Glossary of terms

Investment Options - These are the diversified range of options in which a retirement plan participant can invest his or her contributions in a retirement plan.

Account Realignment - Taking some or all existing retirement plan account money out of your existing account options and re-allocating it (in specific whole percentages) among the various investment options.

Asset Allocation - The way investments are distributed and weighted among different asset classes to yield the greatest possible return consistent with the investor’s risk tolerance.

Asset Class - An investment category: such as stocks (equities), bonds (fixed income) or cash (money markets).

Bonds - Debt obligations issued by a government or corporation that generally pay a stated rate of interest and return the face value upon maturity.

Capital Appreciation (or Depreciation) - An increase (or decrease) in the price of an investment.

Capital Gain or Loss - Difference between an asset’s purchase price and selling price.

Contribution Allocation - This is how a participant’s retirement plan contributions are divided by percentage among the various investment options. Contribution allocation changes affect how new or future monies coming into a participant’s account will be allocated.

Deferral Rate - The percentage or specified dollar amount a plan participant chooses to withhold (deduct) from each paycheck to be contributed pre-tax into his or her retirement plan account.

Diversification - Spreading money among several investment options or asset classes for the purpose of reducing risk.

Dividend - Cash payments made to stockholders as determined by a company’s board of directors.

Equities - Types of securities that represent ownership in a corporation. Stocks are equities.

Fixed Income - Investments that are fundamentally debt securities. Bonds and U.S. Treasury obligations are examples.

Inflation - An increase in the price of goods and services resulting in a decrease in your ability to buy as much for the same amount of money.

Investment - A vehicle for money that seeks to increase its value through growth (increase in price) or income (dividends or interest).

Liquidity - Having investments that can readily be cashed in.

Money Market Instruments - Short-term (less than one-year maturity) fixed income investments such as commercial paper and U.S. Treasury bills that provide for a specified amount of interest, plus repayment of principal at maturity.

Portfolio - Any combination of one or more securities or investment options.

Rate of Return - The reward for investing. The increase in the value of your investment, expressed as a percentage.

Risk - The possibility that the value of an investment may decline or lose money. Also includes the possibility that it won’t keep ahead of inflation.

Security - An instrument that signifies ownership in a corporation (stock), or creditor relationship with a corporation or governmental body (bond), or any interest-bearing contract.

Standard Deviation - A measure of the volatility of an investment option’s performance over a period of time. A higher number indicates that the investment option’s performance has fluctuated (up or down). A lower number suggests that performance has not changed much over the measured time period.

Stock - Types of securities representing ownership in a corporation.

Standard & Poor’s 500 Index - A well known index computed by Standard & Poor’s Corporation, determined by the price action of 500 widely held common stocks from different sectors of the economy. It is frequently considered representative of the stock market as a whole.

Tax Deferred - A term to describe an investment whose earnings are free from taxation until they are withdrawn by the investor.

Time Horizon - The length of time an investor plans to be investing.

Total Return - The amount of interest and gain (selling price minus cost) earned on an investment.

Transfer - A transfer moves a participant’s current or existing account balances from one account option to another.

U.S. Treasury Obligations - Negotiable debt obligations issued by the U.S. government and backed by its full faith and credit. Treasury bills are short-term securities with maturities of one year or less. Treasury notes are intermediate-term securities with maturities of one to 10 years. Treasury bonds are long-term securities with maturities of 10 years of longer.

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