Glossary of Common Retirement Plan and Investment Terms
12b-1 Fee: A fee assessed on certain mutual funds or share classes permitted under an SEC rule to help cover the costs associated with marketing and selling the fund. 12b-1 fees may also be used to cover shareholder servicing expenses.
401(k) Plan: A defined contribution plan, established by an employer. It enables employees to make pretax contributions by salary reduction agreements structured within the format of a cash or deferred plan.
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Accrued Interest: Interest that has accumulated, but has not been paid yet.
Active Management: The trading of securities to take advantage of market opportunities as they occur, in contrast to passive management. Active managers rely on research, market forecasts, and their own judgment and experience in selecting securities to buy and sell.
Affiliated Service Group: An affiliated service group is a group of related employers in which the relationship is comprised of two or more organizations that have a service relationship and, in some cases, an ownership relationship.
If two or more organizations are part of an affiliated service group, the organizations are treated as a single employer when applying certain qualified plan requirements.
After-Tax Contributions: An amount or percentage of pay an employee elects to contribute from pay, after taxes are calculated and withheld.
Aggressive: An investment approach that accepts above-average risk of loss in return for potentially above-average investment returns.
Aggressive Growth Fund: An investment fund that takes higher risk of loss in return for potentially higher returns or gains.
Alternate Payee: An alternate payee is a spouse, former spouse, child, or other dependent of a participant who is recognized by a domestic relations order (DRO) as having a right to receive all or a portion of the benefits payable under the qualified retirement plan with respect to the participant.
American Depositary Receipts (ADRs): An American Depositary Receipt (ADR) represents ownership of shares of a non-U.S. company and trades on U.S. securities exchanges.
Annual Report: A yearly report or record of an investment's (e.g., a mutual fund's or company's) financial position and operations.
Annual Rate of Return: The annual rate of gain or loss on an investment expressed as a percentage.
Annuity: A form of insurance contract that provides a stream of periodic payments, typically for life. Annuities are available in a variety of forms. See also Life Annuity, Joint and Last Survivor Annuity.
Appreciation: An increase in the value of an investment.
Asset: Anything with commercial or exchange value owned by a business, institution or individual. Examples include cash, real estate and investments.
Asset Allocation: A method of investing by which investors include a range of different investment classes - such as stocks, bonds, and cash equivalents - in their portfolios. See Diversification.
Asset-Backed Security: Asset-backed securities are created by bundling a pool of loans or leases (such as car loans, student loans, etc.) and issuing fixed income securities backed by the payments on those loans or leases.
Asset Class: A group of securities or investments that have similar characteristics and behave similarly in the marketplace. Three common asset classes are equities (e.g., stocks), fixed income (e.g., bonds), and cash equivalents (e.g., money market funds).
Average Annual Total Return: The yearly average percentage increase or decrease in an investment's value that includes dividends, gains, and changes in share price.
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Back End Load: A sales charge or commission paid when an individual sells an investment, such as a mutual funds or an annuity. Intended to discourage withdrawals. Also called redemption fee or deferred sales charge.
Balanced Fund: A fund with an investment objective of both long-term growth and income, through investment in both stocks and bonds.
Barclay's Capital U.S. Aggregate Bond Index: A common index widely used to measure performance of U.S. bond funds.
Basis Point (BP): A basis point is a unit of measure used in finance to describe the percentage change in the value or rate of a financial instrument. One basis point is equivalent to 0.01% (1/100th of a percent) or 0.0001 in decimal form.
Benchmark: An unmanaged group of securities whose performance is used as a standard to measure investment performance. Some well-known benchmarks are the Dow Jones Industrial Average and the S&P 500 Index.
Blackout Period: A period of more than three consecutive business days during which participants will not be able to direct or diversify their investments, obtain a loan or take a distribution.
Bond: A debt security which represents the borrowing of money by a corporation, government, or other entity. The borrowing institution repays the amount of the loan plus a percentage as interest. Income funds generally invest in bonds.
Bond Fund: A fund that invests primarily in bonds and other debt instruments.
Bond Rating: A rating or grade that is intended to indicate the credit quality of a bond, considering the financial strength of its issuer and the likelihood that it will repay the debt. Agencies such as Standard & Poor's, Moody's Investors Service, and Fitch issue ratings for different bonds, ranging from AAA (highly unlikely to default) to D (in default).
Broker: A person who acts as an intermediary between the buyer and seller of a security, insurance product, or mutual fund, often paid by commission. The terms broker, broker/dealer, dealer, financial adviser and registered representative are sometimes used interchangeably.
Brokerage Window: A plan feature that permits participants to purchase investments that are not included among the plan's general menu of designated investment alternatives. A brokerage window is also known as a "self-directed brokerage account (SDBA)."
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Capitalization (Cap): The total market value of a company's outstanding equity.
Capital Appreciation Fund: An investment fund that seeks growth in share prices by investing primarily in stocks whose share prices are expected to rise.
