The exchange of an annuity owner's assets from one insurance company to another without incurring current income taxes. To qualify, the annuity must be funded with after-tax contributions. The transaction is named after the applicable section of the Internal Revenue Code.
A type of employer-sponsored retirement plan that allows employees to contribute pre-tax dollars by deferring salary. Many plans offer a variety of investment options, and employers often match a percentage of employee contributions.
A retirement savings plan that allows pre-tax contributions, much like 401(k) plans, except 403(b) plans are generally offered by public education institutions and certain tax-exempt organizations.
A state-sponsored investment plan that lets families save for future education costs and withdraw investment earnings federally tax-free when used to pay qualified expenses including qualified higher education expenses, tuition, room and board, and supplies. Families can also use 529 assets for K–12 tuition of up to $10,000 per student per year for enrollment or attendance at a public, private, or religious school.
A type of mutual fund or ETF (exchange-traded fund) that seeks to outperform the return of a particular market index (for example, the S&P 500 Index) by buying and selling securities in a way that will maximize gains, based on a combination of in-depth research, market forecasting, experience, and expertise.
A fund that seeks to outperform the returns of a particular market index (sometimes referred to as a "benchmark"). Active managers rely on research, market forecasts, and their own judgment and experience in selecting securities to buy and sell.
The amount on which someone pays income tax. It's calculated by subtracting authorized deductions from gross income.
An aggressive portfolio is subject to a relatively high level of investment risk. Because risk and reward are related, an aggressive investor can also expect returns that are, on average and over time, higher than those of someone with a moderate or conservative portfolio.
A federal income tax calculated separately from the regular federal income tax. It is designed to prevent taxpayers—particularly those with high incomes—from using certain deductions and credits (called tax-preference items) to pay little or no taxes.
A receipt that represents a specific number of shares of a foreign-based corporation held by a U.S. bank and entitles the holder to all dividends and capital gains. Through ADRs, U.S. investors can buy shares of foreign-based companies in the United States instead of in foreign markets.
A financial product typically used by investors to save tax-deferred for retirement or to generate regular income payments in retirement.
The price at which someone is willing to sell a particular security.
The way your account is divided among different asset classes, including stock, bond, and short-term or "cash" investments. Also known as "asset mix."
General categories of investments. The three major asset classes are cash investments, bonds, and stocks.
Asset location refers to the way in which assets are divided between taxable accounts and tax-advantaged accounts to optimize a portfolio's after-tax returns.
The way an investment portfolio is divided among various asset classes, such as cash investments, bonds, and stocks. Also known as investment mix.
Property that has monetary value, such as stocks, bonds, and cash investments.
A sales fee charged by some mutual funds when an investor redeems fund shares. It is also called a contingent deferred sales charge (CDSC). These fees typically decline over time, eventually disappearing if an investor holds the shares long enough. Because the fee is subtracted from the sale proceeds, a back-end load directly reduces the amount an investor receives from selling shares. Back-end loads are often associated with Class B shares.
The Cash Plus bank sweep program automatically moves (or "sweeps") money into and out of the account. It sweeps eligible balances to one or more program banks where they earn the annual percentage yield (APY, which can vary and may change at any time) and are eligible for FDIC coverage, subject to applicable limits. The bank sweep balance is also used to pay for investments in the eligible money market funds that can be held in the account and receives the proceeds from sales of such investments.
A bond investing strategy where an investor holds about half of his or her portfolio in long-term bonds and the other half in extremely short-term bonds, in an effort to increase risk-adjusted returns.
The person or entity designated to receive the proceeds of a pension, investment account, annuity contract, or insurance policy in the event of the owner's death. For 529 college savings accounts, the beneficiary is the student whose education expenses will be paid with the money from that account.
The price that someone is willing to pay for a particular security.
The bid/ask spread refers to the difference between the highest buyer's price (best bid) and the lowest seller's price (best ask).
A debt security (IOU) issued by a corporation, government, or government agency in exchange for the money the bondholder lends it. In most instances, the issuer agrees to pay back the loan by a specific date and make regular interest payments until that date.
