ASSETS Assets are everything you own that has any monetary value, plus any money you are owed.
They include money in bank accounts, stocks, bonds, mutual funds, equity in real estate, the value of your life insurance policy, and any personal property that people would pay to own.
ASSET ALLOCATION Asset allocation is a strategy, advocated by modern portfolio theory, for reducing risk in your investment portfolio in order to maximize return.
Specifically, asset allocation means dividing your assets among different broad categories of investments, called asset classes. Stock, bonds, and cash are examples of asset classes, as are real estate and derivatives such as options and futures contracts.
The asset allocation model that's appropriate for you at any given time depends on many factors, such as the goals you're investing to achieve, how much time you have to invest, your tolerance for risk, the direction of interest rates, and the market outlook.
ASSET BACKED BOND Asset-backed bonds, also known as asset-backed securities, are secured by loans or by money owed to a company for merchandise or services purchased on credit.
BOND Bonds are debt securities issued by corporations and governments.
Bonds are, in fact, loans that you and other investors make to the issuers in return for the promise of being paid interest, usually but not always at a fixed rate, over the loan term.
The issuer also promises to repay the loan principal at maturity, on time and in full.
Because most bonds pay interest on a regular basis, they are also described as fixed-income investments.
Independent agencies, such as Standard & Poor's (S&P) and Moody's Investors Service, assess the likelihood that bond issuers are likely to default on their loans or interest payments.
BOND RATINGS Ratings systems differ from one agency to another but usually have at least 10 categories, ranging from a high of AAA (or Aaa) to a low of D. Bonds ranked BBB (or Baa) or higher are considered investment-grade bonds.
CAPITAL GAINS When you sell an asset at a higher price than you paid for it, the difference is your capital gain.
If you own the stock for more than a year before selling it, you have a long-term capital gain. If you hold the stock for less than a year, you have a short-term capital gain.
CAPITAL GAINS TAX A capital gains tax is due on profits you realize on the sale of a capital asset, such as stock, bonds, or real estate.
Long-term gains, on assets you own more than a year, are taxed at a lower rate than ordinary income while short-term gains are taxed at your regular rate.
COMMON STOCK When you own common stock, your shares represent ownership in the corporation and give you the right to vote for the company's board of directors and benefit from its financial success.
You may receive a portion of the company's profits as dividend payments if the board of directors declares a dividend. You also have the right to sell your stock and realize a capital gain if the share value increases.
If the company falters and the price falls, your investment could lose some or all of its value.
CORPORATE BOND Corporate bonds are debt securities issued by publicly held corporations to raise money for expansion or other business needs.
Corporate bonds typically pay a higher rate of interest than federal or municipal government bonds but the interest you earn is generally fully taxable.
COST BASIS The cost basis is the original price of an asset - usually the purchase price plus commissions. You use the cost basis to calculate capital gains and capital losses, depreciation, and return on investment.
If you inherit assets, such as stocks or real estate, your cost basis is the asset's value on the date the person who left it to you died (or the date on which his or her estate was valued.
CUSTODIAN In investment terms, a custodian is the financial services company that maintains electronic records of financial assets or has physical possession of specific securities.
They include money in bank accounts, stocks, bonds, mutual funds, equity in real estate, the value of your life insurance policy, and any personal property that people would pay to own.
ASSET ALLOCATION Asset allocation is a strategy, advocated by modern portfolio theory, for reducing risk in your investment portfolio in order to maximize return.
Specifically, asset allocation means dividing your assets among different broad categories of investments, called asset classes. Stock, bonds, and cash are examples of asset classes, as are real estate and derivatives such as options and futures contracts.
The asset allocation model that's appropriate for you at any given time depends on many factors, such as the goals you're investing to achieve, how much time you have to invest, your tolerance for risk, the direction of interest rates, and the market outlook.
ASSET BACKED BOND Asset-backed bonds, also known as asset-backed securities, are secured by loans or by money owed to a company for merchandise or services purchased on credit.
BOND Bonds are debt securities issued by corporations and governments.
Bonds are, in fact, loans that you and other investors make to the issuers in return for the promise of being paid interest, usually but not always at a fixed rate, over the loan term.
The issuer also promises to repay the loan principal at maturity, on time and in full.
Because most bonds pay interest on a regular basis, they are also described as fixed-income investments.
Independent agencies, such as Standard & Poor's (S&P) and Moody's Investors Service, assess the likelihood that bond issuers are likely to default on their loans or interest payments.
BOND RATINGS Ratings systems differ from one agency to another but usually have at least 10 categories, ranging from a high of AAA (or Aaa) to a low of D. Bonds ranked BBB (or Baa) or higher are considered investment-grade bonds.
CAPITAL GAINS When you sell an asset at a higher price than you paid for it, the difference is your capital gain.
If you own the stock for more than a year before selling it, you have a long-term capital gain. If you hold the stock for less than a year, you have a short-term capital gain.
CAPITAL GAINS TAX A capital gains tax is due on profits you realize on the sale of a capital asset, such as stock, bonds, or real estate.
Long-term gains, on assets you own more than a year, are taxed at a lower rate than ordinary income while short-term gains are taxed at your regular rate.
COMMON STOCK When you own common stock, your shares represent ownership in the corporation and give you the right to vote for the company's board of directors and benefit from its financial success.
You may receive a portion of the company's profits as dividend payments if the board of directors declares a dividend. You also have the right to sell your stock and realize a capital gain if the share value increases.
If the company falters and the price falls, your investment could lose some or all of its value.
CORPORATE BOND Corporate bonds are debt securities issued by publicly held corporations to raise money for expansion or other business needs.
Corporate bonds typically pay a higher rate of interest than federal or municipal government bonds but the interest you earn is generally fully taxable.
COST BASIS The cost basis is the original price of an asset - usually the purchase price plus commissions. You use the cost basis to calculate capital gains and capital losses, depreciation, and return on investment.
If you inherit assets, such as stocks or real estate, your cost basis is the asset's value on the date the person who left it to you died (or the date on which his or her estate was valued.
CUSTODIAN In investment terms, a custodian is the financial services company that maintains electronic records of financial assets or has physical possession of specific securities.
