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| 12b-1 fees |
The percent of a mutual fund's assets used to defray marketing and distribution
expenses. This fee is stated in the fund's prospectus. Funds with 12b-1 expenses greater than 0.25%
cannot be called "no-load" funds.
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A |
| annual rate of return |
Yearly return of an investment. For periods greater than one year, this
represents the yearly return that would produce the equivalent cumulative return.
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| asset allocation funds |
A mutual fund that invests in a number of different asset classes in order
to maximize return on investment and minimize risk.
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B |
| back-end load funds |
Mutual funds that charge investors a fee to sell (redeem) shares, sometimes
up to 6%. Some back-end load funds impose a full commission if the shares are redeemed within a designated
length of time, such as one year. In some cases, the back-end fee will decrease the longer the fund is held.
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| balanced fund |
A fund that buys both bonds and stock.
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C |
| closed-end funds |
An investment company that sells shares like any other corporation and usually does
not redeem its shares. A publicly traded fund sold on stock exchanges or over the counter that may trade above
or below its net asset value. Antonym: Open-end fund.
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| cumulative return |
Cumulative return represents total return including reinvestment of dividends during
the period.
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D |
| diversification |
Dividing investment funds among a variety of assets with different risk, reward, and
correlation statistics so as to minimize unsystematic risk.
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| dollar cost averaging |
Method of purchasing securities by investing a fixed amount of money at set intervals.
The goal of the investor is to purchase more shares when the share price of the fund is lower. Twice-monthly
contributions into an IRA is just one example of dollar cost averaging.
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E |
| ETFs |
ETFs are a relatively new invention, but they have caught on quickly thanks to being
backed and sponsored by many of the top names in the investment industry such as Dow Jones, Merrill Lynch,
Standard and Poors, and Barclays. The cutesy names appointed to ETFs, including "Spiders", "Qubes", "Diamonds",
“Webs, and "Holders", do nothing to belie their power. In their simplest form, ETFs are baskets of stocks,
which are designed closely track an index, sector, country, or investment style. For a while, index-oriented
ETFs dominated the entire ETF realm. Now, as ETFs have become more popular, the ETF landscape has evolved to
include new investment types.
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| expense ratio |
The percentage of the assets that are spent to run a mutual fund including expenses
such as management, overhead, and 12b-1 fees.
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F |
| fixed-income fund |
A mutual fund that invests primarily in assets that pay a fixed dollar amount,
such as bonds and preferred stock.
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| front-end loads |
Fees applied to investments at the time of initial purchase. Often utilized by
brokers as a commission.
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| fund of funds |
A mutual fund composed of other mutual funds.
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G |
| geographic rotation |
An active management strategy in which assets are shifted to geographic
regions in order to overweight, and thus have a higher exposure in the portfolio.
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| global funds |
A mutual fund that typically invests anywhere in the world, including the U.S.
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| growth |
Stocks and equities who are expected to have above average earnings growth.
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| growth and income funds |
A mutual fund that invests primarily both in stocks with a history of capital gains
(growth) and consistent dividend payments (income).
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| growth funds |
A mutual fund that invests primarily in stocks with a history of and future potential
of above average growth of earnings.
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I |
| international funds |
A mutual fund that typically invests all of its assets in foreign countries and not
in the U.S.
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L |
| large cap |
The top 5% largest companies in terms of market capitalization and whose combined
capitalization represents approximately 73% of the total market value.
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| level loads |
A mutual fund that charges a permanent sales charge, usually at some fixed percentage.
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| load funds |
A mutual fund that sells shares with a sales charge.
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M |
| micro cap |
Roughly the smallest 50% of all publicly traded stocks and whose combined
capitalization represents approximately 2% of the total market value.
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| mid cap |
Companies whose market valuations rank between the largest 5% and 20% that are
publicly traded and whose combined capitalization represents approximately 18% of the total market value.
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| momentum funds |
A mutual fund that invests in stocks the fund managers believe have strong upward
momentum.
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| money market funds |
A mutual fund that invests only in short term securities, such as bankers'
acceptances, commercial paper, repurchase agreements and government bills. The net asset value per share
is maintained at $1.00. Such funds are not federally insured, although the portfolio may consist of guaranteed
securities and/or the fund may have private insurance protection.
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| mutual funds |
Invented in the 1920s, mutual funds are pools of money managed by an investment
company or advisor. Different mutual funds have different goals. For example, funds may seek growth, growth
and income, specific market cap sizes, sectors, etc.
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N |
| net asset value (NAV) |
The NAV of a mutual fund represents the value of a fund's investments on a per share
basis.
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| no-load funds |
Mutual funds that are sold without either a front-end or a back-end sales charge
and with 12b-1 fees that are 0.25% or less.
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O |
| open-end funds |
A mutual fund with the ability to create new shares on demand. Shares are bought
at NAV. Antonym: closed-end funds.
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| option |
Gives the buyer the right, but not the obligation, to buy or sell an asset at a
set price on or before a given date. Investors, not companies, issue options. Buyers of call options profit
when the underlying stock (stock, index, or other security) is worth more than the price set by the option
(the strike price), plus the price they pay for the option itself. Buyers of put options profit when the
underlying security's price drops below the price set by the option.
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P |
| prospectus |
Formal written document that describes the plan for a proposed business
enterprise, or the facts concerning an existing one, that an investor needs to make an informed decision.
Prospectuses are used by mutual funds to describe fund objectives, risks, and other essential information.
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R |
| redemption |
Selling shares of a mutual fund.
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| risk |
Often defined as the standard deviation of the return on total investment.
Degree of uncertainty of return on an asset.
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S |
| sector |
Used to characterize a group of securities that are similar with respect to
industry, geographic region, business, style, rating, and/or coupon.
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| sector fund |
A mutual fund that invests in a specific sector or sectors.
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| sector rotation |
An active management strategy in which assets are shifted to sector, style, or
geographic regions in order to overweight, and thus have a higher exposure in the portfolio.
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| sharpe ratio |
A measure of a portfolio's excess return relative to the total variability of the
portfolio.
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| small cap |
Companies whose market valuations rank between the largest 50% and 80% that are
publicly traded and whose combined capitalization represents approximately 7% of the total market value.
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| stock |
Ownership of a corporation indicated by shares, which represent a piece of the
corporation's assets and earnings.
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| style rotation |
An active management strategy in which assets are shifted to styles, such as small-cap
growth, in order to overweight, and thus have a higher exposure in the portfolio.
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| systematic risk |
Risk that cannot be diversified away. Also known as undiversifiable risk or market
risk.
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T |
| total return |
The actual rate of return, or performance, realized over some evaluation period.
For periods greater than one year, the annualized total return is typically used.
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U |
| unsystematic risk |
The risk that is unique to a company such as a strike, the outcome of unfavorable
litigation, or a natural catastrophe that can be eliminated through diversification. Also known as diversifiable
risk or residual risk.
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V |
| value |
Stocks or equities whose values are perceived to be below "fair value."
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