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Active management
The trading of securities to take advantage of market opportunities. In contrast to passive management, active managers rely on research, market forecasts, and their own judgment and experience in selecting securities to buy and sell.
Actuary
A mathematician who calculates premiums, reserves, dividends, insurance, pension and annuity rates for insurance and financial services companies.
Aggressive growth fund
An investment fund that takes higher risk of loss in return for potentially higher returns or gains.
Alpha
A measure of the difference between a fund’s actual returns and its expected performance, given its level of risk as measured by beta. A positive alpha figure indicates the fund has performed better than its beta would predict. In contrast, a negative alpha indicates the fund’s underperformance, given the expectations established by the fund’s beta. Alpha, beta and R-squared are considered MPT (Modern Portfolio Theory) statistics and are based on a least-squared regression of the fund’s return over Treasury bills (called excess return) and the excess returns of the fund’s benchmark index.
Annual rate of return
The annual rate of gain or loss on an investment, expressed as a percentage.
Annual report
A yearly report or record of the financial position and operations of an investment or company.
Annuitant
The person whose life is insured is the annuitant. The annuitant and the annuity owner aren’t necessarily the same person.
Annuitization
The time you spend contributing to your annuity is the accumulation phase. The annuitization phase begins when you start receiving money from your annuity.
Annuity
An insurance contract issued by a life insurance company. The contract provides income at regular intervals for a defined period of time, such as a specific number of years or for life.
Annuity commencement date
The date stated in the annuity contract indicating when annuity payments will begin. This is also known as the annuity start date.
Appreciation
An increase in the value of an investment.
Asset
Anything with commercial or exchange value that is owned by a business, institution or individual. Examples include cash, real estate and investments.
Asset allocation
Spreading your investments between asset categories (stocks, bonds, cash or cash equivalents) may help minimize risk. That’s because investment categories respond to changing economic and political conditions in different ways. Just keep in mind that the use of asset allocation does not guarantee returns or insulate you from potential losses.
Asset class
A group of securities or investments that have similar characteristics and behave similarly in the marketplace. Three common asset classes are equities (such as stocks), fixed income (such as bonds), and cash alternatives or equivalents (such as money market accounts).
Asset-based fees
Expenses that are based on the amount of assets in your plan. These fees are generally charged as percentages or basis points.
Automatic asset rebalancing (AAR)
An optional service that will periodically exchange money between funds in your account to maintain your original investment levels. AAR saves you the time and hassle of manually reallocating your current balance every few months.
Average annual total returns
The annual compounded returns that would have produced the cumulative total return if fund performance had been constant during a given period.
Back-end load
A fee imposed by some funds when shares are redeemed (sold back to the fund) during the first few years of ownership. This is also referred to as a contingent deferred sales charge.
Balanced fund
A fund with an investment objective of both long-term growth and income, through investment in both stocks and bonds.
Barclay’s Global Aggregate Sovereign Bond Index
An unmanaged index that is the sovereign component of the Barclays Global Aggregate Bond Index; comprises bonds of investment-grade, BB+, BB and unrated global sovereign issues with maturities ranging from one to 98 years.
Barclay’s U.S. Corporate High Yield 2% Issuer Capped Index
An unmanaged index that reflects the performance of fixed-rate, non-investment-grade, U.S. dollar-denominated taxable corporate bonds. The maximum exposure to any one issuer is limited to 2%, and the holdings must have at least one year to maturity, have a minimum of $150 million par value outstanding and be publicly issued with a maximum credit rating of Ba1; gives a broad look at how high-yield (“junk”) bonds have performed.
Barclays 7-Year Municipal Bond Index
An unmanaged index that consists of a broad selection of investment-grade general obligation and revenue bonds with maturities of approximately seven years.
Barclays Global Aggregate Bond Index
An unmanaged index of fixed-rate, publicly issued, taxable bond market issues with a remaining maturity of at least one year; a broad-based measurement of the performance of the global investment-grade fixed-income markets.
Barclays Global Aggregate Corporate Bond Index
An unmanaged index that is the corporate component of the Barclays Global Aggregate Bond Index; comprises bonds of investment-grade, high-yield, and unrated corporate issues from North America, Europe, Australia and Asia-Pacific regions with maturities ranging from one to 100 years.
Barclays Municipal Bond Index
An unmanaged, market value-weighted index of investment-grade municipal bonds with a minimum credit rating of BAA and maturities of one year or more; serves as a broad market performance index for the tax-exempt bond market.
Barclays U.S. 1-3 Year Government/Credit Bond Index
An unmanaged index of U.S. dollar-denominated, investment-grade, fixed-rate, publicly issued, taxable bond market issues (including Treasury, government and corporate securities) with a remaining maturity of one to three years.
Barclays U.S. Aggregate Bond Index
An unmanaged market value-weighted index of investment grade, fixed-rate debt issues (including government, corporate, asset-backed and mortgage-backed securities with maturities of one year or more) that is generally representative of the bond market as a whole.
Barclays U.S. Treasury Inflation Protected Securities (TIPS) Index
An unmanaged, market capitalization-weighted index that measures the performance of all U.S. dollar-denominated, fixed-rate, nonconvertible, investment-grade, publicly-issued U.S. TIPS with $250 million or more in outstanding face value and a remaining maturity of at least one year.
Basis point
One-hundredth of one percent, or 0.01%. For example, 20 basis points equals 0.20%. Investment expenses, interest rates, and yield differences among bonds are often expressed in basis points.
Benchmark
An unmanaged group of securities whose performance is used as a standard to measure investment performance. Some well-known benchmarks are the Dow Jones Industrial Average and the S&P 500 Index.
