Key Financial Terms Cost Basis: Original price of an asset, including fees and commissions, used in determining capital gains. If inherited, it is the appraised value of the asset at the time of the donor’s death. Day Order: Order to buy or sell securities that expires unless executed or cancelled the day it is placed. Discretionary Account: Account empowering a broker or advisor to buy or sell without client’s prior knowledge or consent. Diversification: 1) Spreading of risk by putting assets in several categories or investments – stocks, bonds, money market instruments, precious metals and mutual funds. 2) At the corporate level, entering into different business areas, as a conglomerate. Dollar Cost Average: or Constant Dollar Plan – Method of accumulating assets by investing a fixed amount of dollars in securities at set intervals. The investor buys more shares when the price is low and fewer shares when the price is high; the overall cost is lower than it would be if a constant number of shares were bought at set intervals. Earnings Report: Statement issued by a company to its shareholders and the public at large reporting its earnings for the latest period, which is either on a quarterly or annual basis. The report will show revenues, expenses, and net profits for the period. Good Delivery: Securities industry designation meaning that a certificate has the necessary endorsements and meets all other requirements (signature guarantee, proper denomination, and other qualifications), so that title can be transferred by delivery to the buying broker, who is then obligated to accept it. Good Till Cancelled Order (GTC): Brokerage customer’s order to buy or sell a security, usually at a particular price, that remains in effect until executed or cancelled. If the GTC order remains unfilled after a long period of time, a broker will usually confirm that the customer still wants the transaction to occur. Growth Stock: Stock of a corporation that has exhibited faster than average gains in earnings over the last few years and is expected to continue to show high levels of profit growth. Over the long run, growth stocks tend to outperform slower-growing or stagnant stocks. Growth stocks are riskier investments than average stocks, however, since they usually sport higher price/earnings ratios and make little or no dividend payments to shareholders. Income Stocks: Common stocks that pay large dividends an investor could use as income. Liquidity: The ability to buy or sell an asset quickly and in large volumes without substantially affecting the asset’s price. Market Order: An offer to buy or sell at the best price currently available on the trading floor. Net Asset Value (NAV): 1) In a mutual fund, the market value of a fund share, synonymous with “bid price.” 2) The book value of a company’s different classes of securities, usually stated as net asset value per bond, NAV of a share of preferred stock and net book value of a share of common stock. Proprietary products: Some broker/dealers require their reps to meet sales quotas on certain products that are more profitable for them. Such requirements may effect the investment recommendations in a way that is not the best for the client. Prospectus: Official documents of a new issuer which must be provided to potential purchasers. Realized profit or loss: Profit or loss resulting from the sale or other disposal of a security. Capital gains taxes may be due when profits are realized: realized losses can be used to offset realized gains for tax purposes. Such profits and losses differ from a paper profit or loss, which (except for options or futures contracts) has no tax consequences. Stop Order: An order to a securities broker to buy or sell at the market price once the security has traded at a specified price called the “stop price.” Stop Limit Order: An order to a securities broker with instructions to buy or sell at a specified price or better, but only after a given “stop price” has been reached or passed. Suitability: Guidelines that consider the appropriate type of investments for a client’s situation that must be followed by those selling financial products, especially sophisticated or potentially risky investments. Variable Annuity: Life insurance policy where the annuity premium is immediately turned into accumulation units of a portfolio of stocks. Their dollar value is based on market performance. |