Capital Gain: The amount by which an asset's selling price exceeds its initial purchase price. A realized capital gain is an investment that has been sold at a profit. An unrealized capital gain is an investment that hasn't been sold yet but would result in a profit if sold. Capital gain is often used to mean realized capital gain. For most investments sold at a profit, including mutual funds, bonds, options, collectibles, homes, and businesses, the IRS is owed money called capital gains tax. Opposite of capital loss.
Capital Loss: The loss in the value of an investment, calculated by the difference between the purchase price and the net sale price.
Capital Preservation: An investment goal or objective to keep the original investment amount (the principal) from decreasing in value.
Cash Equivalent: An investment that is short term, highly liquid, and has high credit quality.
Collective Investment Fund: Investments created by a bank or trust company for employee benefit plans, such as 401(k) plans, that pool the assets of retirement plans for investment purposes. They are governed by rules and regulations that apply to banks and trust companies instead of being registered with the SEC. These funds are also referred to as collective or commingled trusts.
Commercial Paper: Promissory notes sold to the public by large corporations to meet their short-term needs for funds.
Commission: Compensation paid to a broker or other salesperson for his or her role when investments are bought or sold.
Commodities: Commodities are raw materials used to create products, such as gold and other metals, oil, and agricultural products.
Common Stock: An investment that represents a share of ownership in a corporation.
Company Matching Contributions: An amount or percentage of pay that a plan sponsor may contribute to an employee's retirement plan account. The contribution is often based on the employee's rate of contribution to the plan. Generally, although the type and amount of company contributions vary, a company may match a percentage of the amount an employee contributes, up to a stated maximum – hence the term company match or company matching contribution. The type and amount of a company matching contributions vary and are set by the employer.
Company Stock Fund: A fund that invests primarily in employer securities that may also maintain a cash position for liquidity purposes.
Competing Funds: An investment fund that is identified by the investment manager of another fund and which is subject to special rules relating to an investor's ability to buy and sell investments between the two funds. See Equity Wash Restriction.
Compounding: The cumulative effect that reinvesting an investment's earnings can have by generating additional earnings of their own.
Conservative: An investment approach that accepts lower rewards in return for potentially lower risks.
Contract Asset Charge: These charges, which are related to the administration of the group annuity contract, are used to offset costs for Plan-related recordkeeping, administrative and other retirement plan services that would otherwise be charged separately.
Controlled Group: A controlled group of companies may exist when there is overlapping ownership in two or more companies. There are two kinds of controlled groups: a parent-subsidiary controlled group and a brother-sister controlled group.
In general, a parent-subsidiary controlled group exists when one company owns 80% or more of a subsidiary and a brother-sister controlled group exists when 5 or fewer individuals own 80% or more of two or more companies. In certain cases, ownership by a spouse, parent, child or grandchild may be combined to determine whether a controlled group exists. If two or more organizations are part of a controlled group, the organizations are typically treated as a single employer when applying certain qualified plan requirements.
Convertible Securities: A security, usually a bond or a preferred stock, that can be converted into a different type of security – usually common stock.
Corporate Bond: A bond issued by a corporation, rather than by a government. The credit risk for a corporate bond is based on the re-payment ability of the company that issued the bond.
Credit Risk: The risk that a bond issuer will default, meaning not repay principal or interest to the investor as promised. Credit risk is also known as "default risk."
Current Year Testing Method: The "Current Year" testing method uses the non-highly compensated employee (NHCE) Average Deferral Percentage (ADP) in the current year to determine the maximum allowable ADP for highly compensated employees (HCE) during the year. This method is sometimes favorable if participation is anticipated to increase and does not (potentially) artificially lower the allowed contributions from the HCE group.
Current Yield: The current rate of return of an investment calculated by dividing its expected income payments by its current market price.
Custodian: A person or entity (e.g., bank, trust company, or other organization) responsible for holding financial assets.
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Declared Rate: In a fixed annuity, the rate of interest set by the insurance company each period based on prevailing market rates.
Deflation: The opposite of inflation-a decline in the prices of goods and services.
Depreciation: A decrease in the value of an investment.
Derivatives: Derivatives are contracts whose value is "derived" from some other investment, such as a commodity, stock, bond, or currency, or an index of such investments. Common types of derivatives include options, futures, and swap contracts.
Designated Investment Alternative: The investment options picked by your plan into which participants can direct the investment of their plan accounts.
Discontinuance Charge: An adjustment made to the value of one or more of the contract accounts, if the group annuity contract is terminated in whole or in part.
Diversification: The practice of investing in multiple asset classes and securities with different risk characteristics to reduce the risk of owning any single investment.
Dividend: Money an investment fund or company pays to its stockholders, typically from profits. The amount is usually expressed on a per-share basis.
Dollar-Cost Averaging: The practice of investing equal dollar amounts at regular intervals in a particular investment, with the goal of lowering the average cost per share/unit of the investment over time.
Dow Jones Industrial Average (Dow or DJIA): A widely followed price-weighted index of 30 of the largest, most widely held U.S. stocks.
