Financial Planning Glossary

A tax-advantaged retirement savings plan sponsored by an employer that allows employees to save and invest a portion of their paycheck before taxes are taken out.

A retirement plan for employees of public schools, tax-exempt organizations, and certain ministers, similar to a 401(k) but for non-profit entities.

An individual or entity that meets certain income or net worth thresholds, allowing them to invest in securities not registered with the SEC.

The total market value of investments that a financial advisor or institution manages on behalf of clients.

An investment strategy where portfolio managers make specific investments seeking to exceed a benchmark index, typically involving higher fees than passive management.

Your gross income minus specific deductions, used to determine your tax liability and eligibility for certain tax benefits.

A parallel tax system designed to ensure high-income taxpayers pay a minimum amount of tax, regardless of deductions and credits.

Investments that have increased in value since purchase, which may be subject to capital gains tax when sold.

A person or entity designated to receive benefits from a trust, insurance policy, retirement account, or will upon the owner's death.

A fixed-income investment representing a loan made by an investor to a borrower, typically corporate or governmental, that pays periodic interest.

A person or firm engaged in the business of buying and selling securities for its own account or on behalf of customers.

The process of determining the economic value of a business or company, often used for sale, merger, or exit planning purposes.

The original cost of an asset for tax purposes, used to calculate capital gains or losses when the asset is sold.

A standard against which the performance of a security, mutual fund, or investment manager can be measured.

Shares of large, well-established companies with a history of reliable performance and stable earnings.

A measure of how sensitive a bond's price is to changes in interest rates, expressed in years.

An investment strategy involving purchasing bonds with staggered maturity dates to manage interest rate risk and provide regular income.

A legally binding agreement that determines what happens to a business share if an owner dies, becomes disabled, or leaves the company.

The profit realized from the sale of a capital asset such as stocks, bonds, or real estate when the sale price exceeds the purchase price.

Additional retirement plan contributions allowed for individuals aged 50 and older beyond the standard annual contribution limits.

A professional certification for financial planners conferred by the CFP Board, requiring education, examination, experience, and ethics requirements.

Interest calculated on both the initial principal and the accumulated interest from previous periods, enabling exponential growth.

A financial institution that holds and safeguards a customer's securities and other assets to minimize the risk of loss or theft.

An investment strategy focused on preventing loss of principal, typically through conservative, low-risk investments.

The Consolidated Omnibus Budget Reconciliation Act, which allows employees to continue health insurance coverage after leaving a job.

A statistical measure of how two investments move in relation to each other, used in portfolio diversification.

An options strategy where an investor holds a stock and sells call options on that stock to generate additional income.

An account managed by an adult for a minor under the Uniform Transfers to Minors Act (UTMA) or Uniform Gifts to Minors Act (UGMA).

A retirement plan in which an employer designed to / structured to seek a specified monthly benefit upon retirement, calculated using a formula based on salary and years of service.

A retirement plan in which the employee, employer, or both make contributions to the employee's individual account, with benefits based on contributions and investment returns.

A risk management strategy that mixes a variety of investments within a portfolio to reduce exposure to any single asset or risk.

A distribution of a portion of a company's earnings to shareholders, typically paid quarterly in cash or additional stock.

An investment strategy of regularly investing a fixed dollar amount regardless of market conditions, reducing the impact of volatility.

A portion of an employee's compensation that is set aside to be paid at a later date, typically at retirement.

An investment strategy where individual securities are purchased to replicate an index, allowing for tax-loss harvesting and customization.

Insurance that provides income replacement if you become unable to work due to illness or injury.

The peak-to-trough decline in portfolio value, often expressed as a percentage, used to measure investment risk.

The Employee Retirement Income Security Act of 1974, a federal law that sets minimum standards for retirement and health plans in private industry.

The process of arranging for the management and disposal of a person's estate during their life and after death, including wills, trusts, and beneficiary designations.

A type of investment fund traded on stock exchanges that holds assets such as stocks, bonds, or commodities and typically tracks an index.

A person or institution appointed to carry out the terms of a will and administer the estate of a deceased person.

The strategic process of preparing a business owner to exit a company, evaluate value-building opportunities, and support a planned transition.