A request from a bond's issuer to change the terms of the bond agreement with the bond holders.
An offer to buy back a bond. The offer may have a set price that’s determined by the company or based on a specific reference yield calculation.
A licensed individual or firm that executes orders to buy or sell mutual funds or other securities for the public and usually gets a commission for doing so.
A standard taxable investment account you can use to buy and sell investments like stocks, bonds, mutual funds, and ETFs. You can add or withdraw money at any time without early withdrawal penalties. A brokerage account can be used for online trading.
To buy a security using money borrowed from a broker. If the price of the security rises before you sell it, you keep all the gains after repaying the loan (and interest). However, if the price of the security drops substantially, you could lose more than your initial investment.
A security that allows the issuer to repurchase or redeem it prior to its maturity date.
The right to either buy (call option) a specific security at an agreed-upon price or sell (put option) a specific security at an agreed-upon price sometime in the future.
The difference between the sale price of an asset — such as a mutual fund, stock, or bond — and the original cost of the asset.
When investors sell securities—such as mutual funds or stocks—at a profit, they must pay taxes on those gains.
A determination of a company's value, calculated by multiplying the total number of company stock shares outstanding by the price per share. Also called market capitalization.
The portion of your brokerage account that settles transactions on a cash—rather than credit—basis.
Very short-term investments—such as money market instruments, CDs (certificates of deposit), and Treasury bills—that mature in less than one year. Also known as cash reserves.
An additional amount that taxpayers age 50 or older can invest for retirement on a tax-deferred basis.
An insured, interest-bearing deposit at a bank that requires the depositor to keep the money invested for a specific period of time. CDs can be traded on the secondary market.
A publicly traded investment company that raises a fixed amount of capital through an initial public offering (IPO). The fund is then structured, listed, and traded like a stock on a stock exchange.
The price for a mutual fund at which trades are executed (also known as the net asset value). It's calculated at the end of each business day.
A security that represents ownership in a corporation. Holders exercise control by electing a board of directors and voting on corporate policy. In the event of a company's liquidation, common stockholders have lowest priority and receive assets only after bondholders, preferred stockholders, and other debt holders have been paid in full.
The accrual of interest earned on an investment and its reinvested earnings.
A conservative portfolio is relatively safe from investment risk (although there's no guarantee it won't lose money). Because risk and reward are related, a conservative investor can also expect returns that are, on average and over time, lower than those of someone with a moderate or aggressive portfolio.
A measure of the overall cost of goods and services purchased by consumers, and is used to track inflation rates.
Money placed in an individual retirement account (IRA), an employer-sponsored retirement plan, or other retirement plan for a particular tax year. Contributions may be deductible or nondeductible, depending on the type of account.
The amount that an insured person pays for covered medical services (such as doctor's office visits), supplies, or prescription drugs.
The original cost of an investment (adjusted for commissions or capital distributions). For tax purposes, the cost basis is subtracted from the investment's value at the time of sale, minus fees and commissions, to determine capital gains or losses.
Shares bought and sold after the regulatory changes took effect on January 1, 2012 (or January 1, 2011, for stocks).
Cost basis reporting for covered shares will be sent to both you and the IRS.
A measure of a bond issuer's ability to repay interest and principal in a timely manner.
A unique 9-character code for each security approved for trading in the United States. It's supplied by the Committee on Uniform Securities Identification Procedures.
The amount that an insured person pays out-of-pocket for health care or prescriptions before insurance begins to pay.
The strategy of investing in different asset classes and among the securities of many issuers in an attempt to lower overall investment risk.
The distribution of the interest or income produced by a mutual fund's holdings to the fund's shareholders, or a payment of cash or stock from a company's earnings to each stockholder. Dividends can be distributed monthly, quarterly, semiannually, or annually.
The automatic reinvestment of shareholder dividends into more shares of the company's stock.
Benefits paid to the divorced spouse of an eligible worker to whom the spouse was married for at least 10 years.