Beta
A measure of a fund’s sensitivity to market movements. The beta of the market is 1.00 by definition. Morningstar calculates beta by comparing a fund’s excess return over Treasury bills to the market’s excess return over Treasury bills. A beta of 1.10 shows that the fund has performed 10% better than its benchmark index in up markets and 10% worse in down markets, assuming all other factors remain constant. Conversely, whereas a beta of 0.85 indicates that the fund’s excess return is expected to perform 15% worse than the market’s excess return during up markets and 15% better during down markets. Alpha, beta and R-squared are considered MPT (Modern Portfolio Theory) statistics and are based on a least-squared regression of the fund’s return over Treasury bills (called excess return) and the excess returns of the fund’s benchmark index.
Bloomberg Roll Select Commodity Total Return Index
A version of the Bloomberg Commodity Index that aims to mitigate the effects of contango market structure on index performance. For each commodity, the index rolls into the futures contract showing the most backwardation or the least amount of contango, selecting from those eligible contracts with nine months or fewer until expiration.
BofA Merrill Lynch (BofAML) 1-Year T-Bill Index
An unmanaged index that measures the returns of 12-month Treasury bills. Consists of a single issue purchased at the beginning of a month and held for the full month. At the end of that month, that issue is sold and rolled into a newly-selected issue. The issue selected at each month-end rebalancing is the outstanding T-bill with the longest maturity.
BofA Merrill Lynch (BofAML) 6-Month Treasury Bill (T-Bill) Index
An unmanaged index that measures the returns of six-month Treasury bills. Consists of a single issue purchased at the beginning of a month and held for the full month. At the end of that month, that issue is sold and rolled into a newly selected issue. The issue selected at each month-end rebalancing is the outstanding T-bill that matures closest to, but not beyond, six months from the rebalancing date.
BofA Merrill Lynch (BofAML) AAA U.S. Treasury/Agency Master Index
An unmanaged index that gives a broad look at how U.S. government bonds with a remaining maturity of at least one year have performed.
BofA Merrill Lynch (BofAML) Current 5-year U.S. Treasury Index
An unmanaged, one-security index, rebalanced monthly, that measures the performance of the most recently issued 5-year U.S. Treasury note; a qualifying note is one auctioned on or before the third business day prior to the final business day of the month.
BofA Merrill Lynch (BofAML) Global High Yield Index
An unmanaged, market capitalization-weighted index that gives a broad-based measurement of global high-yield fixed-income markets; measures the performance of below-investment-grade, corporate debt with a minimum of 18 months remaining to final maturity at issuance that is publicly issued in major domestic or eurobond markets, and is denominated in U.S. dollars, Canadian dollars, British pounds and euros.
BofA Merrill Lynch (BofAML) U.S. High Yield Cash Pay Constrained Index
An unmanaged, market-weighted index that measures the performance of publicly issued, nonconvertible, fixed-rate, coupon-bearing, U.S. dollar-denominated, below-investment-grade corporate debt with a maturity of at least one year. Each issue represented must have an outstanding par value of at least $50 million, must be less than BBB/BAA3-rated but not in default, and is restricted to a maximum of 2% of the total index.
Bond
A debt security that represents money borrowed by a corporation, government, or other entity. The borrower repays the amount of the loan, plus a percentage as interest. Income funds generally invest in bonds.
Bond fund
A fund that invests primarily in bonds and other debt instruments.
Bond rating
A rating or grade that’s intended to indicate the credit quality of a bond. The financial strength of its issuer and the likelihood that it will repay the debt are considered. Agencies such as Standard & Poor’s, Moody’s Investors Service and Fitch issue ratings for different bonds, ranging from AAA (highly unlikely to default) to D (in default).
Broker
A person who acts as an intermediary between the buyer and seller of a security, insurance product or mutual fund. This person is often paid a commission. The terms broker, broker/dealer and dealer are sometimes used interchangeably.
Brokerage window
An optional service lets you establish a self-directed brokerage account. This option carries distinct charges.
Capital appreciation fund
An investment fund that seeks growth in share prices by investing primarily in stocks whose share prices are expected to rise.
Capital gain
An increase in the value of an investment, calculated by the difference between the net purchase price and the net sales price.
Capital loss
The loss in the value of an investment, calculated by the difference between the purchase price and the net sales price.
Capital preservation
An investment goal or objective to keep the original investment amount (the principal) from decreasing in value.
Capitalization (Cap)
The total market value of a company’s outstanding equity.
Cash alternative / cash equivalent
An investment that is short term, highly liquid, and has high credit quality.
Cash refund annuity
An annuity that makes periodic payments during your lifetime, as well as a benefit to your beneficiaries upon your death. Your death benefit is equal to your premium(s) paid, minus payments made during your lifetime.
Citigroup 3-month U.S. Treasury Bill (T-Bill) Index
An unmanaged index that is generally representative of 3-month Treasury bills; consists of an average of the last 3-month Treasury bill issues (excluding the current month-end bill).
Citigroup Non-U.S. Dollar World Government Bond Index (Citigroup WGBI Non-US)
An unmanaged, market capitalization-weighted index that reflects the performance of fixed-rate investment-grade sovereign bonds with remaining maturities of one year or more issued outside the United States; generally considered to be representative of the world bond market.
Citigroup U.S. Broad Investment Grade Bond Index (USBIG®)
An unmanaged, market capitalization-weighted index that measures the performance of U.S. dollar-denominated bonds issued in the U.S. investment-grade bond market; includes fixed-rate, U.S. Treasury, government-sponsored, collateralized and corporate debt with remaining maturities of one year or more.