Retiring before the traditional retirement age, typically requiring careful planning for healthcare and income needs.

A set of optimal portfolios offering the highest expected return for a defined level of risk in modern portfolio theory.

A company benefit allowing employees to purchase company stock at a discount, often through payroll deductions.

A tax on the transfer of property at death, applicable to estates exceeding the federal exemption amount.

An investment adviser whose compensation for advisory services comes solely from client-paid fees and who does not receive commissions, 12b-1 fees, or other third-party product compensation for the advisory engagement. Some advisors hold separate insurance or brokerage licenses; each capacity and form of compensation must be disclosed in Form ADV Part 2 and Form CRS.

An advisor who is compensated by client fees AND may also receive commissions or other third-party compensation (e.g., insurance, brokerage). Each capacity and source of compensation must be disclosed in Form ADV Part 2 and Form CRS.

A person or organization legally obligated to act in the best interest of another party, putting the client's interests above their own.

Investment securities that pay a fixed interest rate or dividend, such as bonds and preferred stocks.

A regulatory document filed by investment advisers with the SEC that discloses the advisor's business practices, fees, and disciplinary history.

Federal Insurance Contributions Act tax, which funds Social Security and Medicare through payroll deductions.

Having sufficient wealth to live without working, where passive income covers all living expenses.

Financial Independence, Retire Early - a lifestyle movement focused on extreme savings and investment to achieve early retirement.

An insurance contract that pays a guaranteed interest rate on contributions and provides a fixed income stream in retirement.

A sales charge paid when purchasing mutual fund shares, typically deducted from your initial investment.

A person who creates and funds a trust, also known as a trustor or settlor.

An investment strategy focused on companies expected to grow at an above-average rate compared to the market.

A trust designed to transfer wealth to grandchildren or later generations while minimizing estate taxes.

A federal tax on the transfer of property when the giver receives nothing or less than full value in return.

The asset allocation shift in target-date funds, gradually becoming more conservative as the target retirement date approaches.

Total income before any deductions or taxes, including wages, dividends, capital gains, and business income.

A pooled investment fund that employs various strategies to earn active returns for investors, typically available only to accredited investors.

A person with liquid financial assets above a certain threshold, typically $1 million or more, excluding primary residence.

The difference between a home's market value and the outstanding mortgage balance.

A mutual fund or ETF designed to track the components of a market index, such as the S&P 500, providing broad market exposure with low fees.

The rate at which the general level of prices for goods and services rises over time, eroding purchasing power.

A tax-advantaged personal savings plan that allows individuals to set aside money for retirement with potential tax benefits.

A trust that cannot be modified or terminated by the grantor after it is created without the beneficiary's consent.

A type of employee stock option with favorable tax treatment if holding period requirements are met.

An annuity designed to provide immediate or deferred income payments, often used for retirement income planning.

The danger that rising prices will erode the purchasing power of investments and retirement income over time.

A withdrawal from a retirement plan while still employed, typically allowed after age 59½.

Life or disability insurance purchased by a business on a key employee whose death or disability would cause significant financial harm to the company.

The ease with which an asset can be converted to cash quickly without significantly affecting its market price.

A trust created during the grantor's lifetime that allows assets to pass to beneficiaries outside of probate.

Insurance that covers the cost of long-term care services not typically covered by health insurance or Medicare.

Stocks of companies with market capitalization typically over $10 billion, generally considered more stable than smaller companies.

Using borrowed money to increase the potential return of an investment, which also increases risk.

An irrevocable trust designed to own life insurance policies, keeping proceeds out of the taxable estate.

Borrowed money used to purchase securities, using the securities in the account as collateral.

The total market value of a company's outstanding shares, calculated by multiplying share price by total shares outstanding.

An investment vehicle that pools money from many investors to purchase a diversified portfolio of stocks, bonds, or other securities.

The tax rate applied to your last dollar of income, which determines the tax impact of additional income or deductions.

An investment strategy that attempts to predict future market movements to buy low and sell high, generally considered unreliable.

A federal health insurance program for people 65 and older and certain younger people with disabilities.

An investment theory that aims to maximize expected return for a given level of risk through diversification.

A computational technique using random sampling to model the probability of different outcomes in retirement planning.

