Investment Terms

Investment term of the day: Credit Score

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An exchange-traded fund, or ETF, is a type of security that involves a collection of securities—such as stocks—that often tracks an underlying index, although they can invest in any number of industry sectors or use various strategies. ETFs are in many ways similar to mutual funds; however, they are listed on exchanges and ETF shares trade throughout the day just like ordinary stock.
An ETF is called an exchange-traded fund since it's traded on an exchange just like stocks. The price of an ETF’s shares will change throughout the trading day as the shares are bought and sold on the market. This is unlike mutual funds, which are not traded on an exchange, and trade only once per day after the markets close.
Some well-known example is the SPDR S&P 500 ETF, which tracks the S&P 500 Index. ETFs can contain many types of investments, including stocks, commodities, bonds, or a mixture of investment types. An exchange-traded fund is a marketable security, meaning it has an associated price that allows it to be easily bought and sold.
ETFs trade through online brokers and traditional broker-dealers.
Types of ETFs include Bond ETFs, Industry ETFs, Commodity ETFs, Currency ETFs and Inverse ETFs.
And THAT was our investment term of the day.

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Quantitative easing is a form of unconventional monetary policy in which a central bank purchases longer-term securities from the open market in order to increase the money supply and encourage lending and investment. QE usually involves the central bank purchasing longer-term government bonds as well as other types of assets such as mortgage-backed securities.
Buying these securities adds new money to the economy, and also serves to lower interest rates by bidding up fixed-income securities. It also greatly expands the central bank's balance sheet.
If quantitative easing itself loses effectiveness, fiscal policy, or government spending, may be used to further expand the money supply. In effect, quantitative easing can even blur the line between monetary and fiscal policy, if the assets purchased consist of long term government bonds that are being issued to finance counter-cyclical deficit spending.
Quantitative easing can devalue the domestic currency. For manufacturers, this may help stimulate growth because exported goods would be cheaper in the global market. However, a falling currency value makes imports more expensive, which can increase the cost of production and consumer price levels.

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The investment term of the day is 'Market Indexes'

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Ultra-high net-worth individuals are defined as people with investable assets of at least $30 million, usually excluding personal assets and property such as a primary residence, collectibles, and consumer durables. UHNWIs comprise the wealthiest people in the world and control a disproportionate amount of global wealth. Although they constitute only .003% of the world’s total population, they hold approximately 13% of the world's total wealth. Ultra-high net worth is generally quoted in terms of liquid assets over a certain figure, but the exact amount differs by financial institution and region.
The biggest changes in the numbers of UHNWI appear in emerging economies and specifically in the BRIC nations of Brazil, Russia, India, and China. China and Russia, in particular, boast more than 200 billionaires in their ranks, making these countries third and fourth, respectively, behind the United States and the United Kingdom. In Russia, Vladimir Potanin, chairman and key shareholder in Norilsk Nickel, and Leonid Mikhelson, a gas and petrochemical magnate, are two of the country's top billionaires. In China, Wang Jianlin's real estate fortune, Jack Ma's company Alibaba, and Ma Huateng's internet holdings propel them to the top of their country's list of UHNWIs.
As of 2018, Amazon.com CEO Jeff Bezos reigns as the wealthiest person in the world, followed by Bill Gates, Warren Buffett, Mark Zuckerberg, and Carlos Slim Helu. Others near the top of the world's UHNWI population include brothers Charles and David Koch, former New York City mayor Michael Bloomberg, and several children and in-laws of Sam Walton, the late founder of Wal-Mart.
According to Forbes in 2018, half of all UHNWIs live in North America, and a quarter of them live in Europe. Asia-Pacific countries, excluding India and China, host 13% of the world's UHNWI population. The United States has the highest number of UHNWIs; 48% of them call the country home. China has the second-highest share of the UHNWI population with approximately 8%, and the United Kingdom follows with 4%.
As of 2018, the population of Ultra-High Networth Individuals was 226,450, up from 172,850 in 2015. The figure is 70% higher than a dozen years earlier. Some 2,170 of these individuals have more than a billion dollars which is an 85% increase over the number of billionaires in the previous decade. Together, these individuals hold 27 trillion dollars in aggregate wealth. The majority of ultra-high net-worth individuals are self-made men and women.

