, a shiny new machine or fancy bridge to nowhere, it sells bonds. There are different kind of bonds – typically government or business bonds – but generally speaking you’ll get interest payments (called the “coupon”) and get paid back the full value (or “principal”) at a certain date.
Bond index fund: If you had a choice of buying one pair of Jimmy Choo’s, or getting the entire season’s collection for a comparable price, what would you do? It’s a no brainer. Instead of buying one bond, investing in a bond index fund exposes you to a variety of bonds, such as corporate bonds (three inch heels), government bonds (classy flats), etc.
Calendar spread: It has nothing to do with Sports Illustrated and everything to do with options and futures. First, let’s consider what an option is. If you buy an option, you have the ability to buy or sell it at a pre-determined price on or before a particular date. For example, some people who word for startups are awarded options as part of their compensation. They get a stake in the company before anyone else, potentially giving them a huge financial advantage if that company ever had an IPO. Second, let’s look at futures. If you buy a future, you are obligated to actually pay for that investment at a specified date and pre-set price. For example, say you read the news and everyone is speculating that oil prices are going to fall. You disagree because the same thing happened last year and oil prices went up. You decide buy an oil futures contract so that if oil prices did increase, you could sell it for a premium. Now, back to a calendar spread. A calendar spread looks at the time between when futures or options are purchased and when they are sold. Typically an investor will buy futures or options expiring, say, six months down the line and sell futures or options within, say, the next month or two.
Call price: Sometimes companies and governments will issue “callable” bonds. Callable bonds are those that can be purchased by the issuer before their stated maturity date. A “call price” is the price at which an issuer can buy back a callable bond. The call price is set when the bond is first issued. It’s also non-negotiable, so the price you’re quoted won’t change. Say you bought a 10-year callable bond for $1,000 and it came with a provision that said the company could buy it back from you for $1,070. If interest rats fall and the company decides to buy it back before ten years from now, you would get $1,070.
Credit score: A credit score measures your ability to pay your bills. For example, despite your polished appearance, your landlord probably took a peek at your credit score to figure out whether or not you’ll pay rent each month. The dreaded C-word is something you should check once a year. Remember: if you are looking to borrow money, this determines your interest rate. And that’s a big deal. Better to look destiny in the eye, right? After all, it’s connected to almost everything you do financially. It’s like your financial report card that your employer can check to see if you’re a delinquent.
DAX: This particular DAX is not the first name of an American actor. It’s the name of a stock index that trades on the Frankfurt exchange. The DAX index is made up of 30 of Germany’s largest and most liquid German companies. During the Euro crisis, we saw that Germany is a strong economic presence in the Euro zone, and as such the DAX is one of the most important stock exchanges in this region. It is a big indicator of Germany’s economic health, and as such is an indicator of the Euro zone’s financial health as a whole. Say we wake up tomorrow and the DAX is down by a significant proportion. Odds are US markets would follow suit.
Debit card: Similar to a credit card but only allows you to spend money that you actually have in your financial account. Not nearly as fun but probably better for you in the long run. If you are diligent with your plastic, like only going over your limit in an emergency (keeping your spending to about 30% of your max limit is actually most advantageous to your credit score).
Defaulting: Whatever you do, don’t do this. Defaulting is when you don’t make payments on a loan. You’ll likely get charged big penalties and likely have your tax refund withheld. (As if April 15 couldn’t get any worse.)
Deferment: This is a fancy word for delaying a payment. If you’ve got student loans (worst!) you could potentially delay payments (yay!) if you are still enrolled at least half-time in school or if you’re jobless. But, it’s not ideal to keep kicking the can down the road.
Early adopter: As in the fashion world, an early adopter in finance is one that uses a particular product, service or technology before anyone else. Usually early adopters will pay a premium to be the first to try something new to market. For example, the first generation 5GB iPod cost $400. Today’s iPod Classic, with 160 GB of storage, costs $249. Early adopters at first were more hip than their friends, but at some point everyone has access to the product.
EBITDA: Earnings Before Interest, Taxes, Depreciation and Amortization. EBITDA is a way to measure if a company is doing its best to make money. It’s a saying you’ll hear a lot if you are starting a business. The better the number is, the better the company is doing.
