Glossary

401(k) - A retirement plan made available by a company to its employees, featuring tax-deferred contributions and growth. The plan may also include matching contributions by the company.

529 Plan - A state-sponsored college savings program designed to help individuals finance education expenses. The plan is sheltered from Federal taxes and has no income restrictions. You can name yourself or a non-child as a beneficiary.

Asset Allocation - A strategy of diversification aimed at reducing variability of return from a portfolio of investments. The point of asset allocation is to invest in different types of assets that move in different ways from others in the portfolio.

Beneficiaries - Those people you designate to inherit your estate upon your death.

Capital At Work - Total cash/cash equivalents, investments, and retirement assets.

Capital Gain/Loss - Gain or loss from the sale of capital assets.

Commission - Fee paid to a broker for executing a trade.

Certified Financial Planner (CFP®) - A person who has passed five examinations and a comprehensive exam accredited by the Denver-based Certified Financial Planner Board of Standards, testing the ability to coordinate a client’s insurance, investment, tax, estate, and retirement affairs. In additional the individual must achieve a certain amount of experience and meet all other continuing education requirements to retain the designation.

Certified Public Accountant (CPA) - An individual who has received a state certification to practice accounting. This includes passing certain exams, achieving a certain amount of experience, and meeting all other licensing requirements.

Cost Basis - The amount paid to purchase a capital asset, i.e., its cost.

Diversification - An investment strategy that involves investing in many different securities to reduce risk; the opposite of concentration.

Dollar-Cost Averaging - Investing a set amount of money on a regular schedule regardless of the price of the shares at the time. When security prices are low, more shares are purchased. When prices are high, fewer are purchased.

Estate Planning - The process of distributing a person’s property in the most tax effective/efficient manner.

Expense Ratio - A fund’s annual expense divided by its average net assets.

Fee-Only Financial Planner - One who, in all circumstances, is compensated solely by the client, with neither the advisor nor any related party receiving compensation that is contingent on the purchase or sale of a financial product.

Financial Plan - The development and implementation of total, coordinated plans designed to achieve an individual’s financial objectives and strategies for risk management, investment, tax, estate, and retirement panning.

Fixed Income/Debt - A security that pays a stated (fixed) rate of return (amount of income).

Form ADV - A Registered Investment Advisors registration with the U.S. Security and Exchange Commission (SEC).

Individual Retirement Account (IRA) - A pension plan that any individual with earned income can establish and fund. Depending on the taxpayer’s circumstances, the contribution may be fully deductible, partially deductible, or not deductible. All investment earnings accumulate tax deferred until distributions are received at retirement. Tax penalties are assessed for early withdrawals from an IRA.

Inflation - A consistent rise in the general level of prices in the economy; widely measured by the Consumer Price Index, an economic factor that measures the change in the cost of purchased goods and services on the pocketbook level.

Interest Rate - Interest per year divided by principal amount, expressed as a percentage.

Investment Policy Statement - A coherent set of guidelines for managing financial assets in line with stated objectives and the realities of investment markets.

Money Market Fund - A mutual fund that invests in short-term debt instruments offering safety and liquidity. Their performance is measured by the rate of interest they earn.

Net Worth - The residual value after liabilities are subtracted from assets. Net worth represents the amount that is owned by the individual or family, unencumbered by debt.

No-Load Funds - Mutual funds that do not carry a sales commission (a load).

Portfolio - A term describing all the investments you own, such as stocks, bonds, mutual funds, etc. A diversified portfolio contains a variety of investments or assets in different asset classes.

Registered Investment Advisor (RIA) - An investment advisor registered with the Security and Exchange Commission.

Risk Tolerance - The level of risk a person is able to accept in an investment portfolio. Some financial advisors evaluate a client’s risk tolerance through a questionnaire.

U.S. Security and Exchange Commission (SEC) - Federal agency created by the Security Exchange Act of 1934 that is in charge of regulating and supervising the securities industry.

Stock Options - The employees’ right to buy employer stock at a set price (often offered as a benefit to the employees).

Definitions are in accordance with the College for Financial Planning educational materials.

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Certified Financial Planner Board of Standards Inc. owns the certification marks CFP(R), CERTIFIED FINANCIAL PLANNER(tm) and federally registered CFP (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.