Citigroup U.S. High-Yield Market Index
An unmanaged, market capitalization-weighted index that reflects the performance of the North American high-yield market; includes U.S. dollar-denominated, fixed-rate, cash-pay and deferred-interest securities with remaining maturities of one year or more, issued by corporations domiciled in the United States or Canada.
Citigroup World Government Bond Index (WGBI) (Unhedged)
An unmanaged, market capitalization-weighted index that is not hedged back to the U.S. dollar and reflects the performance of the global sovereign fixed-income market; includes local currency, investment-grade, fixed-rate sovereign bonds issued in 20-plus countries, with remaining maturities of one year or more.
Class A shares
Class A shares typically impose a front-end sales load and tend to have a lower 12b-1 fee and lower annual expense than other mutual fund share classes. Some mutual funds reduce the front-end load as the size of the investment increases.
Class C shares
Class C shares generally have a level load. They might include a 12b-1 fee, other annual expenses and either a front- or back-end sales load.
Class I shares
Class I shares are often referred to as institutional shares because they’re generally intended for financial institutions that purchase shares for their own clients’ accounts. These shares have no front-end sales charge and cannot be purchased by the general public.
Class R shares
Class R shares are typically provided exclusively to retirement plans. Charges may vary based on the plan’s requirements and recordkeeping preferences.
Collective investment fund (CIF)
Investments created by a bank or trust company for employee benefit plans, such as 401(k) plans. Also referred to as collective or commingled trusts, CIFs pool the assets of retirement plans for investment purposes. CIFs are governed by rules and regulations that apply to banks and trust companies instead of being registered with the SEC.
Commission
Compensation paid to a broker or other salesperson when investments are bought or sold.
Common stock
An investment that represents a share of ownership in a corporation.
Company stock fund
A fund that invests primarily in employer securities that may also maintain a cash position for liquidity purposes.
Compounding
The cumulative effect that reinvesting an investment’s earnings can have by generating additional earnings of their own.
Contingent Deferred Sales Charge (CDSC)
An investment company may collect this fee if you withdraw money from your investment early in the contract. It compensates the company for the high cost they incur when setting up your account. The CDSC typically goes down over time, and goes away altogether when you reach the defined period for the contract.
Contract issue date
The date you sign paperwork to buy an annuity.
Corporate bond
A bond issued by a corporation, rather than by a government. The credit risk for a corporate bond is based on the repayment ability of the company that issued the bond.
Credit risk
The risk that a bond issuer will default. In other words, not repay principal or interest to the investor, as promised. This is also known as default risk.
Current yield
The current rate of return of an investment. This is calculated by dividing the investment’s expected income payments by its current market price.
Custodian
A person or entity, such as a bank or trust company, responsible for holding financial assets.
Deferred annuity
A deferred annuity lets you potentially grow your assets so they could provide a steady stream of income during retirement. When you purchase the annuity, you deposit money into it over a period of time. That money is invested. At a certain point, usually at retirement, you start receiving payments from the annuity. These payments can be made in a lump sum or in installments.
Deflation
The opposite of inflation, deflation is a decline in the prices of goods and services.
Depreciation
A decrease in the value of an investment.
Designated investment alternative
Your plan’s investment options.
Distribution
Money you take from your financial account, such as an IRA. Also called a withdrawal.
Diversification
The practice of investing in multiple asset classes and securities with different risk characteristics.
Dividend
Money an investment fund or company pays to its stockholders, typically from profits. The amount is usually expressed on a per-share basis.
Dow Jones (DJ) Global Select Real Estate Securities IndexSM
An unmanaged index that measures the performance of publicly traded securities of globally traded real estate operating companies (REOCs) and real estate investment trusts (REITs).
Dow Jones Industrial Average (DJIA)
The Dow is a widely-followed price-weighted index of 30 of the largest, most widely-held U.S. stocks.
Duration
An estimate of bond price sensitivity to changes in interest rates. The higher the duration, the greater the change (higher risk) in relation to interest-rate movements.
Earnings
Money gained on the principal in your financial accounts, such as an IRA.
Emerging market
Generally, economies that are in the process of growth and industrialization. Developing markets, such as Africa, Asia, Eastern Europe, the Far East, Latin America and the Middle East may hold significant growth potential in the future. Investing in emerging markets may provide significant rewards, as well as significant risks.
Emerging market fund
A fund that invests primarily in emerging market countries.
Employee Retirement Income Security Act of 1974 (ERISA)
A federal law that imposes various requirements on voluntary established pension plans in the private industry. ERISA establishes standards in order to provide protection for plan participants.
Equity
A security or investment representing ownership in a corporation. Equity is often used interchangeably with stock. Compare to a bond, which represents a loan to a borrower.
Equity Fund
A fund that invests primarily in equities.
Equity wash restriction
A provision in certain stable value or fixed income products that require transfers to be directed to an equity fund or other noncompeting investment option. Restrictions last for a stated period of time (usually 90 days) before those funds may be invested in any other competing fixed income fund (such as a money market fund) provided by the plan.
Exchange traded fund (ETF)
An investment company, such as a mutual fund. ETF shares are traded throughout the day on stock exchanges at market-determined prices.
Expense ratio
A measure of what it costs to operate an investment, expressed as a percentage of its assets or in basis points. You pay for these costs through a reduction in the investment’s rate of return. See operating expenses and total annual operating expenses.
Federal Deposit Insurance Corporation (FDIC)
A federal agency that insures deposits in member banks and thrift institutions.