Equity: Another word for stock. If you have “equity” in your company, it means you own shares. If you have “equity” in another company, it means you own shares. Equity is a good thing. You want it.
Face value: While it may sound like a new show on Oxygen, face value actually refers to the dollar value of an investment. For stocks and bonds, “face value” means two different things. The face value of a stock is the price shown on the stock certificate, which is created when the company first issues a stock. The price today may be above or below the initial face value and as such face value is irrelevant after the stock trades on the open market. You can think of face value as you would think of an item on eBay. That Longchamp bag has a $185 face value, but it has been used daily for over a year and is now being sold on the open market for $100. On the other hand, a bond’s face value is the amount you would receive at maturity. For example, if you bought a $1,000 10-year bond, you would receive $1,000 when the bond matures in ten years. Sometimes you’ll hear people say “par value” or “par” and these are terms that mean the same thing as “face value”.
Fiscal Cliff: The dreaded increase in tax rates and decrease in government spending that would have occurred in January 2013 had Congress not passed a fat bill called the American Taxpayer Relief Act of 2012. The words say it all – it would have been the government falling over a (money) cliff.
Flight to quality: Birds and people fly south for the winter, trading in the chill for a little sunshine. Similarly, “flight to quality” is when investors sell risky stocks and buy Treasury securities or gold – those are typically safer bets historically.
Forbearance: Can’t make your student loan payments? We sympathize. Sometimes you can get forbearance if you don’t qualify for a deferment. If you do take forbearance, you may be able to stop paying your loans or reduce payments for a full year. But be warned – interest will continue to build on subsidized and unsubsidized loans. There’s always a catch!
401(k): If you’ve got one of these, cool. It’s a retirement plan offered by your employer and you can put money in it tax-free. If you’re super lucky, your employer may match your monthly savings contribution up to a certain amount. It’s like free money (if there’s a match) so smart ladies like you will definitely want to contribute at least as much as it takes to make the match. However, it’s not for everyone, so if it’s not matched you might want to think twice.
GBP: Not to be confused with GDP, GBP is an abbreviation for the British pound, which is the currency used in the UK and British territories. You’ll see the sign for GBP listed as £ (similar to the sign for US dollars listed as $).
GDP: Stands for gross domestic product and is a way for economists to measure the strength of a particular economy. For example, US GDP looks at the total market value of all goods and services produced within a given country over a specified period of time, from cars to appliances to clothes to shoes. When US factories produce a lot, it usually means the economy is healthy because they have buyers for their products, and GDP will increase. When factories slow down production, it means there are fewer borrowers, and GDP will decrease. You’ll notice that US GDP is usually measured on a quarterly and annual basis.
Goldbug: A “goldbug” is a person who invests in gold because they think the dollar is being flushed down the toilet. You know those commercials that try and sell you actual gold bars? This is not what we are talking about. This is buying “troy ounces” of gold on and exchange. Not a stock exchange, a commodity exchange like the Chicago Mercantile Exchange.
Haircut: In finance, a haircut does not require beauty school experience. It is the percentage subtracted from the market value of an asset that is being used as collateral. The larger the haircut, the greater the perceived risk of the asset. For example, say that you are borrowing $900 from your bank. You put up a $1,000 Treasury bill as collateral with a 10% haircut (10% is pretty low, since T-Bills are low-risk securities).
Hedge: A “hedge” in this case is not a shrubbery. It’s a type of “backup plan” if the initial plan fails. ”Hedging your bet” is trying to get insurance so to speak. A hedge fund, however, has a high barrier to entry (usually you need a million bucks) because it is an advanced, sophisticated, high-volume opportunity to invest.
Icarus Factor: Named for the main character in a Grecian myth who flew too close to the sun, “Icarus Factor” is when company management undertakes a very ambitious goal and then fails.
In the red: In finance, being the lady in red is a bad thing. It’s another way of saying “in debt”. It also refers to the color you’ll see on a stock-trading screen when the index has more losers than winners during a trading day. When a company is “in the red,” it’s in the pooper…when it’s “in the black” it’s cash-flow positive (usually what you hear around the holidays when retailers get a ton more business to push them into positive territory).