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Derivative are financial securities with a value that is reliant upon or derived from, an underlying asset or group of assets—a benchmark. The derivative itself is a contract between two or more parties, and the derivative derives its price from fluctuations in the underlying asset.
The most common underlying assets for derivatives are stocks, bonds, commodities, currencies, interest rates, and market indexes. These assets are commonly purchased through brokerages.
Originally, derivatives were used to ensure balanced exchange rates for goods traded internationally. Today, derivatives are based upon a wide variety of transactions and have many more uses. There are even derivatives based on weather data, such as the amount of rain or the number of sunny days in a region.
Derivatives can trade over-the-counter or on an exchange.
OTC derivatives constitute a greater proportion of the derivatives market. OTC-traded derivatives, generally have a greater possibility of counterparty risk. Counterparty risk is the danger that one of the parties involved in the transaction might default.
Conversely, derivatives that are exchange-traded are standardized and more heavily regulated.
Derivatives can be used to hedge a position, speculate on the directional movement of an underlying asset, or give leverage to holdings. Their value comes from the fluctuations of the values of the underlying asset.
Derivatives provide a way to lock-in prices, hedge against unfavorable movements in rates, and mitigate risks—often for a limited cost. In addition, derivatives can often be purchased on margin—that is, with borrowed funds—which makes them even less expensive.
On the downside, derivatives are difficult to value because they are based on the price of another asset. Most derivatives are also sensitive to changes in the amount of time to expiration, the cost of holding the underlying asset, and interest rates.
Finally, derivatives are usually leveraged instruments, and using leverage cuts both ways. While it can increase the rate of return it also makes losses mount more quickly.

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A restricted stock unit is a form of compensation issued by an employer to an employee in the form of company shares. Restricted stock units, or RSUs, are issued to an employee through a vesting plan and distribution schedule after achieving required performance milestones OR upon remaining with their employer for a particular length of time.
RSUs give an employee interest in company stock but they have no tangible value until vesting is complete. The restricted stock units are assigned a fair market value when they vest. Upon vesting, they are considered income, and a portion of the shares is withheld to pay income taxes. The employee receives the remaining shares and can sell them at his or her discretion.
Benefits of RSUs including giving an employee an incentive to stay with a company long term and help it perform well so that their shares increase in value. If an employee decides to hold their shares until they receive the full vested allocation, and the company's stock rises, the employee receives the capital gain minus the value of the shares withheld for income taxes and the amount due in capital gains taxes.
Limitations of Restricted Stock Units including it not providing dividends, as actual shares are not allocated. However, an employer may pay dividend equivalents that can be moved into an escrow account to help offset withholding taxes, or be reinvested through the purchase of additional shares.

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The Nasdaq is a global electronic marketplace for buying and selling securities. Nasdaq was created by the National Association of Securities Dealers to enable investors trade securities on a computerized, speedy and transparent system. It commenced operations on February 8, 1971. The term, “Nasdaq” is also used to refer to the Nasdaq Composite, which is an index of more than 3,000 stocks listed on the Nasdaq exchange. The stocks include biotech giants such as Apple, Google, Microsoft, Oracle, Amazon, and Intel.
Nasdaq officially separated from the NASD and began to operate as a national securities exchange in 2006. In 2007, it combined with the Scandinavian exchange group OMX to become the Nasdaq OMX group, which is the largest exchange company globally, powering 1 in 10 of the world’s securities transactions.
The Nasdaq OMX has its headquarters in New York, where it operates 25 markets which include primarily equities, as well as options, such as fixed income, derivatives and commodities. It also operates one clearinghouse and five central securities depositories in the United States and Europe. The Nasdaq's cutting-edge trading technology is used by 70 exchanges in 50 countries. It is listed on the Nasdaq under the symbol NDAQ and has been part of the S&P 500 since 2008.
The Nasdaq computerized trading system was initially devised as an alternative to the “specialist” system, which had been the prevalent model for almost a century. The rapid evolution of technology has made the Nasdaq’s electronic trading model the standard for markets worldwide.
The index crossed the 1,000 mark for the first time in July 1995, soared in the following years and peaked at over 4,500 in March 2000, before slumping almost 80% by October 2002 in the subsequent correction.
Nasdaq achieved its highest-ever close on August 29, 2018, when its index peaked at 8109.69 points. In 2018, it was announced that the Nasdaq was planning to introduce cryptocurrency futures in conjunction with a prominent investment firm.