Duration: A measure of the sensitivity of a bond's price to changes in interest rates. Duration is measured in years, and longer-duration bonds may be subject to greater price fluctuations due to changes in interest rates.
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Earnings Per Share: The trailing 12-month net income of a corporation divided by the number of shares outstanding. Earnings per share helps to indicate a corporation's profitability.
Emerging Market: Generally, economies that are in the process of growth and industrialization, such as in Africa, Asia, Eastern Europe, the Far East, Latin America, and the Middle East which, while relatively undeveloped, may hold significant growth potential in the future. Investing in these economies may provide significant rewards, and significant risks. May also be called developing markets.
Emerging Market Fund: A fund that invests primarily in emerging market countries.
Employer Securities: Securities issued by an employer of employees covered by a retirement plan that may be used as a plan investment option.
Equity/Equities: A security or investment representing ownership in a corporation, unlike a bond, which represents a loan to a borrower. Often used interchangeably with "stock."
Equity Fund: A fund that invests primarily in equities.
Equity Wash Restriction: A provision in certain stable value or fixed income products under which transfers made from the stable value or fixed income product are required to be directed to an equity fund or other non-competing investment option of the plan for a stated period of time (usually 90 days) before those funds may be invested in any other plan-provided competing fixed income fund (such as a money market fund).
Exchange Traded Fund (ETF): An investment company, such as a mutual fund, whose shares are traded throughout the day on stock exchanges at market-determined prices.
Expense Ratio: A measure of a fund’s total annual expenses expressed as a percentage of the fund’s net assets. The expense ratio includes management/advisory fees, marketing and distribution fees (often called 12b-1 fees) and other ongoing fees that are deducted from a mutual fund's assets.
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Federal Deposit Insurance Corporation (FDIC): A federal agency that insures money on deposit in member banks and thrift institutions.
Fees Retained: Transamerica retains certain fees including: 12b-1 fees from the mutual fund (if applicable) to cover marketing, distribution, and sometimes shareholder service expenses; sub-transfer agent expenses for participant account recordkeeping (if applicable), custodial, and other administrative expenses; fees associated with administration of each investment choice; and fees for operating expenses of the investment.
Financial Industry Regulatory Authority (FINRA): A self-regulatory organization for brokerage firms doing business in the United States. FINRA operates under the supervision of the SEC. The organization's objectives are to protect investors and ensure market integrity.
Financial Statements: The written record of the financial status of a fund or company, usually published in the annual report. The financial statements generally include a balance sheet, income statement, and other financial statements and disclosures.
Fixed Annuity: An annuity contract in which the insurance company makes fixed or guaranteed payments to an individual for the term of the contract.
Fixed Income Fund: A fund that invests primarily in bonds and other fixed-income securities, often to provide shareholders with current income.
Fixed Return Investment: An investment that provides a specific rate of return to the investor.
Fund Company: A commonly used term to describe an investment company, which is a corporation or trust engaged in the business of investing the pooled capital of investors in financial securities.
Fund Family: A group or "complex" of mutual funds, each typically with its own investment objective, and managed and distributed by the same company. A Fund Family also could refer to a group of collective investment funds or a group of separate accounts managed and distributed by the same company.
Fund of Funds: A mutual fund, collective investment fund or other pooled investment that invests primarily in other mutual funds, collective investment funds or pooled investments rather than investing directly in individual securities (such as stocks, bonds or money market securities).
Futures Contract: An agreement to buy or sell a commodity or an underlying index, currency or other asset at a specific price and date in the future. Futures contracts are a type of derivative contract.
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Glide Path: The change over time in a target date fund's or model's asset allocation mix to shift from a focus on growth to a focus on income.
Global Fund: A fund that invests primarily in securities anywhere in the world, including the United States.
Government Securities: Any debt obligation issued by a government or its agencies (e.g., Treasury Bills issued by the United States).
Group Annuity Contract: An annuity contract entered into between an insurance company and an owner for the benefit of a designated group, such as retirement plan participants.
Growth Fund: A fund that invests primarily in the stocks of companies with above-average risk in return for potentially above-average gains. These companies often pay small or no dividends and their stock prices tend to have the most ups and downs from day to day.
Growth and Income Fund: A fund that has a dual strategy of growth or capital appreciation and current income generation through dividends or interest payments.
Guaranteed Investment Contract: A contract issued by an insurance company that guarantees a specific rate of return on an investment over a certain time period.
Guaranteed Lifetime Withdrawal Benefit or Guaranteed Minimum Withdrawal Benefit: A feature that may be offered under an annuity contract in which the insurance company promises an individual may withdraw a specified amount from an account, even if the account balance is reduced to zero: (1) for the life of the individual, or the joint lives of two individuals (e.g., the individual and spouse); or (2) for a specified period of time.
Guaranteed Minimum Rate: In a fixed annuity, the minimum interest rate that the insurance company is obligated to credit on your investment.