Initial public offering: An IPO is when a company sells stock to the public for the first time. It’s essentially the debutante ball for a company, where private companies let anyone buy into the company. The buzzy ones are more know consumer platforms (B-to-C, which is business to consumer) like Facebook, but all sorts of companies go public that you haven’t heard of (B-to-B, where businesses sell to other businesses. It’s also a time when founders make actual bank and not “paper money” or equity that hasn’t been liquidated.
IRA: Stands for Individual Retirement Account. You can put money in and it’s tax-deductible, but you will have to pay income tax on it when you make a withdrawal. It’s a more advantageous vehicle than a regular 401k. Just keep it real, though: this is not a given for you. Remember, during the financial crisis, a majority of Americans nearing retirement age had $30k in their accounts, which was a disaster. Not to be Debbie Downer, but that could happen again. Keep that in mind, especially in an aggressive stock-heavy plan.
January Effect: Most of us probably consider the “January Effect” as when we get serious about credit card and getting to the gym. But the stock market goes through a “January Effect” as well, during which time stock prices generally increase. This happens because investors start buying again in the New Year after selling securities in December for tax purposes.
Jobless recovery: It sounds like an oxymoron, and it kind of is. It’s when the economy is getting better after a recession, (like when people start buying new cars and homes) but the number of unemployed people is still high. It happens because some companies hold off on hiring new workers in the early stages of an improving economy in favor of remaining cautious and keeping spending at a minimum. It’s a big concern because the unemployment rate can be misleading – sometimes, the lower the percentage, the worse it is. That’s because the government has a wacky way of calculating the rate – if people drop out of the job pool, the rate gets lower, which can be a sign of an even more severe jobless recovery.
Joint account: If you’re looking to pool your finances with a significant other or business partner, a joint account is what you would need. You can get a joint checking or savings account through a bank, or a joint brokerage account through an investment company. It goes without saying that you should trust the person with whom you’re sharing a joint account, as you will both have access to it for deposits and withdrawals.
Key employee: A person in the company who holds the largest stake in terms of ownership or makes major business decisions. Key employees are usually very highly paid. In a small business, a CEO is considered to be a key employee and some companies will invest in key employee insurance in case something happened to that person. For example, say you and a business partner just started a new company, pooling your resources to get your idea off the ground. Both of you are “key” to the day to day operations of a company. If something happened to either one of you, the business may not be able to continue operating.
Key rate: It’s the rate that determines what banks charge on loans. We like low key rates when we’re borrowing money for investing in starting your own business or paying down your credit card. The catch is that we actually prefer high key rates when we’re being more responsible with our spending and putting our money in a savings account because that means you’ll get more interest on the money you put into the bank.
Knowledge capital: This is a way companies describe the value each individual employee brings to the table. For example, your own personal knowledge capital is made up of your experience, professional skills, knowledge of a particular industry or business practice, your ability to work with a team, and the non-tangible assets you provide to the company, to name a few. Businesses seek to build knowledge capital by hiring highly skilled employees to advance company objectives and goals.
Labor union: Sometimes you’ll hear about labor unions in the news, particularly unions involving transit workers, US automakers, and airlines. A labor union is an organization dedicated to the well being of workers and helps them in salary negotiations, hours worked and working conditions. Sometimes labor unions will organize strikes, where workers will refuse to work until their demands (for higher wages, better benefits, improved safety, etc) are met. For example, in July 2013, two of San Francisco’s BART (Bay Area Rapid Transit) workers unions went on strike after their efforts to reach a new contract agreement with management failed. The strike lasted through the Fourth of July holiday week, displacing more than 90l,000 one-way public transit riders.
Layoff: Unfortunate though it may be, it’s nothing personal. A layoff occurs when a company eliminates various positions irrespective of the employee’s performance. Sometimes companies have to execute a series of layoffs because of financial difficulties, the creation and implementation of a new strategy, or other reasons that may or may not be made known to you.