A way to invest by buying a fixed dollar amount of a particular investment on a regular schedule, regardless of the share price. You seek to purchase more shares when prices are low and fewer shares when prices rise, to avoid the risk of investing a lump-sum amount when prices are at their peak.
Revenue for a specified period of time, after related costs and expenses have been deducted.
The history of your earnings for the years you worked.
A retirement plan offered by an employer for its employees. Defined benefit plans (also known as pension plans) promise monthly benefits at retirement. Defined contribution plans (401(k)s and Roth 401(k)s) feature regular contributions by the employer and the employee.
In a margin account, the value of your securities minus the amount you've borrowed from your brokerage firm.
An offer to buy all or some of the shareholder’s stock positions. The offer price may be payable in cash, stock, or a combination of both.
An investing approach that focuses on environmental, social, and governance factors when choosing investments. It’s often called sustainable or socially responsible investing (SRI).
All of a decedent's liabilities and assets, including property (real and personal).
The preparation of a plan to carry out someone's wishes as to the administration and disposition of their property before or after their death.
An investment with characteristics of both mutual funds and individual stocks. Many ETFs track an index, a commodity, or a basket of assets. Unlike mutual funds, ETFs can be traded throughout the day. ETFs often have lower expense ratios but must be purchased and sold through a broker, which means you may incur commissions.
A type of investment with characteristics of both mutual funds and individual stocks. ETFs are professionally managed and typically diversified, like mutual funds, but they can be bought and sold at any point during the trading day using straightforward or sophisticated strategies.
Exchange activity is considered excessive when:
Exchange activity into and out of funds without a suggested holding period is assessed on a case-by-case basis.
A marketplace in which investments are traded. The exchange ensures fair and orderly trading and publishes price information for securities trading on that exchange.
The date when a company deducts the distribution of dividends and/or capital gains from the share price of a mutual fund or stock, and the security begins trading without the distribution. The share price drops by the amount of the distribution (plus or minus any market activity).
To act on the right established by an options contract. Contracts that aren't exercised will expire unused.
What it costs a mutual fund company to run a fund. The expense ratio is calculated annually and includes management fees, administrative fees, and any marketing and distribution fees. It doesn't include loads or purchase or redemption fees, if any.
A bond's value at maturity. Also called par value.
The price an asset would sell for if the buyer and the seller were equally interested.
Federal Deposit Insurance Corporation (FDIC) insurance is a U.S. government-backed program that safeguards money in deposit accounts at banks. The FDIC insurance limit is $250,000 per depositor, per insured bank, per ownership category. That means that money in different ownership categories, like an individual account and joint account at the same FDIC-insured bank, are separately insured up to at least $250,000.
The governing board of the Federal Reserve System that is responsible for setting bank reserve requirements, the discount rate, credit availability, and monetary policies.
The largest nongovernmental regulator for all securities firms doing business in the United States. FINRA was created in 2007 through the consolidation of the National Association of Securities Dealers and the New York Stock Exchange's member regulation unit.
Partial shares held by an investor. For mutual funds, fractional shares result when the total amount invested is not evenly divisible by the share price amount. For stocks, fractional shares can result through stock splits, dividend reinvestment plans (DRIPs), or similar corporate actions.
Buying and selling securities in a cash account without covering the initial purchase.
A sales fee that's charged when you buy fund shares. Fees can be as high as 8.5% of your purchase amount—which would reduce a $100,000 investment to $91,500.
The age at which you're eligible for your full monthly benefits, also known as the primary insurance amount (PIA). The Social Security Administration sometimes refers to full retirement age as "normal retirement age" (NRA).
Quantitative data about a company, like its price/earnings ratio, balance sheet, and cash flow.
The amount of money available to purchase securities in your brokerage account. It includes your settlement fund balance, pending credits or debits, and margin cash available (if approved for margin).
The figure is adjusted for open orders to purchase stocks or ETFs at the market or to purchase Vanguard mutual funds or mutual funds from other companies. Money recently added to your account by check or electronic bank transfer may not be available to purchase certain securities or to withdraw from the account.