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High-Yield Bonds: A bond that is rated below investment grade and typically offers a higher interest rate in order to attract investors due to the greater risk of default. High yield bonds may also sometimes be called junk bonds.
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Inception Date: The date that a fund began operations.
Income Fund: A fund that primarily seeks current income rather than capital appreciation.
Index: A benchmark against which to evaluate a fund's performance. The most common indexes for stock funds are the Dow Jones Industrial Average and the Standard & Poor's 500 Index.
Index Fund: An investment fund that seeks to parallel the performance of a particular stock market or bond market index. Index funds are often referred to as passively managed investments.
IRA (Individual Retirement Account): A retirement savings program for indiviuals to which yearly tax deductible contributions up to a specified limit can be made. The amounts contributed are not taxed until withdrawal. Withdrawal is not permitted, without penalty, until the individual reaches age 59 ½.
Inflation: The overall general upward price movement of goods and services in an economy. Inflation is one of the major risks to investors over the long term because it erodes the purchasing power of their savings.
Inflation-Linked Bonds: A bond where the principal amount or interest rate is adjusted periodically based on inflation rates.
Interest/Interest Rate: The fee charged by a lender to a borrower, usually expressed as an annual percentage of the principal. For example, someone investing in bonds will receive interest payments from the bond's issuer.
Interest Rate Risk: The possibility that a bond's or bond fund's market value will decrease due to rising interest rates. When interest rates (and bond yields) go up, bond prices usually go down and vice versa.
International Fund: A fund that invests primarily in the securities of companies located, or with revenues derived from, outside of the United States.
Investment Advisor: A person or organization hired by an investment fund or an individual to give professional advice on investments and asset management practices.
Investment Choice Total Cost: Expressed as a percentage of assets invested. The Investment Choice Total Cost for each investment choice is the sum of all Expenses Charged by the Mutual Fund, plus the Plan Service Fee/Credit Applied by Transamerica and its Affiliates.
Investment Company: A corporation or trust that invests pooled shareholder dollars in securities appropriate to the organization's objective. The most common type of investment company, commonly called a mutual fund, stands ready to buy back its shares at their current net asset value.
Investment Grade Bonds: Bonds that are assigned a rating in the top four categories by credit rating agencies.
Investment Objective: The goal that an investment fund or investor seeks to achieve (e.g., growth or income).
Investment Return: The gain or loss on an investment over a certain period, expressed as a percentage. Income and capital gains or losses are included in calculating the investment return.
Investment Risk: The possibility of losing some or all of the amounts invested or not gaining value in an investment.
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Joint and Last Survivor Annuity: An annuity that provides periodic payments for the joint lives of two individuals with benefits payable upon the death of one individual to the surviving individual at, for example, 50%, 75% or 100% of the original payment amount depending upon the terms of the contract.
Joint Life Annuity: An annuity issued on two individuals under which payments continue in whole or in part until both individuals die. Also called joint and survivor annuity.
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Large Capitalization (Cap): A reference to either a large company stock or an investment fund that invests in the stocks of large companies.
Large Cap Fund: A fund that invests primarily in large cap stocks.
Large Cap Stocks: Stocks of companies with a large market capitalization. Large caps tend to be well-established companies, so their stocks typically entail less risk than smaller caps, but large-caps also offer less potential for dramatic growth.
Leverage: Leverage is using borrowed money to potentially increase the return on your investment. Leverage can also be created by using financial instruments such as derivatives.
Life Annuity: An annuity that makes periodic payments only for the life of one individual. Also known as "single life annuity."
Lifecycle Fund: A fund designed to provide varying degrees of long-term appreciation and capital preservation based on an investor's age or target retirement date through a mix of asset classes. The mix changes over time to become less focused on growth and more focused on income. Also known as "target date retirement" or "age-based" funds.
Lifestyle Fund: A fund that maintains a predetermined risk level and generally uses words such as "conservative," "moderate," or "aggressive" in its name to indicate the fund's risk level. Used interchangeably with "target risk fund."
Lipper: A leading mutual fund research and tracking firm. Lipper categorizes funds by objective and size, and then ranks fund performance within those categories.
Liquidity: The ease with which an investment can be converted into cash. If a security is very liquid, it can be bought or sold easily. If a security is not liquid, it may take additional time and/or a lower price to sell it.
Load: A sales charge assessed on certain investments to cover selling costs. A front-end load is charged at the time of purchase. A back-end load is charged at the time of sale or redemption.
Longevity Risk: The risk that you will live longer than expected with the potential result that you run out of money before you die.
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MSCI EAFE Index: An index known by an acronym for the Europe, Australasia, and Far East markets produced by Morgan Stanley Capital International (MSCI). Markets are represented in the index according to their approximate share of world market capitalization. The index is a widely used benchmark for managers of international stock fund portfolios.
MSCI World Index: An index of major world stock markets, including the United States. The index is a widely used benchmark for managers of global stock fund portfolios.
Management Fee: A fee or charge paid to an investment manager for its services.
Market Capitalization or Market Cap: The total market value of a company's outstanding securities, excluding current liabilities.