Fiduciary
Any person or party who exercises any discretionary authority or control over the management of a plan, or the disposition of its assets. For a fee, a fiduciary gives investment advice, or has the authority to do so. A fiduciary also has discretionary responsibility in the administration of that plan.
Financial Industry Regulatory Authority (FINRA)
A self-regulatory organization for brokerage firms doing business in the United States. FINRA operates under the supervision of the U.S. Securities and Exchange Commission (SEC). FINRA protects investors and ensures market integrity.
Financial statement
The written record of the financial status of a fund or company. Financial statements are usually published in a company’s annual report. They generally include a balance sheet, an income statement, and other financial statements and disclosures.
Fixed annuity
With a fixed annuity, the insurance company guarantees the rate of return and payout. Guarantees are subject to the claims-paying ability of the issuing insurance company.
Fixed income fund
A fund that invests primarily in bonds and other fixed-income securities. Fixed income funds often provide shareholders with current income.
Fixed return investment
An investment that provides a specific rate of return to the investor.
Flat rate expenses
Base fees charged to a plan, regardless of the number of participants. Examples of flat rate expenses include preparation of IRS Form 5500, discrimination testing and vesting calculation.
Front-end load
A sales charge on mutual funds or annuities assessed at the time of purchase.
FTSE NAREIT® All Equity REITs Index
An unmanaged, free float-adjusted index that measures the performance of all publicly traded real estate companies and tax-qualified U.S. equity REITs; index constituents must have more than 50% of total assets in qualifying real estate assets other than mortgages secured by real property, and must meet minimum size and liquidity criteria.
FTSE World ex US Index
An unmanaged, broad-based, free float-adjusted, market capitalization-weighted index that measures the performance of large-cap and mid-cap stocks in developed and advanced emerging countries, excluding the United States.
FTSE World Index
An unmanaged, broad-based, free float-adjusted, market capitalization-weighted index that measures the performance of large-cap and mid-cap stocks in developed and advanced emerging countries, including the United States.
Fund family
A group or “complex” of mutual funds. Each group typically has its own investment objective, and is managed and distributed by the same company. Fund family also refers to a group of collective investment funds or a group of separate accounts managed and distributed by the same company.
Fund window
A plan feature that lets you buy investments that are not included in your plan’s general menu of designated investment alternatives.
Glide path
The shift over time in a target date fund’s asset allocation mix from a focus on growth to a focus on income.
Global fund
A fund that invests primarily in securities anywhere in the world, including the United States.
Government securities
Any debt obligations issued by a government or its agencies, such as U.S. Treasury bills.
Group annuity contract
An annuity contract between an insurance company and an owner for the benefit of a designated group, such as retirement plan participants.
Growth and income fund
A fund that has a dual strategy of growth or capital appreciation, as well as current income generation through dividends or interest payments.
Growth fund
A fund that invests primarily in the stocks of companies with above-average risk in return for potentially above-average gains. These companies often pay little or no dividends, and their stock prices tend to have the most ups and downs from day to day.
Guaranteed interest account
An account within a fixed or variable annuity that is guaranteed by the insurance company to earn at least a minimum rate of interest while invested in the contract.
Guaranteed investment contract
A contract issued by an insurance company that guarantees a specific rate of return on an investment over a certain time period.
Guaranteed lifetime withdrawal benefit
A feature sometimes offered in an annuity contract where the insurance company lets you withdraw a specified amount from an account. This benefit can apply to your entire life, the joint lives of you and another individuals (such as your spouse) or for a specified period of time. Withdrawals can be made even if the account balance is reduced to zero. This benefit it also known as a guaranteed minimum withdrawal benefit.
Immediate annuity
You can convert a lump sum into payments for life or for a certain number of years from an immediate annuity. Payments begin immediately.
iMoneyNetTM Prime Retail Index
An unmanaged index that is an average of non-government retail money market mutual funds. Portfolio holdings of prime money market mutual funds include U.S. Treasury, U.S. non-Treasury obligations, repurchase agreements, time deposits, domestic and foreign bank obligations, commercial paper, floating-rate notes and asset-backed commercial paper.
Inception date
The date a fund’s operations begin.
Income fund
A fund that primarily seeks current income rather than capital appreciation.
Index
A benchmark used to evaluate a fund’s performance. The most common indexes for stock funds are the Dow Jones Industrial Average and the Standard & Poor’s 500 Index.
Index fund
An investment fund that seeks to parallel the performance of a particular stock market or bond market index. Often referred to as passively-managed investments.
Individual annuity contract
An annuity contract between an insurance company and a person or persons.
Individual Retirement Account (IRA)
IRAs are accounts that you own and fund through your own contributions. Two common types of IRAs are:
• Traditional IRAs
– Contributions are made with pre-tax dollars, and earnings are tax-deferred. This means that you don’t owe taxes until the funds are withdrawn, usually at retirement.
• Roth IRAs
– Contributions are made with after-tax dollars, so you don’t pay taxes on the money as it accumulates.
Individual service expenses
Charges applied to participants who take advantage of special plan features, such as participant loans.
Inflation
The general upward price movement of goods and services in an economy. Inflation is generally one of the major risks to investors over the long term because it erodes the purchasing power of their savings.
Interest / Interest rate
The fee charged by a lender to a borrower, usually expressed as an annual percentage of the principal. For example, someone investing in bonds will receive interest payments from the bond’s issuer.
Interest rate risk
The possibility that the market value of a bond or bond fund will decrease due to rising interest rates. When interest rates (and bond yields) go up, bond prices usually go down, and vice versa.
International fund
A fund that invests primarily in the securities of companies located outside of the United States. Or whose revenues come from outside the United States.