Loan-to-value ratio: When you are trying to take out a mortgage, this is a test to see if you are likely to be a good loanee. This is how the bank makes sure you’ll pay the loan back. The riskier you are deemed to be, the higher your rate is likely going to be.
M&A: Stands for mergers and acquisitions. A merger is like a marriage in the business world.. Sometimes two companies will merge to form one large company; it’s wanted by both parties, rarely arranged and mutually-beneficial. An acquisition can be friendly (when management approves) or hostile (when management can’t agree on a merger or takeover and things get ugly). There can also be divorces, like the high profile one of AOL and Time Warner.
Macroeconomics: The study of economics that focuses on the performance of the economy as a whole, from unemployment to GDP to inflation. This is not to be confused with microeconomics, which looks at individual households and companies. For example, macroeconomics looks at government spending decisions and trends, such as the national deficit, whereas microeconomics looks at individual household spending decisions and trends, such as whether people are spending or saving.
Money market fund: Sometimes called an MMDA (Money Market Deposit Account). These are similar to depositing your money so it’s not at home sitting in a safe and you have FDIC insurance, but with a money market fund you’ll earn more money on your deposits with higher interest rates (which these days is not much).
Mutual fund: Anyone can buy into a mutual fund. It has a low barrier to entry compared to a hedge fund It’s a basket of a bunch of different stocks, instead of just buying individual companies. It’s basically built in insurance for investing because it’s diversified so if one stock fails, you are (usually) propped up by another company in the fund to ideally keep you returns slow and steady.
NAHB/Wells Fargo Housing Market Index (HMI): An index that tracks monthly information produced by the National Association of Home Builders and focuses on the US housing market, specifically single-family homes. It gives us a glimpse into the health of the US housing market. As we learned from the bursting housing bubble and resulting recession, home sales play a vital role in the US economy. The NAHB/Wells Fargo Housing Market Index (HMI) asks NAHB members about housing market conditions for new home sales today and within the next six months, and also considers how many prospective buyers are on the market.
Nasdaq: It’s a stock exchange, like The Dow. But instead of having only 30 ginormous companies listed, the NASDAQ has a lot more companies, it is tech heavy and welcomes up-and-comers.
Nationalization: During the financial crisis of 2008, we heard the term “nationalization” being tossed around. Nationalization happens when the government takes over a company or an industry. For example, the US government took control of AIG in 2008 to stave off a complete collapse of the financial system. It was a bailout worth about $85 billion, and gave the federal government authority over the world’s largest insurer, essentially deeming the company “too big to fail” in terms of what the aftermath of its failure would do to the global economy. During that same period, the US government also took over mortgage-lending giants Fannie Mae and Freddie Mac.
Oil reserves: Sometimes when you hear news about oil prices you’ll hear about oil reserves. Oil reserves are essentially stores of crude oil located in various regions around the world. They are considered to be easily accessible resources, unless the country housing the reserve (or is a link in the reserve supply chain) is experiencing political unrest, which can lead to higher prices at the pump. More than 80% of known crude oil reserves are located in OPEC member countries. (Most OPEC reserves are located in the Middle East.) Sometimes you’ll hear news reports of the US Government tapping its “Strategic Petroleum Reserve” (an emergency supply) to ease high gas prices. Oil reserves also play a role in oil futures. For example, sometimes you’ll read headlines about crude oil futures falling. This can be a direct result of increased oil inventories when strategic reserves are released.
Old Lady: She’s also what the good people of the eighteenth century called the Bank of England (BoE) and the nickname stuck. It’s the central bank of the UK, so it sets rates for the country in the same way the Fed sets rates for the US.
OPEC: Acronym for Organization of the Petroleum Exporting Countries. OPEC was founded in Baghdad in 1960. It regulates oil production and therefore plays a role in managing oil prices. OPEC works with its member countries to maintain stability within the petroleum industry (good for any of us fueling our cars or flying cross-country).
Paid-in capital: When a company first goes public, and you buy common or preferred stock in this newly public company, the money that you’re putting into that company is known as “paid-in capital”. From a business perspective, paid-in capital is money raised by selling equity, or a stake in the company, and is not to be confused with money raised from ongoing operations, such as sales.