Market Risk: The possibility that the value of an investment will fall because of a general decline in the financial markets.
Market Timing: Short-term trading of mutual fund shares which can harm long-term investors in the fund, because it increases fund transaction costs.
Market Value Adjustment: A positive or negative adjustment that occurs when a fixed annuity is liquidated early.
Maturity Date: The date on which the principal amount of a loan, bond, or any other debt becomes due and is to be paid in full.
Mid Capitalization (Cap): A reference to either a medium sized company stock or an investment fund that invests in the stocks of medium-sized companies.
Mid Cap Fund: A fund that invests primarily in mid-cap stocks.
Mid Cap Stocks: Stocks of companies with a medium market capitalization. Mid caps are often considered to offer more growth potential than larger caps (but less than small caps) and less risk than small caps (but more than large caps).
Money Market Fund: A mutual fund that seeks maximum current income through Investment in securities may include bank CD, bankers acceptances, T-bills, repurchase agreements (repos), and commercial paper.
Morningstar: A leading mutual fund research and tracking firm. Morningstar categorizes funds by objective and size, and then ranks fund performance within those categories.
Mortgage-Backed Security: Mortgage-backed securities are created by bundling a pool of mortgages and issuing fixed income securities backed by the payments on those mortgages.
Multiemployer Plan: A plan maintained pursuant to one or more collective bargaining agreements to which more than one employer is required to contribute.
Multiple Employer Plan: A multiple employer plan is a plan adopted by two or more unrelated employers, where "unrelated" references a non-controlled group member and/or a non-affiliated service group member. The plan must specifically provide that it is a multiple employer plan versus a single employer plan that inadvertently covers unrelated employers (which violates ERISA's "exclusive benefit rule"). Under a multiple employer plan, each adopting employer is tested separately for all of the various non-discrimination issues, including the following:
- Coverage testing (IRS section 410(b) testing)
- ADP/ACP testing
- Top-heavy testing
- 414(s) testing (where the definition of compensation includes exclusions other than the safe harbor exclusions)
- 401(a)(4) (profit sharing allocation formula)
Mutual Funds: Type of investment vehicle in which many investors / employee money is pooled for specific investment purposes. Participants own shares in an investment portfolio, rather than individual securities.
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NASDAQ Composite Index: A market-value weighted index of all common stocks listed on Nasdaq. The Nasdaq Composite dates back to 1971, which is when the Nasdaq exchange was first formalized. The index is used mainly to track technology stocks, and thus it is not a good indicator of the market as a whole. Unlike the Dow Jones Industrial Average (DJIA), the Nasdaq is market value-weighted, so it takes into account the total market capitalization of the companies it tracks and not just their share prices.
Net Asset Value (NAV): The net dollar value of a single investment fund share or unit that is calculated by the fund on a daily basis.
New York Stock Exchange (NYSE): The oldest and largest stock exchange in the U.S., located on Wall Street in New York City. The NYSE is responsible for setting policy, supervising member activities, listing securities, overseeing the transfer of member seats, and evaluating applicants. It traces its origins back to 1792, when a group of brokers met under a tree at the tip of Manhattan and signed an agreement to trade securities. Unlike some of the newer exchanges , the NYSE still uses a large trading floor in order to conduct its transactions. It is here that the representatives of buyers and sellers, professionals known as brokers, meet and shout out prices at one another in order to strike a deal. This is called the open outcry system and it usually produces fair market pricing. In order to facilitate the exchange of stocks, the NYSE employs individuals called specialists who are assigned to manage the buying and selling of specific stocks and to buy those stocks when no one else will. Of the exchanges, the NYSE has the most stringent set of requirements in place for the companies whose stocks it lists, and even meeting these requirements is not a guarantee that the NYSE will list the company. The NYSE is also called Big Board.
No-Load Fund: A mutual fund whose shares are sold without a sales commission and which does not charge a combined 12b-1 fee and service fee of more than 25 basis points or 0.25% per year.
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Operating Expenses: The expenses associated with running or operating an investment fund. Operating expenses may include custody fees, management fees, and transfer agent fees. See Expense Ratio and Total Annual Operating Expenses.
Option: The right, but not the obligation, to buy (for a call option) or sell (for a put option) a specific amount of a given stock, commodity, currency,index, or debt, at a specified price (the strike price) during a specified period of time. For stock options, the amount is usually 100 shares. Each option has a buyer, called the holder, and a seller, known as the writer. If the option contract is exercised, the writer is responsible for fulfilling the terms of the contract by delivering the shares to the appropriate party. In the case of a security that cannot be delivered such as an index, the contract is settled in cash. For the holder, the potential loss is limited to the price paid to acquire the option. When an option is not exercised, it expires. No shares change hands and the money spent to purchase the option is lost. For the buyer, the upside is unlimited. Options, like stocks, are therefore said to have an asymmetrical payoff pattern. For the writer, the potential loss is unlimited unless the contract is covered, meaning that the writer already owns the security underlying the option. Options are most frequently as either leverage or protection. As leverage, options allow the holder to control equity in a limited capacity for a fraction of what the shares would cost. The difference can be invested elsewhere until the option is exercised. As protection, options can guard against price fluctuations in the near term because they provide the right acquire the underlying stock at a fixed price for a limited time. risk is limited to the option premium (except when writing options for a security that is not already owned). However, the costs of trading options (including both commissions and the bid/ask spread) is higher on a percentage basis than trading the underlying stock. In addition, options are very complex and require a great deal of observation and maintenance. Aso called option contract.
