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Weekly Economic Commentary from Wells Fargo

Monthly Economic Commentary from Wells Fargo

Glossary

Aggressive Growth Mutual Fund – A mutual fund whose primary investment objective is substantial capital gains.

Annuity – An insurance-based contract that provides future payments at regular intervals in exchange for current premiums. Annuity contracts are usually purchased from banks, credit unions, brokerage firms, or insurance companies.

Asset Allocation – The process of repositioning assets within a portfolio to maximize return for a given level of risk. This process is usually done using the historical performance of the asset classes within sophisticated mathematical models.

Balanced Mutual Fund – A mutual fund whose objective is purchasing a balance of stocks and bonds. Such funds tend to be less volatile than stock-only funds.

Benchmark – The performance of a pre-determined set of securities, used for comparison purposes. Such sets may be based on published indexes or may be customized to suit an investment strategy.

Blue Chip – The common stock of a company with a long history of profitability and consistent dividend payment.

Bond – A bond is evidence of a debt in which the issuer promises to pay the bondholders a specified amount of interest and to repay the principal at maturity. Bonds are usually issued in multiples of $1,000.

Capital Gain or Loss – The difference between the sale price and the purchase price of a capital asset. When that difference is positive, the difference is referred to as a capital gain. When the difference is negative, it is a capital loss.

Cash Equivalents – Short-term investments, such as U.S. Treasury securities, certificates of deposit, and money market fund shares, which can be readily converted into cash.

 

Common Stock – A unit of ownership in a corporation. Common stockholders participate in the corporation’s profits or losses by receiving dividends and by capital gains or losses in the stock’s share price.

 

Compound Interest – Interest that is computed on the principal and on the accrued interest. Compound interest maybe computed continuously, daily, monthly, quarterly, semiannually, or annually.

Convertible Stock – Convertible preferred stock is preferred stock that includes an option for the holder to convert the preferred shares into a fixed number of common shares, usually anytime after a predetermined date. Shares of such stock are called “convertible preferred shares”

Diversification – Investing indifferent companies, industries, or asset classes. Diversification may also mean the participation of a large corporation in a wide range of business activities.

Dividend – A pro rata portion of earnings distributed in cash by a corporation to its stockholders. In preferred stock, dividends are usually fixed; with common shares, dividends may vary with the fortunes of the company.

Dollar Cost Averaging – A system of investing in which the investor buys a fixed dollar amount of securities at regular intervals. The investor thus buys more shares when the price is low and fewer shares when it rises, and the average cost per share is lower than the average price per share.

 

Dow Jones Industrial Average – Often referred to as the Dow, it is the best known and most widely reported indicator of the stock market’s performance. The Dow tracks the price changes of 30 significant industrial stocks traded on the New York Stock Exchange. Abbreviated as DJIA.

EAFE – Abbreviation for Europe, Australasia and Far East Index, a world stock market index, often used as an ex-United States world equity benchmark by United States investors.

 

Equity – The value of a person’s ownership in real property or securities; the market value of a property or business, less all claims and liens upon it.

ETF (Exchange Traded Fund) – An ETF trades on the stock exchanges much like stocks. An ETF holds assets like funds but are attractive as investments because of their low costs, tax efficiencies and stock like features.

Growth Mutual Fund – A growth fund invests primarily in the common stock of well established companies. This type of fund may invest for long-term capital gains and is not intended for an investor who seeks income.

 

Individual Retirement Account (IRA) – With a traditional IRA, annual contributions up to $5,000 ($6,000 if age 50 or over) are deductible from earned income in the calculation of federal and state income taxes if the taxpayer meets certain requirements. The earnings accumulate tax deferred until withdrawn, and then they are taxed as ordinary income. Individuals not eligible to make deductible contributions may make nondeductible contributions, the earnings on which would be tax deferred.

 

Market Capitalization – The total dollar value of all outstanding shares. Computed as shares times current market price. Capitalization is a measure of corporate size. Company capitalization classification include giant large cap, mid cap, small cap and micro cap, reflecting the size of the company.

 

Money Market Fund – A mutual fund that specializes in investing in short-term securities and that tries to maintain a constant net asset value of $1.

Municipal Bond – A debt security issued by municipalities. The income from municipal bonds is usually exempt from federal income taxes. In many states, it is also exempt from state income taxes in the state in which the municipal bond is issued.

 

Mutual Fund – A collection of stocks, bonds, or other securities purchased and managed by an investment company with investment funds from a group of investors.

 

NASDAQ – Securities not listed on major exchanges are traded over-the counter by broker-dealers who are members of the National Association of Securities Dealers Automated Quotations system.

Net Asset Value – The price at which a mutual fund sells or redeems its shares. The net asset value is calculated by dividing the net market value of the fund’s assets by the number of outstanding shares.

Preferred Stock – A class of stock with claim to a company’s earnings before payment can be made on the common stock and usually entitled to priority over common stock if the company liquidates. Generally, preferred stocks pay dividends at a fixed rate.

Price/Earnings Ratio (P/E Ratio) – The market price of a stock divided by the company’s annual earnings per share. Since the P/E ratio is a widely regarded yardstick for investors, it often appears with stock price quotations.

Risk-Averse – Refers to the assumption that rational investors will choose the security with the least risk if they can maintain the same return. As the level of risk goes up, so must the expected return on the investment.

Roth IRA – A special type of IRA that offers tax-free accumulation and withdrawals if certain conditions are met. Contributions are nondeductible, and qualified distributions are not included in your gross income. Annual contributions of up to $5,000 ($6,000 for those age 50 or older) are allowed if the tax payer meets certain requirements.

 

Tax Deferred – Interest, dividends, or capital gains that grow untaxed in certain accounts or plans until they are withdrawn.

Total Return – The return on an investment, including income from dividends and interest, as well as appreciation or depreciation in the price of the security, over a given time period, usually a year.

 

Russell 2000 -A small-capitalization stock index. It consists of the 2,000 smallest securities in the Russell 3000.

S&P 500 – Tracks 500 leading corporations most of which are traded on the New York Stock exchange. More broadly based than the Dow Jones Averages, the S&P 500 is generally regarded as a more accurate reflector of the overall market.

Volatility – The range of price swings of a security or market over time.

The Volatility Index (VIX) – Is the most popular measure of stock market volatility.

Yield – In general, the yield is the amount of current income provided by an investment. For stocks, the yield is calculated by dividing the total of the annual dividends by the current price. For bonds, the yield is calculated by dividing the annual interest by the current price. The yield is distinguished from the return, which includes price appreciation or depreciation.