Glossary
Diversification
An investment strategy under which capital is divided among several assets or asset classes. Diversification operates under the assumption that different assets and/or asset classes are unlikely to move in the same direction, allowing gains in one investment to offset losses in another. Diversification is an approach to help manage investment risk. It does not eliminate the risk of loss if security prices decline.
Dividend
Taxable payments made by a company to its shareholders. Some dividends are paid quarterly and others are paid monthly. Companies can adjust common share dividends at any time, pending approval by the company’s board of directors.
Dollar-Cost Averaging
An investment strategy under which a fixed dollar amount of securities is purchased at regular intervals. Under dollar-cost averaging, more shares are purchased when prices are low and fewer shares when prices rise. Keep in mind that dollar-cost averaging does not protect against a loss in a declining market or guarantee a profit in a rising market. Investors should evaluate their financial ability to continue making purchases through periods of declining and rising prices.
Dow Jones Industrial Average (DJIA)
An average calculated by summing the prices of 30 actively leading stocks on the New York Stock Exchange (NYSE) and dividing the sum by a divisor which has been adjusted to account for cases of stock splits, spinoffs, or similar structural changes. Individuals cannot invest directly in an index.
Early Withdrawal
Withdrawal of funds from an investment before its maturity date or withdrawal of funds from a tax-deferred account before the legally imposed age requirements have been satisfied. Early withdrawals may be subject to penalties.
Employee Retirement Income Security Act (ERISA)
A federal law that establishes the regulations under which retirement plans are governed and spells out the federal income tax regulations and effects for qualified retirement plans.
Employee Stock Ownership Plan (ESOP)
A defined-contribution plan that provides a company’s workers with an ownership interest in the company—usually as shares of company stock.
Employer-Sponsored Retirement Plan
A retirement plan sponsored by an employer for the benefit of its employees. These typically fall into one of two types: defined-contribution plans (such as SEP IRAs, 401(k) plans and 403(b) plans) and defined-benefit plans (such as traditional pensions).
Equity
The value of real property or a business after all liabilities have been paid. A home worth $300,000 with a $200,000 mortgage would have $100,000 in equity.
Estate Management
The preparations necessary to manage a person’s financial and healthcare matters during his or her lifetime and to effectively and economically distribute the assets within that estate upon his or her death.
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