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Passive Management: The process or approach to operating or managing a fund in a passive or non-active manner, typically with the goal of mirroring an index. These funds are often referred to as index funds and differ from investment funds that are actively managed.
Period Certain: A payment feature that may be available in an annuity contract which guarantees periodic payments for no less than a set period of time. For example, in a life annuity, periodic payments would be made for the longer of either: (1) the guaranteed period, to the individual or a beneficiary, or (2) the life of the individual.
Plan Service Fee/Credit Applied by Transamerica: Each month, Transamerica and its affiliates may apply a Plan Service Fee or Credit depending upon: plan demographics; required revenue, funds selected; asset level; estimated annual deposits; and other factors. A PlanService Fee is an asset-based charge that may be used to cover distribution and service expenses on mutual funds. A negative Plan Service Fee represents a Credit rather than a charge.
Portfolio: A collection of investments such as stocks and bonds that are owned by an individual, organization, or investment fund.
Portfolio Manager: The individual, team or firm who makes the investment decisions for an investment fund, including the selection of the individual investments.
Portfolio Turnover Rate: A measure of how frequently investments are bought and sold within an investment fund during a year. The portfolio turnover rate is usually expressed as a percentage of the total value of an investment fund.
Preferred Stock: A class of stock that entitles the holder to be paid dividends before a common stockholder, but does not provide any voting rights. Some preferred stocks provide for minimum guaranteed dividends.
Pre-Tax Contributions: An amount or percentage of pay an employee elects to defer into a retirement plan from pay before taxes are calculated and withheld.
Price-Earnings Ratio: The price of a stock divided by its earnings per share. It reflects the amount an investor is willing to pay per dollar of a company's earnings.
Principal: The original dollar amount of an investment. Principal may also be used to refer to the face value or original amount of a bond.
Prior Year Testing Method: The "Prior Year" testing method uses the non-highly compensated employee (NHCE) Average Deferral Percentage (ADP) from the prior Plan Year to determine the maximum highly compensated employee (HCE) ADP for the current plan year. This method can assist HCEs in setting their deferral percentage so as to not receive excess refunds at plan year end.
Prospectus: The official document that describes certain investments, such as mutual funds, to prospective investors. The prospectus contains information required by the SEC, such as investment objectives and policies, risks, services, and fees.
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Qualified Domestic Relations Order (QDRO): A Qualified Domestic Relations Order (QDRO) is a judgment decree or order made pursuant to a state domestic relations law that creates or recognizes the existence of an alternate payee's right to, or assigns to an alternate payee the right to, receive all or a portion of the benefits payable with respect to a participant under a qualified retirement plan and that complies with certain special requirements.
Qualified Nonelective Contributions (QNECs): A QNEC is a corrective contribution the Employer can make to the plan on behalf of some or all non-highly compensated employees (NHCEs) instead of making distributions to highly compensated employees (HCEs). QNECs are 100% vested at all times and are subject to the same restrictions on distributions as elective contributions. A QNEC must be funded no later than the last day of the plan year following the year of the NHCE ADP data that was used for testing.
Qualified Retirement Plan: A retirement plan approved by the IRS that allows for tax-deferred accumulation of investment income. 401(k) and profit sharing plans are examples of qualified retirement plans.
Qualified Roth 401(k) Account: A separate account under a 401(k) plan to which designated Roth contributions are made, and for which separate accounting of contributions, gains, and losses is maintained.
Qualified Roth 401(k) Contributions: Voluntary employee contributions that, unlike before-tax elective contributions, are currently includible in gross income for current income tax purposes. If a 401(k) plan provides for designated Roth contributions, it must also offer before-tax elective contributions.
Qualified Roth 401(k) Distributions: The tax rules for distributions from Roth 401(k) accounts differ significantly from those for traditional 401(k) accounts. If a distribution is a qualified Roth distribution, the entire distribution, including any earnings, is free from federal tax.
Qualified Roth 401(k) distributions must satisfy two rules (both, not either/or): the five-year rule and the purpose rule.
The five-year rule is satisfied if the distribution from the Roth account is made at the end of the 5-year-taxable period following the participant's first Roth contribution.
For purposes of the five-year rule, the participant's first Roth contribution is considered contributed on January 1, even if made on December 31, of that same calendar year. If the participant changes employers, a new 5-year period starts with the date of the first Roth 401(k) contribution to the new employer's plan. However, if the Roth account from the previous employer's plan is rolled over in a direct rollover to the new employer's plan, the previous 5-year-taxable period is kept.