P/E ratio: Stands for price to equity ratio. It’s a way to measure stock value and is calculated by dividing the current stock price by earnings per share. The average P/E ratio is 15-25, historically. For example, look at a blue chip stock like Microsoft. Say it is earnings season and the stock closed today at $40 per share and posted earnings per share of $2.50. That gives us a P/E of 16.
P&L statement: P&L stands for profit and loss. We like the P but hate the L. It’s also called an “income statement”. Companies have P&Ls to show how much money they’ve made and how much money they’ve spent. Your online bank statement is like your very own P&L. Sometimes it can be very good or very bad. P.S. sometimes people will confuse the abbreviation and say “PNL” – that doesn’t exist, so don’t be that person.
QE2: In finance it’s not the “Queen Elizabeth 2”. It stands for “Quantitative Easing Two”, which is a fancy name for what the Federal Reserve (the central bank of the United States that dictates monetary policy) did to boost economic growth in 2010. It was a large stimulus for the country to try and get it back to the go-go days of the early part of this century. And, as the name suggests there was a first round of this “bond buyback” program that didn’t go as well as expected, so there was another one. (And could be potentially more.) The buyback concept is similar to the way public companies buy back some of their stock to increase the value of outstanding shares.
Quarterly earnings report: Publicly traded companies tend to release information about their performance on a periodic basis, sometimes quarterly. A quarterly earnings report discloses information about the company’s net income, earnings per share, net sales, and more. This information helps industry analysts and investors to better understand the overall health of a company. Quarterly reports tend to be issued at the beginning of January, April, July and October and reflect past financial information.
Quote: You’ll usually hear the word “quote” being used in reference to a “stock quote” or “quoted price”. Stocks and other securities that are traded on an exchange trade at different prices throughout the day. At any given point, the “stock quote” or “quoted price” is the most recent price at which a buyer and seller agreed to acquire and sell the asset.
Refinancing: The process of transferring debt from a high-rate loan to a lower-rate loan. It’s like switching from overpriced cable service to something more manageable if you have the opportunity to do so. You still have to pay but it’s not nearly as pricey. Not everyone can do it, though, You have to have had a good payment and credit history. Some big reasons for doing this is to have a little more cash readily available by reducing your monthly bills.
Roadshow: If you owned a company, and you decided you wanted to start selling shares of your company to the public, you would take your “show” on the road to try and “sell the sizzle” and look for money for the company. Typically, companies engage in road shows before an initial public offering or “IPO.” It helps to spread the word about your company and get investor support.
Roth IRA: Like a regular IRA, it stands for individual retirement account. The “Roth” part is one whose contributions are not tax deductible, but you can take the money out tax-free. Unlike the regular IRA, you don’t have an age cut-off you have to follow to stop investing and you don’t actually have to withdraw money like you have to do in a regular IRA. The catch is that if you are lucky to make $125k if you’re single an $183k if you’re married, it’s too much money to play the “Roth” game.
Sarbanes-Oxley: Also known as “SOX” but has nothing to do with baseball or a black cat with white feet, the Sarbanes-Oxley Act of 2002 was named for two lawmakers who aimed to create new standards for boards, management, and accounting firms of public companies. The regulations are like “checks and balances” over companies the public can invest in. They are supposed to have your back if you’re an investor.
SEC: Stands for the Securities and Exchange Commission. It is a federal government organization that are supposed to be the good guys. Their sole purpose is to “protect investors” from the bad guys. They put in regulations for “securities” markets or anything stock related. Investors feel like the SEC has their back while companies often think they are a thorn in their side.
Seed money: AKA “seed funding” or the money to help you get your small business off the ground. You’d likely get your seed money from friends and family who believe in you and your dream. If you’re not lucky enough to have a supportive community around you, you’ll likely turn to your savings or your credit cards for money to make your company grow, baby, grow.
Short: In financial markets, “short” has nothing to do with height. You’re basically trying to make money off of something that you think won’t do well. It’s the opposite of “going long” or just buying a stock outright which is a vote of confidence in that company. It’s a more advanced trade because there is way more risk. If you buy the company outright, the most you can lose is 100% of the value. If you short it and it goes up more than 100% you can lose a ton of money so be careful and sure that you think it’s going to go way down because you make the difference if you are right. You lose the difference if you are wrong.