The money available to withdraw from your settlement fund, such as by transferring to your bank account or to another Vanguard account. It consists of the settlement fund balance and settled credits or debits.
The figure is adjusted for open orders to purchase stocks or ETFs at the market or to purchase Vanguard mutual funds or mutual funds from other companies. Money recently added to your account by check or electronic bank transfer may not be available to withdraw from the account.
A money market fund's ability to temporarily suspend withdrawals during periods of financial instability for up to 10 business days in a 90-day period if weekly liquid assets drop below 30%.
A provision that reduces and may eliminate the amount of spousal and survivors benefits paid to someone who's eligible for a pension from work not covered by Social Security taxes.
A mutual fund that focuses on stocks from companies that are expected to experience higher-than-average profitable growth because of their strong earnings and revenue potential.
Growth stocks typically produce lower dividend yields because they prefer to reinvest those earnings into research and development to help grow these companies and increase their profitability.
A bond that is usually rated lower than BBB/Baa and considered speculative compared to an investment grade bond. Also called a junk bond.
The interest and dividends generated by an investment.
An unmanaged group of securities whose overall performance is used as a benchmark. An index may be broad or focus on one sector or type of security.
A type of mutual fund that seeks to track the performance of a particular market index by buying and holding all or a representative sample of the securities in the index, in the same proportions as their weightings in the index.
A general rise in the prices of goods and services.
Refers to the amount of money that has been adjusted to account for changes in the CPI and maintain its purchasing power.
A type of fixed income investment that pays a rate of interest that increases and decreases based on the rate of inflation.
A corporation's first offering of common stock to the public.
When investments are transferred from one financial provider to another "as is." There's no selling or buying involved and no tax consequences.
The amount or rate charged when money is borrowed. For example, when you invest in bonds, you receive interest payments from the bond's issuer.
The amount or rate you pay when you borrow money.
A bond with a maturity of 1 to 10 years.
A mutual fund or ETF that invests in companies outside an investor's home country. For U.S. investors, this means access to non-U.S. markets and securities. International funds are one way to diversify a portfolio.
Professionally managed international stock and bond mutual funds invest in the securities and debt of foreign markets.
An asset (like a stock or bond) purchased in the hope that it will increase in price or pay income.
A bond whose credit quality is considered to be among the highest by independent bond-rating agencies.
A type of retirement savings account. Two popular types of IRAs are the traditional IRA and Roth IRA. You may contribute to these IRAs only if you (or your spouse) have earned income. The main advantage of a traditional IRA is the opportunity to contribute pre-tax dollars. Roth IRAs are popular because, while contributions consist of after-tax dollars, the earnings on the account are tax-free, and you're not required to distribute the assets during your lifetime. For both IRAs, distributions of untaxed assets (contributions and earnings for a traditional IRA; earnings for a Roth IRA) before age 59½ are generally subject to a 10% penalty tax.
An account with two or more owners.
A tool in the management of a bond portfolio that can be used to increase rewards or reduce risks by purchasing a number of bonds and structuring their maturities over time so that they mature at different dates. For example, buying 5-, 10-, 15-, and 20-year maturity bonds of equal value would be a bond ladder.
Outstanding debt.
An order to buy or sell a security at a specified price (limit price) or better. The execution is not guaranteed.
The degree of a security's marketability; that is, how quickly the security can be sold at a fair price and converted to cash.
A fee (up to 2%) that may be charged by a money market fund when you sell fund shares. The fee is imposed at the discretion of the fund's board if weekly liquid assets drop below 30%. The fee is intended to help the stability of the fund during times of extreme market duress.
A sales fee charged on the purchase or sale of some mutual fund shares. The load may be called a charge or commission. The fee may be a one-time charge at the time the investor buys the fund shares (front-end load) or sells the fund shares (back-end load).
A bond with a maturity ranging from 10 to 30 years.
Shares acquired in one transaction. You can own multiple lots of an investment if you acquired shares of the same security at different times.
A security that meets the Federal Reserve requirements for being bought and sold in a margin account.