The purpose rule is satisfied if the distribution from the Roth account is attributable to the participant's attainment of age 59 ½, disability, or death.
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Rate of Return: The rate of return on an investment, expressed as a percent of the total amount invested.
Real Estate Investment Trust (REIT): An investment trust that holds different kinds of real estate or real estate related assets.
Real Rate of Return: The rate of return on an investment adjusted for inflation.
Rebalance: The process of moving money from one type of investment to another to maintain a desired asset allocation.
Redemption: To sell fund shares back to the fund. Redemption can also be used to mean the repayment of a bond on or before the agreed upon pay-off date.
Redemption Fee: A fee, generally charged by a mutual fund, to discourage certain trading practices by investors, such as short-term or excessive trading. If a redemption fee is charged it is done when the investment is redeemed or sold.
Required Revenue: The amount of compensation, as calculated by Transamerica, that is necessary to compensate Transamerica for Plan and Participant related recordkeeping, administration, and other retirement plan services.
Retirement Age: Typically, most retirement plans set age 65 as the normal retirement age. However, for Social Security purposes, your normal retirement age – the age at which you can collect unreduced Social Security retirement benefits – ranges from 65 to 67, based on your date of birth.
Return: The gain or loss on an investment. A positive return indicates a gain, and a negative return indicates a loss.
Risk: The potential for investors to lose some or all the amounts invested or to fail to achieve their investment objectives.
Risk Tolerance: An investor's ability and willingness to lose some or all of an investment in exchange for greater potential returns.
Roth 401(k): The Roth 401(k) feature permits eligible plan participants, regardless of their income, to make after-tax contributions to a qualified "Roth" account. In addition, qualified distributions from a Roth 401(k) account are free from federal tax.
Roth IRA: A Roth IRA differs from traditional IRAs in that contributions are not deductible and can be made only by taxpayers that fall below certain AGI (adjusted gross income) levels. Unlike a traditional IRA, contributions may be made after age 70½.
Distributions made after the 5-year-taxable period, beginning with the first year a contribution was made to a Roth IRA set up for your benefit, are not taxable if made either:
- after you are 59 1/2
- because you are disabled
- to a beneficiary or your estate after your death
- to buy, build or rebuild a first home
Round Trip Restriction: A policy that limits the number of times an investor can exchange into and out of a fund within a given time frame. This is intended to discourage frequent trading that increases the costs to all the fund's investors.
Russell Indexes: A group of indexes that are widely used to benchmark investment performance. The most common Russell index is the Russell 2000 Index, an index of U.S. small-cap stocks, which measures the performance of the 2,000 smallest U.S. companies in the Russell 3000 Index.
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Sarbanes-Oxley Act of 2002: Law that requires plans to provide written notice to participants and beneficiaries 30 days before a blackout period begins. The notice cannot be sent more than 60 days before the blackout period begins. Failure to issue notification of a blackout period may result in severe penalties.
Sector Fund: A mutual fund which invests entirely or predominantly in a single sector of the stock market. A sector funds tend to be riskier and more volatile than the broad market because they are less diversified, although the risk level depends on the specific sector. Some investors choose sector funds when they believe that a specific sector will outperform the overall market, while others choose sector funds to hedge against other holdings in a portfolio. Some common sector funds include financial services funds, gold and precious metals funds, health care funds, and real estate funds, but sector funds exist for just about every sector.
Securities and Exchange Commission (SEC): Government agency created by Congress in 1934 to regulate the securities industry and to help protect investors. The SEC is responsible for ensuring that the securities markets operate fairly and honestly.
Security: A general term for stocks, bonds, mutual funds, and other investments.
Separate Account: An insurance company account that is segregated or separate from the insurance company's general assets. Also refers to a fund managed by an investment adviser for a single plan.
Share: A representation of ownership in a company or investment fund.
Share Class: A single mutual fund with one portfolio of assets may offer more than one "class" of its shares to investors. Generally, the principal difference between the classes is that the fund will charge different fees and expenses depending on the class.
Shareholder: An owner of shares in an investment fund or corporation.
Shareholder-Type Fees: Any fee charged against your investment for purchase and sale, other than the total annual operating expenses.
Short Sale: A sale of securities not owned by the seller. The seller borrows the securities from a third party and then hopes to buy them back later at a lower price.
SIMPLE-IRA: "SIMPLE" stands for Savings Incentive Match Plans for Employees. Eligible employees under a SIMPLE-IRA plan may elect to make contributions to the plan, similar to a 401(k) plan.
Small Capitalization (Cap): A reference to either a small company stock or an investment fund that invests in the stocks of small companies.
Small Cap Fund: A fund that invests primarily in small-cap stocks.
Small Cap Stocks: Stocks of companies with a smaller market capitalization. Small caps are often considered to offer more growth potential than large caps and mid caps but with more risk.
