Financial Planning Glossary

February 14th, 2017 Posted by Financial Education 0 thoughts on “Financial Planning Glossary”

401(k) – A 401(k) Plan, according to the IRS, is a defined contribution plan where an employee can make contributions from his or her paycheck either before or after-tax, depending on the options offered in the plan. The contributions go into a 401(k) account, with the employee often choosing the investments based on options provided under the plan. According to other sources, a 401(k) plan is a qualified employer-established plan to which eligible employees may make salary deferral (salary reduction) contributions on a post-tax and/or pretax basis. Plan sponsors are typically the fiduciary (see below), but can work with OpenCircle to transfer their liability as well as ensure that excessive fees are not leaching employees’ retirement funds.

Asset Management – Asset management is a systematic process of positioning, operating, maintaining, upgrading, and disposing of cash, securities, property and other valuables cost-effectively. The term is most commonly used in the financial world to describe people and companies that manage investments on behalf of others.

Balance Sheet – A balance sheet is an entity’s statement of assets, liabilities, and equity at a given point in time.

Bear Market – A bear market is a condition in which securities prices fall and widespread pessimism causes the stock market’s downward spiral to be self-sustaining. Investors anticipate losses and selling increases.

Bonds – Also known as fixed-income securities, bonds are debt instruments created for the purpose of raising capital. They are essentially loan agreements between the bond issuer and an investor, in which the issuer is obligated to pay a specified amount of money at specified future dates. There are four major bond types in the US markets: Corporate, Treasury (US government), Agency (US Government-Sponsored Enterprises or GSE), and Municipal (state, city or local government).

Broker – A broker is a person or company that is in the business of buying and selling securities (stocks, bonds, mutual funds, and certain other investment products) on behalf of its customers. A broker charges a fee or commission for executing buy and sell orders submitted by an investor.

Bull Market – The opposite of a bear market, a bull market is a condition in which share prices are rising. The resulting investor optimism leads to increased buying of securities.

Certified Financial Planner (CFP)® – Individuals who have been authorized to use the CFP® mark in the US have met rigorous professional standards and have agreed to adhere to the principles of integrity, objectivity, competence, fairness, confidentiality, professionalism and diligence when dealing with clients. Alex Madlener, founding principal of OpenCircle, is a CFP®.

Commission – A commission is a form of payment to an agent or broker for services rendered or products sold.

Diversification – Diversification is a strategy designed to reduce exposure to risk (see below) by combining a wide variety of investments within a portfolio.

Dividend – A dividend is a payment made by a company to its shareholders, usually as a distribution of profits.

Dow or DJIA – The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ (see below). The DJIA was invented by Charles Dow back in 1896.

Estate Planning – Estate planning is the process of anticipating and arranging, during a person’s life, for the management and disposal of that person’s estate during the person’s life and at and after death, while minimizing gift, estate, generation-skipping transfer, and income taxes.

Fee-based or Fee-only Financial Planners – Fee-only financial planners are registered investment advisors with a fiduciary responsibility to act in their clients’ best interest. They do not accept any fees or compensation based on product sales. Fee-only advisors have fewer inherent conflicts of interest, and they generally provide more comprehensive advice.

Fiduciary – A fiduciary, such as OpenCircle, is an entity who holds a legal or ethical relationship of trust with one or more other parties (person or group of persons). Typically, a fiduciary prudently takes care of money or other asset for another person.

Financial Advisor or Planner – A financial advisor (or adviser) is a qualified professional who renders financial services to individual and corporate clients to help them meet their goals. According to the FINRA (see below), terms such as financial advisor and financial planner are general terms or job titles used by investment professionals who also specialize in tax planning, asset allocation, risk management, retirement planning and estate planning.

Financial Planning – Financial planning is an ongoing process to help you make sensible decisions about money in order to better achieve your goals in life. See Financial Advisor/Planner above.

FINRA – FINRA, the Financial Industry Regulatory Authority, is dedicated to investor protection and market integrity through effective and efficient regulation of the securities industry. FINRA is not part of the government. It is an independent, not-for-profit organization authorized by the US Congress to protect America’s investors by making sure the securities industry operates fairly and honestly.

Hidden Fees – The process of investing may have hidden fees, or fees that are not always clear or fully evident. Fees that are not visible to investors, especially in mutual funds, may include managerial fees, compliance fees and marketing expenses. OpenCircle’s fees are not hidden; they are transparent (fully disclosed).

Investing – Investing is the act of committing money or capital to an endeavor (a business, project, real estate, etc.) with the expectation of obtaining an additional income or profit.

IRA (Individual Retirement Account) – An IRA is an account set up at a financial institution that allows an individual to save for retirement with tax-free growth or on a tax-deferred basis.

Life Planning – Life planning is OpenCircle’s first step in comprehensive financial planning, based on the premise that advisors should first discover a client’s most essential goals in life before formulating a financial plan, so that a client’s finances fully support those goals.

Liquidity – Liquidity is a measure of the extent to which a person or organization has easily accessible cash (or assets that can be quickly converted to cash) to meet immediate and short-term obligations.

Market Price – Market price is the unique price at which buyers and sellers agree to trade in an open market at a particular time.

Margin –  Margin is a type of financial collateral used to cover credit risk. In investing, buying on margin refers to the practice of buying an asset and paying only a percentage of the asset’s value, while borrowing the rest from the bank or broker. The lender or broker uses the funds in the buyer’s securities account as collateral on the resulting loan’s balance.

Margin Call – A margin call is a demand by a lender or broker that an investor deposit further cash or securities to cover possible losses. (See Margin above.)

Money Market Fund – A money market fund is a type of fixed income mutual fund (see below) that invests in debt securities (such as US Treasury bills) characterized by their short maturities and minimal credit risk.

Mutual Fund – A mutual fund is a professionally managed investment vehicle that pools funds from many investors and trades in diversified holdings.

NASDAQ – The NASDAQ Stock Market, commonly known as the NASDAQ, is an American stock exchange. It is the second-largest exchange in the world by market capitalization, behind only the New York Stock Exchange.

NYSE (New York Stock Exchange) – The NYSE is an American stock exchange located on Wall Street in New York City. It is the world’s largest stock exchange by market capitalization.

Retirement Planning – Retirement planning is financial planning (see above) that is specifically conducted in anticipation of an individual’s retirement needs.

Risk – Risk is the potential of gaining or losing something of value. All financial investments carry some degree of risk, depending on type (stocks, bonds, mutual funds, etc.).

Short Selling – Short selling is the sale of a security that is not owned by the seller, or that the seller has borrowed. Short selling is motivated by the belief that a security’s price will decline, enabling it to be bought back at a lower price to make a profit.

Stock – Stock is a share in the ownership (equity) of a company. Stock represents a claim on the company’s assets and earnings. As you acquire more stock, your ownership stake in the company becomes greater.

Trusts – A trust is a fiduciary arrangement that allows a third party, or trustee, to hold assets on behalf of a beneficiary or beneficiaries. Trusts can be arranged in many ways and can specify exactly how and when the assets pass to the beneficiaries.





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