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A tariff is a tax imposed by one country on the goods and services imported from another country.
Tariffs are used to restrict imports by increasing the price of goods and services purchased from another country, making them less attractive to domestic consumers. There are two types of tariffs: A specific tariff is levied as a fixed fee based on the type of item, such as a tariff on a car. An ad-valorem tariff is levied based on the item's value, such as 10% of the value of the vehicle.
Governments may impose tariffs to raise revenue or to protect domestic industries —especially nascent ones— from foreign competition. By making foreign-produced goods more expensive, tariffs can make domestically produced alternatives seem more attractive. Governments that use tariffs to benefit particular industries often do so to protect companies and jobs. Tariffs can also be used as an extension of foreign policy: Imposing tariffs on a trading partner's main exports is a way to exert economic leverage.
Tariffs can however have unintended side effects. They can make domestic industries less efficient and innovative by reducing competition. They can hurt domestic consumers, since a lack of competition tends to push up prices. Tarrifs can also generate tensions by favoring certain industries, or geographic regions, over others. For example, tariffs designed to help manufacturers in cities may hurt consumers in rural areas who do not benefit from the policy and are likely to pay more for manufactured goods. Finally, an attempt to pressure a rival country by using tariffs can devolve into an unproductive cycle of retaliation, commonly known as a trade war.

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Tax efficiency is an attempt to minimize tax liability when given many different financial decisions. A financial decision is said to be tax-efficient if the tax outcome is lower than an alternative financial structure that achieves the same end.
Tax efficiency refers to structuring an investment or a financial plan so that the least possible taxation occurs.
A taxpayer can open income-producing accounts that are tax-deferred, such as an Individual Retirement Account (IRA) or a 401(k) plan.
Tax-efficient mutual funds are taxed at a lower rate relative to other mutual funds.
A bond investor can opt for municipal bonds, which are exempt from federal taxes.
Tax efficiency refers to structuring an investment so that it receives the least possible taxation. There are a variety of ways to obtain tax efficiency when investing in the public markets.
A taxpayer can open an income-producing account whereby the investment income is tax-deferred, such as an Individual Retirement Account (IRA), a 401(k) plan, or an annuity. Any dividends or capital gains earned from the investments are automatically reinvested in the account, which continues to grow tax-deferred until withdrawals are made.1
With a traditional retirement account, the investor gets tax savings by reducing the current year's income by the amount of funds placed in the account. In other words, there's an upfront tax benefit, but when the funds are withdrawn in retirement, the investor must pay taxes on the distribution. On the other hand, Roth IRAs do not provide the upfront tax break from depositing the funds. However, Roth IRAs allow the investor to withdraw the funds tax-free in retirement.
In 2019, changes were made to the rules regarding retirement accounts with the passage of the SECURE Act by the U.S. Congress. Below are a few of those changes that take effect in 2020.
If you have an annuity in your retirement plan, the new ruling allows the annuity to be portable. So, if you leave your job to take another job at another company, your 401(k) annuity can be rolled over into the plan at your new company. However, the new law removed some of the legal liabilities that annuity providers previously faced by reducing the ability of account holders to sue them if the provider fails to honor the annuity payments.
For those with tax-planning strategies that include leaving money to beneficiaries, the new ruling may impact you too. The SECURE Act removed the stretch provision, which allowed non-spousal beneficiaries to take only the required minimum distributions from an inherited IRA. Starting in 2020, non-spousal beneficiaries that inherit an IRA must withdraw all of the funds within ten years following the death of the owner.
The good news is that investors of any age can now add money to a traditional IRA and get a tax deduction since the Act removed the age limitation for IRA contributions. Also, required minimum distributions don't need to begin until age 72–versus age 70 1/2 previously. As a result, it's important for investors to consult a financial professional to review the new changes to retirement accounts and determine whether the changes impact your tax strategy.
Investing in a tax-efficient mutual fund, especially for taxpayers that don’t have a tax-deferred or tax-free account, is another way to reduce tax liability. A tax-efficient mutual fund is taxed at a lower rate relative to other mutual funds. These funds typically generate lower rates of returns through dividends or capital gains compared to the average mutual fund. Small-cap stock funds and funds that are passively-managed, such as index funds and exchange-traded funds (ETFs), are good examples of mutual funds that generate little to no interest income or dividends.
A taxpayer can achieve tax efficiency by holding stocks for more than a year, which will subject the investor to the more favorable long-term capital gains rate, rather than...

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