Investment adviser
A person or organization hired by an investment fund or an individual to give professional advice on investments and asset management practices.
Investment company
A corporation or trust that invests pooled shareholder dollars in securities that are appropriate to the organization’s objective. The most common type of investment company, a mutual fund, stands ready to buy back its shares at their current net asset value.
Investment objective
The goal that an investment fund or investor seeks to achieve, such as growth or income.
Investment return
The gain or loss on an investment over a certain period, expressed as a percentage. Income and capital gains or losses are included in calculating the investment return.
Investment risk
The possibility of losing some or all of the amounts invested, or not gaining value in an investment.
Joint and last survivor annuity
An annuity that provides periodic payments for the joint lives of two individuals. Benefits are payable upon the death of one individual to the surviving individual at a percentage of the original payment amount. Death benefit amounts depend on the terms of the contract.
JPM CEMBI Broad Diversified Index
An unmanaged index in the Corporate Emerging Market Bond Index (CEMBI) series that measures the performance of U.S. dollar-denominated corporate bonds issued by emerging market countries as selected by JPMorgan.
JPM EMBI Global Diversified Index
An unmanaged index in the Emerging Market Bond Index (EMBI) series that measures the performance of U.S. dollar-denominated sovereign bonds issued by emerging market countries as selected by JPMorgan.
JPM Emerging Markets Bond Index (EMBI)
An unmanaged index that reflects the total returns of U.S. dollar-denominated sovereign bonds issued by emerging market countries as selected by JPMorgan.
JPM GBI Global Index (Unhedged)
An unmanaged, market capitalization-weighted index in the Government Bond Index (GBI) series that measures the local market performance of fixed-rate government bonds issued by high-income countries as selected by JPMorgan; the index is not hedged to the U.S. dollar.
JPM GBI-EM Global Diversified Index
An unmanaged index in the Government Bond Index-Emerging Markets (GBI-EM) series that measures the local market performance of U.S. dollar-denominated sovereign bonds issued by emerging market countries as selected by JPMorgan.
Large capitalization (Cap)
A reference to either a large company stock or an investment fund that invests in the stocks of large companies.
Large-cap fund
A fund that invests primarily in large-cap stocks.
Large-cap stocks
Stocks of companies with a large market capitalization. Large caps tend to be well-established companies, so their stocks typically have less risk than smaller caps, but they also offer less potential for dramatic growth.
Life annuity
An annuity that makes periodic payments only for the life of one individual. Also known as a single life annuity.
Lifecycle fund
A fund designed to provide varying degrees of long-term appreciation and capital preservation based on your age or target retirement date. As you get older or closer to retirement, a lifecycle fund’s mix of asset classes becomes less focused on growth and more focused on income. Also known as target date retirement or age-based funds.
Lifestyle fund
A fund that maintains a predetermined risk level and generally uses words like “conservative,” “moderate” or “aggressive” in its name to indicate the fund’s risk level. Used interchangeably with target risk fund.
Liquidity
The ease that an investment can be converted into cash. If a security is very liquid, it can be bought or sold easily. If a security is not liquid, it may take additional time and/or a lower price to sell it.
Longevity risk
The risk that you will live longer than expected and run out of retirement money.
Management fee
A service fee or charge paid to an investment manager.
Market capitalization (Cap)
The market value of a company. Market capitalization can be determined by multiplying the number of outstanding shares of a company’s stock by the stock’s current market price per share.
Market risk
The possibility that the value of an investment will fall because of a general decline in the financial markets.
Markit CDX Emerging Markets 5-year Total Return Index
An index comprising credit default swaps (CDS) on sovereign debt from three regions: 1) Latin America; 2) Eastern Europe, the Middle East and Africa; and 3) Asia. The index measures the performance of and replicates the behavior of a fictitious portfolio that buys one CDX Emerging Markets 5-year Index contract and invests the remaining notional principal amount in money market instruments. The portfolio is always invested in the most recently published (on-the-run) CDX Emerging Markets 5-year series that it tracks. (Whenever a new CDX Emerging Markets 5-year series is issued, due to a regular index roll [every March and September] or due to a credit event in the current series, the CDS position in the reference portfolio is rolled into the on-the-run/reduced index position.)
Markit CDX North American High Yield 5-year Total Return Index (CDX NA HY)
An equally weighted index that measures the performance of 100 liquid non-investment-grade reference entities (those given a long-term credit rating by Fitch, Moody’s and/or S&P that is lower than BBB-/Baa3) domiciled in North America that trade in the credit default swaps (CDS) market. The index measures the performance of and replicates the behavior of a fictitious portfolio that buys one CDX NA HY 5-year Index contract and invests the remaining notional principal amount in money market instruments. The portfolio is always invested in the most recently published (on-the-run) CDX NA HY 5-year series that it tracks. (Whenever a new CDX NA HY 5-year series is issued, due to a regular index roll [every March and September] or due to a credit event in the current series, the CDS position in the reference portfolio is rolled into the on-the-run/reduced index position.)
Maturity date
The date when the principal amount of a loan, bond or any other debt becomes due and is to be paid in full.
Mid capitalization (Cap)
A reference to either a medium-sized company stock or an investment fund that invests in the stocks of medium-sized companies.
Mid-cap fund
A fund that invests primarily in mid-cap stocks.
Mid-cap stocks
Stocks of companies with a medium market capitalization. Mid caps are often considered to offer more growth potential than larger caps, but less than small caps. They also are considered to offer less risk than small caps, but more than large caps.
Money market fund
A mutual fund that invests in short-term, high-grade fixed-income securities. Money market funds seek the highest level of income consistent with preserving capital. In other words, they try to maintain a stable share price.