Stock index fund: Instead of buying an individual stock on public exchanges, you are buying the whole shabang. So when you hear commentators say “The S&P is up”/”The S&P is down” and you are invested in the S&P index fund than you’re down for the day.
Sweat equity: It’s the best advice in business: outwork everyone. It’s how much you and only you invest in your company by working at it, not just taking cash from the outside and looking pretty. It’s said that your “sweat equity” will pay off most in the long run. It’s kinda like, if you own a home, and you decide to go all Home Depot and redo your kitchen yourself before selling the house for a profit, you’ve added value by working at it.
Takeover: When one company buys another. Takeovers can be friendly or they can be hostile. They are part of the M&A family. But while mergers and acquisitions are usually beneficial to both companies and endorsed by the management and board of directors, takeovers are not so much.
Tangible assets: When a business refers to a tangible asset, they’re describing a physical object, such as machinery, the property owned by the company, from buildings to land, and inventory. On the other hand, an intangible asset also brings value, but is a non-physical asset, such as a trademark or patent or recognizable brand. For example, Coca Cola’s tangible assets include its inventor inventory, such as bottled beverages that will eventually be sold in stores. Coca Cola’s intangible assets include its globally-known brand as a soft drink company and its patented secret recipe for its signature soft drink.
Tax exempt: Sometimes the US government will give a company “tax exempt” status, meaning that they are not subject to any tax from the government or regulator. Usually religious organizations, educational institutions, social clubs and public charities are tax exempt and as such must adhere to certain rules.
Unbanked: Anyone who doesn’t use any banking services or financial institutions are considered “unbanked”. This is a slang term referring to those who pay for things using cash or money orders. It is estimated that 33% of the US population is unbanked, meaning that 1/3 of the country doesn’t use banking products like checks, debit cards, credit cards or investment vehicles.
Underwriter: You’ll tend to hear this term being used in the context of a “securities underwriter”, which describes a person who helps distribute securities or benefits from a corporation to an individual or another company. The underwriter is a mediator of sorts, working with the issuing corporation to value the securities being issued, then buying them from the issuer and selling them to investors. (They usually earn fees and profits for doing this.)
U-shaped recovery: A U-shaped recovery refers to a chart tracking economic activity such as employment and factory production…and, duh, it looks like a U where it starts up, goes down and then back up. The economy goes down, stays down for a little while, and then goes back up, like a U. There’s also a V-shaped recovery, but the reference to the alphabet stops there.
Valuation: A valuation measures how much something is worth, now or in the future, in terms of assets or liabilities. It’s like reevaluating a relationship. Is there more good than bad? Is it worth sticking it out or is it time to cut bait?
Value fund: Sometimes when you’re looking at investment options, whether in your 401(k) or for your own personal brokerage account, you’ll see “value fund” in the name of listed investments. A value fund is a type of mutual fund that is made up of stocks that the portfolio manager of the fund deems to be “undervalued” — meaning that they’re a good buy in terms of what they’re priced at and what they’re inherently worth. Undervalued stocks also tend to pay dividends, which is always helpful in terms of growing your investments.
Variable annuity: This is a type of insurance product generally sold to those who are preparing for retirement or are in retirement. An investor buys an annuity at a set price and then holds it without taking payments during a period known as the “accumulation stage”. After the accumulation stage, the holder of the variable annuity is able to take minimum payments, which is why it’s often used for those seeking retirement income. The size and scope of these payments depend on the performance of the portfolio in which the variable annuity is invested.
Venture capital: This comes after seed money. And if you need it, itʼs not “selling out” but you are relinquishing control of your idea to take money from a Venture Capitalist or a Venture Capital firm. The VC will give you the money you need if they think you have potential (i.e. ability to make them money).
W-2: This is a tax form generated by an employer that is sent to an employee and the IRS at the end of the year. When tax season rolls around, the employee must specify their annual wages as listed on their W-2 along with the amount of any taxes withheld from their paycheck. This helps the IRS determined if and how much money you’re owed for your tax refund. It’s important that you look out for this at year end, because you’ll need it for tax time!