A brokerage account that allows you to borrow a percentage of a security's value from the broker to purchase that security. If the value of the stock drops substantially, you're required to deposit more cash in the account or sell a portion of the stock.
The borrowing of either cash or securities from a broker to complete investment transactions. You're usually required to come up with just a percentage of the amount needed, while paying interest to finance the rest based on an approved line of credit.
The trading of a universe of investments, based on factors like supply and demand. For example, the "stock market" refers to the trading of stocks.
An unmanaged group of bonds or stocks whose overall performance is used as a standard to measure investment performance.
A point where an order to buy or sell a security is filled, such as a stock exchange or an electronic system.
A broad category of the economy that groups businesses with specific characteristics in common. All publicly traded companies are put into one of 11 market sectors (such as Health Care, Energy, and Technology), which enables more accurate comparisons of companies and funds.
An investment strategy based on predicting market trends. The goal is to anticipate trends, buying before the market goes up and selling before the market goes down.
The date when the issuer of a money market instrument or bond agrees to repay the principal, or face value, to the buyer.
The date when the issuer of a money market instrument or bond agrees to repay the principal, or face value, to the buyer.
Health insurance that covers inpatient hospital care, care in skilled nursing facilities, hospice care, and some home health care.
Health insurance that offers prescription drug coverage.
The original Medicare health insurance program. Part A covers inpatient hospital care, care in skilled nursing facilities, hospice care, and some home health care. Part B covers doctors' office visits, lab work, X-rays, some medical supplies, and preventive services.
Supplemental insurance offered by private insurance companies that fills gaps in Medicare coverage, including co-pays, deductibles, and health care provided outside the United States.
The stock of companies whose market value is $2.1 billion to $15.6 billion.
The minimum amount of money you need to begin investing in a specific mutual fund.
A moderate investment is neither very aggressive nor very conservative. Because risk and reward are related, a moderate investor can expect returns that are, on average, neither very high nor very low.
An amount that is used for determining a taxpayer's IRA eligibility; it is generally the taxpayer's adjusted gross income (shown on IRS Form 1040 or 1040A) calculated without any IRA deduction, foreign earned income exclusion, foreign housing exclusion, student loan interest deduction, exclusion of qualified savings bond interest from Form 8815, exclusion of employer-paid adoption expenses from Form 8839, or deduction for qualified tuition and related expenses. Please note that MAGI for IRA conversion purposes will also exclude any current year conversion amounts to determine eligibility. IRS Publication 590 should be used to assist with IRA calculations pertaining to various definitions of MAGI.
A mutual fund that seeks income, liquidity, and a stable share price by investing in very short-term investments. Money market funds are suitable for the cash reserves portion of a portfolio, or for holding funds you'll need soon.
A type of investment that pools shareholder money and invests it in a variety of securities. Each investor owns shares of the fund and can buy or sell these shares at any time. Mutual funds are typically more diversified, low-cost, and convenient than investing in individual securities, and they're professionally managed.
A computerized system that provides up-to-the-minute price quotations for securities traded over-the-counter as well as for many securities listed on the New York Stock Exchange.
A Securities and Exchange Commission requirement that brokers execute clients' trades at the best available ask price when buying securities and the best available bid price when selling securities.
A system that facilitates trades of over-the-counter stocks meeting specific criteria and requires all exchanges to post prices simultaneously. It is sponsored by FINRA (Financial Industry Regulatory Authority) and Nasdaq (National Association of Securities Dealers Automated Quotations).
A situation where the interest rate on a financial instrument, such as a bond, is lower than the prevailing market rate. This results in the investor receiving less interest income than they could have earned by investing in a similar instrument with a higher rate.
The market value of a mutual fund's total assets, minus liabilities, divided by the number of shares outstanding. The value of a single share is called its share value or share price.
A fund that charges no sales fees either on the front end (when you buy fund shares) or back end (when you sell fund shares).
Government and state employees (including employees of some school districts) are eligible for a noncovered pension for which Social Security taxes weren't withheld or paid on earnings.