Morningstar
A leading mutual fund research and tracking firm that categorizes funds by objective and size, then ranks fund performance within those categories.
Morningstar® (MStar) Lifetime Allocation Indexes
A series of unmanaged, multi-asset-class indexes designed to benchmark target-date investment products. Each index is available in three risk profiles: aggressive, moderate and conservative. The index asset allocations adjust over time, reducing equity exposure and shifting toward traditional income-producing investments. The strategic asset allocation of the indexes is based on the Lifetime Asset Allocation methodology developed by Ibbotson Associates, a Morningstar company.
Morningstar® (MStar) Lifetime Moderate Indexes
Each of the Nationwide Target Destination Funds has an individual Morningstar index to go with it that matches the year number in the fund name. The Nationwide Destination 2010 Fund uses the Morningstar® (Mstar) Lifetime Moderate 2010 Index. The other Target Destination Funds follow suit, changing only the number in the index name (2015, 2020, 2025, 2030, 2035, 2040, 2045, 2050, 2055, 2060). The Morningstar Lifetime Allocation Indexes definition is used as an overarching benchmark index description; an individual market index definition is not used for each fund.
Morningstar® (MStar) Lifetime Target Risk Index
One of a series of unmanaged indexes that cover a global set of stocks, bonds, and commodities and are designed to benchmark asset allocation products across a risk spectrum ranging from conservative to aggressive. Asset-class weights are adjusted annually and rebalanced quarterly, based on an asset allocation methodology from Ibbotson Associates, a Morningstar company.
MPT Statistics (Modern Portfolio Theory)
Alpha, beta, and R-squared are modern-portfolio-theory measures of a fund’s relative risk, based on a least-squares regression of a fund’s excess returns on the excess returns of a market index. Standard deviation is not considered an MPT statistic because it is not generated through the same formula or mathematical analysis as the other three statistics.
MSCI ACWI
An unmanaged, free float-adjusted, market capitalization-weighted index that is designed to measure the performance of large-cap and mid-cap stocks in global developed and emerging markets as determined by MSCI.
MSCI ACWI ex USA Index
An unmanaged, market capitalization-weighted index that is designed to measure the performance of global stocks in developed and emerging markets, excluding U.S.-based companies.
MSCI ACWI®
An unmanaged, free float-adjusted, market capitalization-weighted index that is designed to measure the performance of large-cap and mid-cap stocks in global developed and emerging markets as determined by MSCI.
MSCI ACWI® ex USA Growth
An unmanaged, free float-adjusted, market capitalization-weighted index that is designed to measure the performance of large-cap and mid-cap growth stocks in global developed and emerging markets as determined by MSCI; excludes the United States.
MSCI EAFE® Index
An unmanaged, free float-adjusted, market capitalization-weighted index. The index is designed to measure the performance of the stocks in developed markets outside the United States and Canada.
MSCI EAFE® Value Index
An unmanaged, free float-adjusted, market capitalization-weighted index that is designed to measure the performance of large-cap and mid-cap stocks in developed markets as determined by MSCI; excludes the United States and Canada.
MSCI Emerging Markets® Index
An unmanaged, free float-adjusted, market capitalization-weighted index that is designed to measure the performance of large-cap and mid-cap stocks in emerging-country markets as determined by MSCI.
MSCI Emerging Markets® Net Total Return Index
An unmanaged, free float-adjusted, market capitalization-weighted index that is designed to measure the performance of large-cap and mid-cap stocks in emerging-country markets as determined by MSCI. The net total return component measures whole market performance, including price performance and income from dividend payments, after the deduction of withholding taxes.
MSCI World IndexSM
An unmanaged, free float-adjusted, market capitalization-weighted index that is designed to measure the performance of large-cap and mid-cap stocks in global developed markets as determined by MSCI.
MSCI World IndexSM Free
An unmanaged, free float-adjusted, market capitalization-weighted index that is designed to measure the performance of global developed-market equities. The “Free” suffix denotes an index with a somewhat different history but the same constituents and performance in relation to its counterpart without the suffix.
Mutual fund
An investment company registered with the SEC that buys a portfolio of securities selected by a professional investment adviser. Mutual funds can have actively-managed portfolios, where a professional investment adviser creates a unique mix of investments to meet a particular investment objective. They can also have passively-managed portfolios, in which the adviser tries to match the performance of a selected benchmark or index.
NASDAQ-100 Index
An unmanaged index that includes 100 of the largest domestic and international nonfinancial securities listed on the Nasdaq Stock Market, based on market capitalization.
National Association of Securities Dealers Automated Quotation (NASDAQ)
A composite index that measures the performance of more than 5,000 U.S. and non-U.S. companies traded “over the counter” through NASDAQ.
Net asset value (NAV)
The net dollar value of a single investment fund share or unit that is calculated by the fund on a daily basis.
New York Stock Exchange (NYSE)
The oldest and largest stock exchange in the United States. The NYSE was founded in 1792.
No-load fund
A mutual fund whose shares are sold without a sales commission. No-load funds do not charge a combined 12b-1 fee and service fee of more than 25 basis points, or 0.25% per year.
NYSE Arca Tech 100 Index®
An unmanaged, price-weighted index of at least 100 individual technology-related securities. This index includes stocks of companies from various industries that produce or deploy innovative technologies.