Stable Value Fund: An investment fund that seeks to preserve principal, provide consistent returns and liquidity. Stable value funds include collective investment funds sponsored by banks or trust companies or contracts issued by insurance companies.
Standard & Poor's 500 Stock Index (S&P 500): An index comprised of 500 widely held common stocks considered to be representative of the U.S. stock market in general. The S&P 500 is often used as a benchmark for equity fund performance.
Stock: A security that represents an ownership interest in a corporation.
Stock Fund: A fund that invests primarily in stocks.
An abbreviation using letters and numbers assigned to securities to identify them. Also see Ticker Symbol.
Summary Prospectus: A short-form prospectus that mutual funds generally may use with investors if they make the long-form prospectus and additional information available online or in paper upon request.
Swap Contract: Swaps are customized contracts between two private parties to exchange a sequence of cash flows (such as interest rate payments) for a set period of time. Swap contracts are a form of derivative contract.
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Target Date Fund: A fund designed to provide varying degrees of long-term appreciation and capital preservation based on an investor's age or target retirement date through a mix of asset classes. The mix changes over time to become less focused on growth and more focused on income. Also known as a "lifecycle fund."
Target Risk Fund: A fund that maintains a predetermined asset mix and generally uses words such as "conservative," "moderate," or "aggressive" in its name to indicate the fund's risk level. Often used interchangeably with "lifestyle fund."
Ticker Symbol: A series of letters used to uniquely identify a security, such as a mutual fund or stock.
Time Horizon: The length of time a sum of money is expected to be invested. Also called investment horizon or horizon.
Total Annual Operating Expenses: A measure of what it costs to operate an investment, expressed as a percentage of its assets, as a dollar amount, or in basis points. These are costs the investor pays through a reduction in the investment's rate of return. See Expense Ratio and Operating Expenses.
Traditional IRA: A traditional IRA is what most people think of when they think of an IRA. The IRS uses the term "traditional" to distinguish it from any other form of IRA. Any individual with compensation for a calendar year may contribute to a traditional IRA, however you must be under age 70 ½ at the end of the calendar year. Whether a contribution to a traditional IRA is deductible will depend on the individual's gross income and whether the individual is an active participant in a qualified plan. A single traditional IRA can accept both deductible and nondeductible contributions. Withdrawals taken before age 59 ½ may be subject to a 10% tax penalty.
Trustee: A person or entity (e.g., bank, trust company, or other organization) that is responsible for the holding and safekeeping of trust assets. A trustee may also have other duties such as investment management. A trustee that is a "directed trustee" is responsible for the safekeeping of trust assets but has no discretionary investment management duties or authority over the assets.
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Unit: A representation of ownership in an investment that does not issue shares. Most collective investment funds are divided into units instead of shares. See Share.
Unitholder: An owner of units in an investment. See Shareholder.
Unit Class: Investment funds that are divided into units (e.g., collective investment funds) instead of shares may offer more than one type or group of units, each of which is considered a class (e.g., "Class A"). For most investment funds each class has different fees and expenses but all of the classes invest in the same pool of securities and share the same investment objectives.
Unit Value: The dollar value of each unit on a given date.
Unit Value (NAV): The value of a mutual fund share determined by deducting the fund's liabilities from the total asset of the portfolio and dividing this amount by the number of shares outstanding. This is calculated once a day, based on the closing market price for each security in the fund portfolio.
U.S. Treasury Securities: Debt securities issued by the United States government and secured by its full faith and credit. Treasury securities are the debt financing instruments of the United States Federal government, and they are often referred to simply as Treasuries.
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Value Fund: A mutual fund that invests in companies which it determines to be underpriced by fundamental measures. Assuming that a company's share price will not remain undervalue indefinitely, the fund looks to make money by buying before the expected upturn. Value funds tend to focus on safety rather than growth, and often choose investments providing dividends as well as capital appreciation. They invest in companies that have low P/E ratio, and stocks that have fallen out of favor with mainstream investors, either due to changing investor preferences, a poor quarterly earnings report, or hard times in a particular industry. Value stocks are often mature companies that have stopped growing and that use their earnigs to pay dividends. Thus value funds produce current income (from the dividends) as well as long-term growth (from capital appreciation once the stocks become popular again).
Variable Annuity: An annuity contract under which the insurance company promises to make payments beginning immediately or at some future date. The value of the annuity and amount of the benefits paid by the insurance company will vary depending on the performance of the investment options.
Variable Return Investment: Investments for which the return is not fixed. This term includes stock and bond funds as well as investments that seek to preserve principal but do not guarantee a particular return, e.g., money market funds and stable value funds.
Volatility: The amount and frequency of fluctuations in the price of a security, commodity, or a market within a specified time period. Generally, an investment with high volatility is said to have higher risk since there is an increased chance that the price of the security will have fallen when an investor wants to sell.
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Wrap Fee: A fee or expense that is added to or "wrapped around" an investment to pay for one or more product features or services.
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Yield: The value of interest or dividend payments from an investment, usually stated as a percentage of the investment price.