Shares bought before the regulatory changes took effect on January 1, 2012 (or January 1, 2011, for stocks).
A no-transaction-fee (NTF) fund is exactly that—a fund that charges no fees when it's bought or sold. Vanguard Brokerage, however, imposes an NTF redemption fee on shares held less than a specified period. For more information, see the Vanguard Brokerage Services® commission and fee schedules.
The NTF redemption fee is in addition to any short-term redemption fees charged by the fund family. View a fund's prospectus for information on redemption fees.
An offer by a company to purchase shares of its stock from investors who hold less than 100 shares.
An order to buy or sell a stock that hasn't yet been executed or canceled.
A type of investment that gives you the right to either buy or sell a specified security for a specific price on or before the option's expiration date.
Also known as the marginal tax rate, the income tax rate at which the last dollar of an individual's income is taxed. Under federal law, the individual pays a lower tax rate on his or her first dollar of income than on his or her last dollar. The marginal rate—the highest rate at which the individual's income is taxed—is used to calculate taxes due on investment income.
Stock currently held by investors, including restricted shares owned by the company's officers and insiders as well as those held by the public.
Securities that aren't listed and traded on an organized exchange. Many OTC stocks are traded through the OTC Bulletin Board (OTCBB) or Pink Sheets.
An arrangement under which an employer—and sometimes the employee—makes payments toward retirement, disability, or death benefits for employees who meet certain criteria. Types of pension plans include defined benefit plans, defined contribution plans, employee stock ownership plans, money purchase plans, profit-sharing plans, stock bonus plans, thrift plans, and target benefit plans.
The measure of how much an investment has paid off, also known as return.
A method for distributing the assets of an individual who dies without a valid will.
Someone who contributes to and/or receives benefits from a pension plan or qualified account, such as a 401k or HSA.
All the securities held by a mutual fund or the total investment holdings of an individual or an institution.
A security that takes precedence over common stock when a company pays dividends or liquidates assets. Preferred securities do not usually carry voting rights.
A payment made for insurance that's deducted from your paycheck if you have insurance through an employer or that you pay directly to an insurance company if you're buying insurance on your own.
An addition to an account made with money from an employee's paycheck or employer before federal income taxes are deducted.
The opportunity for an order to be executed at a better price than the prevailing national best bid and offer—better than the best bid for sell orders and better than the best offer for buy orders.
Also known as the full monthly benefit amount, the Social Security benefits you'll receive if you start collecting at your full retirement age (FRA). The benefits are based on your historical earnings.
The market for newly issued securities, where sales proceeds go to the issuer of the securities. After bonds are traded there, they are traded on the secondary market.
The amount of money originally put into an investment.
A court procedure that validates, or invalidates, a will and legally settles the decedent’s estate. During probate, the executor or administrator of the estate collects the estate’s assets, liquidates liabilities, pays necessary taxes, and distributes property to heirs.
The level of income used to determine whether someone is liable for income tax on his or her Social Security benefits and how much is subject to tax.
Some funds charge a fee when you buy shares to offset the cost of certain securities. Some funds charge a fee when you sell fund shares, or when you buy or sell shares within a specific time period. These restrictions are an effort to discourage short-term trading.
The profit you get from investing money. Over time, this profit is based mainly on the amount of risk associated with the investment. So, for example, less-risky investments like certificates of deposit (CDs) or savings accounts generally earn a low rate of return, and higher-risk investments like stocks generally earn a higher rate of return.
Capital gains that are now taxable because the investment has been sold at a higher purchase price than what was originally paid.
To move money in your account so that your overall portfolio aligns with the asset mix you selected, usually after market movements have caused it to change.
The date set by a company to determine the shareholders who will receive the next distribution of dividends or capital gains of the company's security.
Regular trading hours on the New York Stock Exchange (NYSE) and most exchanges are Monday through Friday, 9:30 a.m. to 4 p.m., Eastern time. (The exchanges close early before some holidays.)
After regular hours end, an extended-hour session (4:15 p.m. to 6:30 p.m., Eastern time) is available to place limit orders. An order placed during the extended session is automatically canceled at the end of the session if it doesn't execute.