“Archipelago®”, “ARCA®”, “ARCAEX®”, “NYSE®”, “NYSE ARCASM” and “NYSE Arca Tech 100SM” are trademarks of the NYSE Group, Inc. and Archipelago Holdings, Inc. and have been licensed for use by the Nationwide Funds. This Fund is not sponsored, endorsed, sold or promoted by Archipelago Holdings, Inc. (“ARCA”). ARCA makes no representation or warranty regarding the advisability of investing in securities generally, in the Fund particularly, or the ability of the NYSE Arca Tech 100 Index to track general stock market performance.
Operating expenses
Costs associated with running or operating an investment fund. Operating expenses may include custody fees, management fees and transfer agent fees. Also see expense ratio and total annual operating expenses.
P/E ratio
The price of a stock divided by trailing 12-month earnings per share.
Passive management
The process or approach to operating or managing a fund in a passive or non-active manner, typically with the goal of mirroring an index. Passive management funds are often referred to as index funds and differ from investment funds that are actively managed.
Per participant charges
Charges are based on the total number of eligible employees or actual participants in the plan.
Period certain
A payment feature available in some annuity contracts that guarantees periodic payments for a set period of time. For example, in a life annuity, periodic payments would be made to you or beneficiary for the either the guaranteed period or the life of the individual. Whichever is longer.
Plan administrative expenses
Charges used to cover services provided for the day-to-day operations of the plan, such as recordkeeping, accounting, customer service support and daily valuation.
Pooled guaranteed investment contract (GIC) fund charges
Charges for a common, fixed income investment option. Includes a number of contracts issued by an insurance company or bank that pays an interest rate. Charges include investment management and administrative fees.
Portfolio
A collection of investments, such as stocks and bonds owned by an individual, organization or investment fund.
Portfolio manager
The individual, team or firm making the investment decisions for an investment fund, including the selection of individual investments.
Portfolio turnover rate
A measure of how frequently investments are bought and sold within an investment fund during a year. The portfolio turnover rate is usually expressed as a percentage of the total value of an investment fund.
Principal
Money you’ve contributed to your financial account, such as an IRA.
Prospectus
The official document that describes certain investments, such as mutual funds, to prospective investors. The prospectus contains information required by the SEC, such as investment objectives and policies, risks, services and fees.
Provider / Recordkeeping expenses
These expenses are a combination of various charges. Also known as an asset management charge (AMC) or wrap charge.
Qualified / Nonqualified
These terms identify whether contributions are made with pre-tax or post-tax dollars. Qualified contributions come from money that hasn’t been taxed yet, such as money withheld from your paycheck for your 401(k). Nonqualified contributions come from money that has already been taxed, such as the check you write for your Roth IRA.
Rate of return
The gain or loss on an investment over a period of time. The rate of return is typically reported annually and expressed as a percentage.
Real rate of return
The rate of return on an investment adjusted for inflation.
Redemption
The selling of fund shares back to the fund. This may also refer to the repayment of a bond on or before the agreed upon pay-off date.
Redemption fee
A fee, generally charged by a mutual fund, to discourage certain trading practices by investors, such as short-term or excessive trading. If a redemption fee is charged, it is done when the investment is redeemed or sold.
Return
The gain or loss on an investment. A positive return indicates a gain, while a negative return indicates a loss.
Rider
An optional rider added to your life insurance policy or annuity contract can offer additional coverage and protection on select products.
Risk
The potential for you to lose some or all of your investments, or to fail to achieve your investment objectives.
Risk tolerance
An investor’s ability and willingness to lose some or all of an investment in exchange for greater potential returns.
R-squared
R-squared measures the relationship between a portfolio and its benchmark. It can be thought of as a percentage from 1 to 100. R-squared is not a measure of the performance of a portfolio. If a portfolio moves like the benchmark, it has a high R-squared. If it doesn’t move at all like the benchmark, it has a low R-squared.
General Range for R-Squared:
R-squared can be used to ascertain the significance of a particular beta or alpha. Generally, a higher R-squared will indicate a more useful beta figure. If the R-squared is lower, then the beta is less relevant to the fund’s performance. Alpha, beta and R-squared are considered MPT (Modern Portfolio Theory) statistics and are based on a least-squared regression of the fund’s return over Treasury bills (called excess return) and the excess returns of the fund’s benchmark index.
Russell 1000® Growth Index
An unmanaged index that measures the performance of the large capitalization growth segment of the U.S. equity universe. Includes Russell 1000® Index companies with higher price-to-book ratios and higher forecasted growth values.
Russell 1000® Index
An unmanaged index that measures the performance of stocks of the large capitalization segment of the U.S. equity universe.
Russell 1000® Value Index
An unmanaged index that measures the performance of the large capitalization value segment of the U.S. equity universe. Includes Russell 1000® Index companies with lower price-to-book ratios and lower forecasted growth values.
Russell 2000® Growth Index
An unmanaged index that measures the performance of the small capitalization growth segment of the U.S. equity universe. Includes Russell 2000® Index companies with higher price-to-book ratios and higher forecasted growth values.
Russell 2000® Index
An unmanaged index that measures the performance of the small-capitalization segment of the U.S. equity universe.
Russell 2000® Value Index
An unmanaged index that measures the performance of the small capitalization value segment of the U.S. equity universe; includes those Russell 2000® Index companies with a lower price-to-book ratios and lower forecasted growth values.
Russell Midcap® Growth Index
An unmanaged index that measures the performance of the mid capitalization growth segment of the U.S. equity universe. Includes Russell Midcap® Index companies with higher price-to-book ratios and higher forecasted growth values.
Russell Midcap® Value Index
An unmanaged index that measures the performance of the mid-capitalization value segment of the U.S. equity universe; includes those Russell Midcap® Index companies with a lower price-to-book ratios and lower forecasted growth values.
