The Only Guide You'll Ever Need for the Right Financial Plan: Managing Your Wealth, Risk, and Investments

Glossary

401(k)

A defined contribution plan offered by a corporation to its employees that allows employees to set aside tax-deferred income for retirement purposes.

403(b)

A retirement plan offered by nonprofit organizations, such as universities and charitable organizations, rather than corporations. Similar to a 401(k) plan.

Active management

The attempt to uncover securities the market has either under- or overvalued and/or the attempt to time investment decisions to be more heavily invested when the market is rising and less so when the market is falling.

Agency risk

The risk of loss due to an agent's/manager's pursuit of his own interests instead of those of the principals/investors.

AGI

Adjusted gross income.

Alpha

A measure of risk-adjusted performance relative to a benchmark. Positive alpha represents outperformance. Negative alpha represents underperformance. Positive or negative alpha may be caused by luck, manager skill, costs, and/or wrong choice of benchmark.

Alternative minimum tax (AMT)

A tax originally targeted at a small number of high-income taxpayers who could claim so many deductions that they owed little or no income tax under the traditional tax code.

Annuitization

The conversion of part or all of the assets in a qualified retirement plan or annuity contract into a stream of regular income payments.

Arbitrage

The process by which investors exploit the price difference between two identical securities by simultaneously buying one at a lower price and selling the other at a ...