Warren Buffett: As the Chairman of Berkshire Hathaway, Buffett is arguably one of the greatest investors of all time. His nickname, “Oracle of Omaha” speaks to his ability to pick great value investments, whether choosing stocks or buying companies, from his home in middle America. He’s also one of the richest men in the world.
White knight: A white knight is a “friendly investor” that buys a company when it is currently the target of a hostile takeover (sometimes referred to as a “black night”). It’s like when you’re stuck talking to the most boring person at a party and your best friend reads your body language and immediately swoops in with a fake emergency. White Knights are usually preferable to the management and board of the target company and normally the White Knight doesn’t clean house when they come into the company.
X: Mutual funds all have ticker symbols that end with X. That way you can distinguish them from other stocks. It’s good for them because they have more options of tickers – lots get snatched up by companies and you can’t have 2 of the same! P.S. Dow stocks have 3 or less letters in their ticker and Nasdaq stocks have 4 letters.
Xetra: No it’s not a typo. Remember how we told you about the importance of the DAX because it’s based in Germany and as goes Germany so go the markets? Xetra is an all-electronic trading system also based in Germany, Frankfurt specifically, and is used by stock exchanges throughout Europe. It helps traders, analysts and investors to take a closer look at the trading volume and activities across markets. Stocks, funds, bonds, warrants and commodities contracts are traded through this system, and it handles more than 90% of all stock trades on the Frankfurt exchange.
XD: Stands for “ex-dividend” or without a dividend. When companies pay out a dividend to stockholders, sometimes that stockholder will turn around and sell their shares. When this happens, the current owner will sell the stock “ex-dividend” because it has already been paid out and the next owner will not receive the dividend. When this happens, you’ll see the symbol XD and usually the stock price will be lower.
Yankee bond: It sounds like something out of a song from childhood, but it’s actually a bond that is supplied by foreign corporations or banks and sold in the United States in US dollar denominations. A foreign corporation or bank would register their offering with the Securities and Exchange Commission and sell Yankee bonds to raise capital. Usually these foreign entities will Yankee bonds when interest rates in the US are low; this way they can make lower interest payments.
Yield: The return on an investment or ROI on an investment you are making, as in interest or dividends. It’s how much you are getting for the year. So if you have a bond with a yield of 5% then you get 5% more on top of you investment at the end of the year. If you have a $100 bond with 5% yield, you’ll have $105 at the end of the year.
Yield-to-Maturity (YTM): When you buy a bond, you’ll notice it has something called “YTM”, “yield” or “yield-to-maturity” which tells you the rate of return you will receive if you hold the bond until maturity. Typically the rate of return is annual. When calculating the YTM of a bond, an investor factors in the current market price of that bond, its par value, its coupon interest rate and how many years or months it has until it matures.
Zero-dividend preferred stock: typically when companies sell common stock to the public, they will sometimes have what’s known as preferred stock. People who hold preferred stock are paid out before common stockholders in the event that a company is liquidated. If a company is going to issue a dividend, they must pay the preferred shareholders their stated dividend as well as pay out dividends to common stockholders. A person who holds a zero-dividend preferred stock won’t necessarily receive a dividend. Instead, they might earn income from capital appreciation within the company and instead of getting a dividend they’ll get a one-time payment. Zero-dividend preferred stock is also known as “capital shares”.
Zero-sum game: In finance, this is similar to how you would use this colloquially. If someone makes money on someone else’s loss, then there is really no money being made, just transferred. However, there is value in even zero-sum games of investing because the mere competition between companies is stimulating the economy.
Zombie bank: Nothing to do with vampires. It’s a side-effect of the financial crisis where banks that were actually broke or out of cash were bankrolled by the government to keep going. Just like the other kind of zombies, there is a mystery behind them. Their future is precarious. The term was used a lot in the 1980s during the savings and loan crisis and again during the most recent financial catastrophe. What’s weird is that people actually flock to them, which is called a “bank run,” essentially banking on the bailout.