The possibility that reinvested dividends or interest from a particular investment will earn less than the original investment because of falling rates.
Under federal tax law, most owners of IRAs (except Roth IRAs) and employer-sponsored retirement plan accounts must withdraw part of their tax-deferred savings each year, starting at age 70½ (or after inheriting an account). If you withdraw less than the required minimum distribution, you may owe a 50% penalty tax on the difference.
When a worker is eligible for both his or her own benefits and spousal benefits at full retirement age (FRA), the worker can file a restricted application for spousal benefits only, meaning the worker's own benefits will accrue delayed retirement credits. The Bipartisan Budget Act of 2015 limits use of restricted application to claimants who turned 62 by the end of 2015.
The gain or loss on an investment. A positive return indicates a gain, and a negative return indicates a loss.
The profit you get from investing money. Over time, this profit is based mainly on the amount of risk associated with the investment. So, for example, less-risky investments like certificates of deposit (CDs) or savings accounts generally earn a low rate of return, and higher-risk investments like stocks generally earn a higher rate of return.
An offer given to current shareholders allowing the purchase of additional shares or securities before it's offered to the public. This allows existing shareholders to retain a proportional interest in the company.
The potential to lose money (principal and any earnings) or not to make money on an investment.
The movement of money from a traditional IRA or 401(k) to a Roth IRA, essentially changing tax-deferred assets into tax-free assets. When you convert assets, you'll pay income taxes on the amount you convert. After the conversion, withdrawals from the Roth IRA will be tax-free as long as you meet the requirements.
A type of IRA that lets an investor save up to a certain amount of after-tax dollars each year. The earnings in the account grow tax-free, and distributions taken after age 59½ (if the account has been open at least 5 years) are exempt from taxes.
A feature of retirement accounts like Roth 403(b)s and Roth 401(k)s that allow you to make after-tax contributions (so you don't get an immediate tax deduction) and then withdraw money in retirement tax-free as long as you meet the requirements.
A market where investors purchase securities or assets from other investors, rather than from the issuing companies. The national exchanges, such as the New York Stock Exchange and Nasdaq, are secondary markets.
A group of stocks, often related to a particular industry, that have certain shared characteristics.
Stocks, bonds, money market instruments, and other investment vehicles.
The agency of the federal government that regulates mutual funds, registered investment advisers, the stock and bond markets, and broker-dealers. The SEC was established by the Securities Exchange Act of 1934.
SIPC insurance is a form of protection provided by the Securities Investor Protection Corporation (SIPC) to customers of brokerage firms. It helps protect investors against the loss of cash and securities, such as stocks and bonds, held by a member firm if the firm fails due to bankruptcy or other financial difficulties. SIPC coverage ensures that eligible customer assets are returned up to $500,000 per account, including a $250,000 limit for cash.
To sell shares of a security that the seller doesn't own — in other words, to complete a sale by delivering shares borrowed by or for the seller. Such sales are made in anticipation of a decline in the price of the security, which enables the seller to cover the sale with a future purchase at a lower price and therefore a profit.
The amount of money in an account calculated by subtracting your debits from the sum of: the opening balance in your settlement fund; proceeds from securities sales settling on that day; cash from securities, such as bonds and CDs (certificates of deposit) that are maturing on that day; and capital gains, dividends, and interest received.
The date by which a broker must receive either cash or securities to satisfy the terms of a security transaction.
This holds the money you use to buy securities, as well as the proceeds whenever you sell.
A single unit of ownership in a mutual fund or an exchange-traded fund (ETF) or, for stocks, a corporation.
A bond with a maturity of less than 1 year.
Interest calculated on the original principal amount.
The stocks of companies whose market value is less than $2.1 billion.
A special purpose acquisition company (SPAC) is formed to raise money through an IPO (initial public offering) to buy or merge into another company. A SPAC has 2 years to complete the acquisition or return the funds to its shareholders.
Benefits paid to the spouse of an eligible worker. You generally must be at least age 62 to claim spousal benefits.