The total value of an individual's assets minus their total liabilities, representing overall financial position.

A type of compensation plan that allows executives to defer a portion of their income until a future date, typically retirement.

Stock options that don't qualify for special tax treatment, taxed as ordinary income when exercised.

A collection of investments held by an individual or institution, including stocks, bonds, cash, and other assets.

A legal document authorizing someone to act on another's behalf in legal, financial, or medical matters.

The legal process of administering a deceased person's estate, including validating the will and distributing assets.

Earnings from investments, rental properties, or business ventures that require minimal ongoing effort.

A strategy using life insurance to allow taking a higher pension benefit while still protecting a surviving spouse.

A will that transfers any assets not already in a living trust into the trust upon the person's death.

The amount paid for an insurance policy or the amount by which a bond trades above its face value.

An employer-sponsored retirement plan that meets IRS requirements and qualifies for favorable tax treatment.

Designated areas where investments may receive preferential tax treatment, including deferral and potential exclusion of capital gains.

The process of realigning portfolio weightings by periodically buying or selling assets to maintain the original desired allocation.

The minimum amount that must be withdrawn annually from retirement accounts starting at age 73 (as of 2023).

A trust that can be modified or revoked by the grantor during their lifetime.

An investor's ability and willingness to endure volatility and potential losses in their investment portfolio.

A retirement account funded with after-tax dollars that allows tax-free growth and tax-free withdrawals in retirement.

A company that owns, operates, or finances income-producing real estate, offering investors exposure to real estate without direct ownership.

A loan available to homeowners 62+ that converts home equity into cash while allowing continued residence in the home.

An investment return that accounts for the amount of risk taken to achieve that return.

Moving retirement funds from one account to another, such as from a 401(k) to an IRA, while maintaining tax-advantaged status.

A Simplified Employee Pension IRA that allows employers to make retirement contributions for themselves and their employees.

A federal program providing retirement, disability, and survivor benefits funded through payroll taxes.

A security representing ownership in a corporation and a claim on part of its assets and earnings.

A comprehensive approach to financial management that integrates investment, tax, retirement, estate, and risk management strategies.

The process of identifying and developing future leaders or owners to replace current ones when they leave or retire.

Savings Incentive Match Plan for Employees, a retirement plan for small businesses with 100 or fewer employees.

Stocks of companies with smaller market capitalization, typically under $2 billion, often offering higher growth potential with more volatility.

An IRA contribution made on behalf of a non-working spouse, allowing couples to maximize retirement savings.

A fixed dollar amount that reduces taxable income, available to taxpayers who don't itemize deductions.

A strategy that was used to extend IRA distributions over a beneficiary's lifetime, now limited by the SECURE Act.

A broker standard requiring recommendations to be suitable for a client, less stringent than the fiduciary standard.

Investment earnings such as interest, dividends, or capital gains that accumulate tax-free until the investor withdraws the funds.

A fiduciary arrangement allowing a third party (trustee) to hold and manage assets on behalf of beneficiaries.

A person or organization that holds and administers property or assets for the benefit of a third party.

The additional after-tax returns generated through tax-efficient investment strategies.

A range of incomes taxed at a given rate, part of the progressive income tax system.

Strategically selling appreciated investments when in a low tax bracket to reset cost basis and reduce future taxes.

A defined contribution retirement plan for federal employees and uniformed services members.

The complete return on an investment including capital appreciation and income distributions.

Liability insurance that provides coverage beyond the limits of standard home and auto policies.

The amount of assets that can be transferred free of federal estate and gift tax during life and at death.

An investment strategy focused on picking stocks that appear to be trading below their intrinsic or book value.

The process by which an employee earns the right to employer-contributed retirement benefits over time.

A statistical measure of the dispersion of returns for a given security or market index, often used as a measure of risk.

An annuity contract where returns vary based on the performance of underlying investment options.

The timeline over which an employee earns full ownership of employer-contributed retirement benefits.

A comprehensive financial advisory service combining investment management, financial planning, and other services for affluent clients.

A legal document expressing a person's wishes regarding the distribution of their property and care of minor children after death.

The income return on an investment, expressed as a percentage of the investment's cost or current market value.