Financial Glossary

Everyday language for financial planning terms

A concise reference — from annuities to yield — written in plain English so you can make informed decisions with confidence.

4

401(k): A qualified employer-sponsored retirement plan that allows employees to defer a portion of their salary on a pre-tax (or Roth) basis. Employers may match contributions.
403(b): A tax-deferred retirement plan similar to a 401(k), available to employees of public schools, nonprofits, and certain religious organizations.

A

Annuity: A contract with an insurance company designed to provide a stream of income, often in retirement, in exchange for a lump-sum or series of premium payments.
Asset Allocation: The process of dividing an investment portfolio among asset categories such as stocks, bonds, and cash to balance risk and reward according to goals and time horizon.

B

Beneficiary: The person or entity designated to receive assets from an account, insurance policy, trust, or will upon the owner's death.
Bond: A debt security in which an investor loans money to an issuer (corporate or government) for a defined period at a fixed or variable interest rate.

C

Capital Gain: The profit from selling an asset for more than its purchase price. Long-term gains (held over one year) are generally taxed at lower rates than short-term gains.
CD (Certificate of Deposit): A time deposit at a bank paying a fixed interest rate over a set term, with penalties for early withdrawal. FDIC-insured up to applicable limits.
ChFC®: Chartered Financial Consultant — a professional designation for financial planners administered by The American College of Financial Services.
CLU®: Chartered Life Underwriter — an advanced designation focused on life insurance, estate planning, and risk management.

D

Diversification: Spreading investments across various assets or sectors to reduce exposure to any single risk. Diversification does not guarantee against loss.
Dividend: A distribution of a portion of a company's earnings, decided by its board of directors, paid to shareholders.

E

Estate Planning: The process of arranging for the management and disposal of a person's estate during life and after death, using wills, trusts, and beneficiary designations.
ETF (Exchange-Traded Fund): An investment fund traded on stock exchanges, holding a basket of assets such as stocks, bonds, or commodities.

F

Fixed Annuity: An annuity contract that pays a guaranteed rate of interest for a set period, backed by the claims-paying ability of the issuing insurer.

I

Index Fund: A mutual fund or ETF designed to track the performance of a specific market index, such as the S&P 500.
IRA (Individual Retirement Account): A tax-advantaged retirement account. Traditional IRAs may offer tax-deductible contributions; Roth IRAs offer tax-free qualified withdrawals.

L

Long-Term Care Insurance: Coverage designed to pay for care not typically covered by health insurance or Medicare, including assistance with activities of daily living.

M

Medicare: The federal health insurance program primarily for people age 65 and older, and for some younger people with disabilities.
Medicare Supplement (Medigap): Private insurance that helps pay for out-of-pocket costs Original Medicare does not cover, such as copays, coinsurance, and deductibles.
Mutual Fund: A professionally managed pool of money from many investors used to purchase a diversified portfolio of securities.
Municipal Bond: A bond issued by a state or local government. Interest is often exempt from federal (and sometimes state) income tax.

R

Required Minimum Distribution (RMD): The minimum amount that must be withdrawn each year from most tax-deferred retirement accounts starting at age 73 under current law.
Rollover: The movement of retirement plan assets from one qualified account to another, generally without triggering current taxes if handled correctly.
Roth IRA: An individual retirement account funded with after-tax dollars where qualified withdrawals — including earnings — are federally tax-free.

S

SEP IRA: A Simplified Employee Pension IRA — a retirement plan primarily used by self-employed individuals and small business owners.
SIMPLE IRA: A retirement savings plan for small businesses (100 or fewer employees) with employer matching or non-elective contributions.
Social Security: A federal program providing retirement, disability, and survivor benefits, funded through payroll taxes.

T

Term Life Insurance: Life insurance that provides coverage for a specific period. If the insured dies during the term, a death benefit is paid to beneficiaries.

W

Whole Life Insurance: Permanent life insurance offering a fixed premium, guaranteed death benefit, and cash value that grows on a tax-deferred basis.

Y

Yield: The income return on an investment, typically expressed as an annual percentage based on cost, current market value, or face value.

Definitions are provided for general education. They are not a substitute for personalized advice. Contact us to discuss how any of these concepts may apply to your situation.

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