A security that represents part ownership, or equity, in a corporation. Each share of stock is a proportional stake in the corporation's assets and profits, some of which could be paid out as dividends.
An increase in the number of a corporation's outstanding shares, often initiated to make shares affordable to more investors. The stock price per share will decrease; however, the proportionate equity in the company will remain the same. For example, ABC Company has 10 million shares outstanding, selling at $9 per share. ABC declares a 3-for-1 split. The company now has 30 million shares outstanding, selling at $3 per share. No monetary gain or loss results from a stock split.
A brokerage term for securities held in the name of the broker, rather than in the name of the person who purchased them. This is a routine practice that allows trading to take place in a matter of minutes. Traditionally when you hold securities in your name, you have to keep them in a safe place and mail or hand deliver them to your broker whenever you want to sell them. But if you register them in street name, even though the name on the certificate is not yours, you're still the real owner and have all the rights associated with that ownership.
Benefits paid to the surviving spouse or potentially other family members of a deceased eligible worker.
A fund designed to provide varying degrees of long-term appreciation and capital preservation based on an investor's age or target retirement date through a mix of asset classes. The mix changes over time to become less focused on growth and more focused on income. Also known as a life-cycle fund.
Accounts that don't receive special tax treatment, so all interest, dividends, and capital gains are subject to taxation in the year they're received.
Contributions you can subtract from your income on your tax return, resulting in a lower tax bill.
Delaying the payment of income taxes on income. For example, owners of traditional IRAs do not pay income taxes on the interest, dividends, or capital gains accumulating in their retirement accounts until they begin making withdrawals.
You won't pay any income taxes on the amount your account earns until you take the money out. (Note that with Roth accounts, assuming you meet all requirements, the earnings become tax-free at that time.)
Money you can take out of your account without owing any federal income tax, even if some of it has never been taxed.
Tax-loss harvesting involves selling an investment that has experienced a loss and replacing that investment with a different holding designed to maintain your asset allocation.
The amount of time, usually expressed in years, that an investor expects to hold an investment.
The actual date on which shares are purchased or sold.
A fund that charges a fee to buy or sell shares.
A legal arrangement through which property, such as investments or real estate, is held by a trustee on behalf of a beneficiary. Trusts are often used as part of a plan to minimize or eliminate estate taxes.
An investment account created in the name of a trust to manage trust assets. Although the beneficiaries hold the right to benefit from the trust, they have no authority to act on behalf of the trust assets.
Uniform Gifts to Minors Act or Uniform Transfers to Minors Act account owned by a minor that's off limits until he or she reaches adulthood. After that, the money can be used for any purpose.
A company or another entity that handles the public issuance and distribution of securities from a corporation or other issuer.
Capital gains that are "on paper" only because the investment has increased in price since the original purchase, but hasn't yet been sold for a profit.
The proceeds from a sale until the close of business on the settlement date of a trade. Money then sweeps into the settlement fund and the credit is removed.
For Vanguard funds and Vanguard Brokerage Services® holdings, value reflects the most recent number of shares and the most recent share price. Pending transactions are not included.
The degree of fluctuation in the value of a security, mutual fund, or index, volatility is often expressed as a mathematical measure such as a standard deviation or beta. The greater a fund's volatility, the wider the fluctuations between its high and low prices.
An entitlement to purchase a certain amount of common stock at a set price (usually higher than the current price) during an extended period of time. Usually issued with a fixed-income security to enhance its marketability, a warrant can be transferred, traded, or exercised by the holder.
The adjustment made to the primary insurance amount (PIA) because of the windfall elimination provision (WEP).
A legal document in which a person leaves instructions for how to distribute his or her property after death.
A provision that may reduce Social Security benefits based on your earning history if you're eligible to receive a pension based on pay from work not covered by Social Security.
The income return on an investment usually expressed as a percentage of the investment's cost, current market value, or face value.
Financial instruments that don’t pay interest periodically, but are instead sold at a discount from their face value. This means that the investor receives the full amount at maturity, rather than receiving regular interest payments.