S&P 500® Index
An unmanaged, market capitalization-weighted index of 500 stocks of leading large-cap U.S. companies in leading industries; gives a broad look at the U.S. equities market and those companies’ stock price performance.
S&P MidCap 400® (S&P 400) Index
An unmanaged, market capitalization-weighted index of 400 stocks of medium-sized U.S. (those with a market capitalization of $1 billion to $4.4 billion) $1.4 billion to $5.9 billion.
S&P North American Technology Sector Index™
An unmanaged, modified, market capitalization-weighted index that measures the performance of the technology sector of the U.S. equity market.
S&P SmallCap 600/Citigroup Value Index
An unmanaged index that measures the performance of the small-capitalization value sector of the U.S. equity market.
S&P/Citigroup International Treasury Bond Ex-U.S. Index (Hedged)
An unmanaged index that measures the performance of Treasury bonds with a remaining maturity of one year or more issued in local currencies by developed market countries outside the United States. Each country’s bonds are market value-weighted, and country weights are modified market weighted to balance levels of debt outstanding and to achieve diversification.
Sales charge
A charge for buying an investment.
SEC 30-day Yield
An unmanaged, market capitalization-weighted index of 500 stocks of leading large-cap U.S. companies in leading industries. This index gives a broad look at the U.S. equities market and the stock price performance of those 500 companies.
Sector fund
A fund that invests in a particular or specialized segment of the marketplace, such as stocks of companies in the software, health care or real estate industries.
Securities and Exchange Commission (SEC)
A government agency created by congress in 1934 to regulate the securities industry and to help protect investors. The SEC is responsible for ensuring that the securities markets operate fairly and honestly.
Security
A general term for stocks, bonds, mutual funds and other investments.
Separate account
An insurance company account that is segregated or separated from the insurance company’s general assets. This also refers to a fund managed by an investment adviser for a single plan.
Share
A representation of ownership in a company or investment fund.
Share class
Some investment funds and companies offer more than one type or group of shares, each of which is considered a class. Examples include “class A,” “Advisor” or “Institutional” shares. Each class has different fees and expenses, but all of the classes invest in the same pool of securities and share the same investment objectives.
Shareholder
An owner of shares in an investment fund or corporation.
Shareholder-type fees
Any fee charged against an investment for purchase and sale, other than the total annual operating expenses.
Sharpe ratio
Calculated using standard deviation and excess returns over the 3-month U.S. Treasury Bill to determine reward per unit of risk. The higher the Sharpe ratio, the better the fund’s historical risk adjusted performance. The Sharpe ratio is calculated for the past 36-month period by dividing a fund’s annualized excess returns by the standard deviation of a fund’s annualized excess returns.
Single premium / Single purchase payment
A single premium annuity is a deferred annuity that lets you put money into your annuity account only once, when you first purchase the product.
Small capitalization (Cap)
Refers to either a small company stock or an investment fund that invests in the stocks of small companies.
Small-cap fund
A fund that invests primarily in small-cap stocks.
Small-cap stocks
Stocks of companies with smaller market capitalization. Small caps are often considered to offer more growth potential than large and mid caps, but they may come with more risk.
Stable value fund
An investment fund that seeks to preserve principal and provide consistent returns and liquidity. Stable value funds include collective investment funds sponsored by banks or trust companies, as well as contracts issued by insurance companies.
Standard & Poor’s 500® Index
An unmanaged, market capitalization-weighted index of leading large-cap U.S. companies in leading industries. This index gives a broad look at the U.S. equities market and the stock price performance of those 500 companies.
Standard deviation
A statistical measure of risk. It reflects the extent to which an asset’s rate of return may fluctuate from period to period. When a fund has a high standard deviation, the predicted range of performance is wide, implying greater volatility. Morningstar computes standard deviation using the trailing monthly total returns for the appropriate time period. All of the monthly standard deviations are then annualized.
Stock
A security that represents an ownership interest in a corporation.
Stock fund
A fund that invests primarily in stocks.
Stock symbol
An abbreviation using letters and numbers assigned to securities to identify them. See ticker symbol.
Summary prospectus
A short-form prospectus that mutual funds may use with investors. A summary prospectus is used if a long-form prospectus and additional information is available online or on paper, upon request.
Target date fund
A fund designed to provide varying degrees of long-term appreciation and capital preservation based on your age or target retirement date. As you get older or closer to retirement, a lifecycle fund’s mix of asset classes becomes less focused on growth and more focused on income. Also known as a lifecycle fund.
Target risk fund
A fund that maintains a predetermined asset mix and generally uses words such as “conservative,” “moderate” or “aggressive” in its name to indicate the fund’s risk level. Also known as a lifestyle fund.
Ticker symbol
An abbreviation using letters and numbers assigned to securities and indexes to identify them. See stock symbol.
Time horizon
The amount of time you expect to hold an investment before taking money out.
Total annual operating expenses
A measure of what it costs to operate an investment. These expenses are typically expressed as a percentage of an investment’s assets, a dollar amount or in basis points. You pay these costs through a reduction in the investment’s rate of return. See expense ratio and operating expenses.
Transaction-based expenses
Fees based on the execution of a particular plan service or transaction.
Trustee
A person or entity, such as a bank, trust company or other organization, that is responsible for the holding and safekeeping of trust assets. The trustee may have other duties, such as investment management. A trustee serving as a “directed trustee” is responsible for the safekeeping of trust assets, but has no discretionary investment management duties or authority over the assets.
U.S. Treasury securities
Debt securities issued by the United States government and secured by its full faith and credits. U.S. Treasury securities are the debt-financing instruments of the U.S. government. Often referred to as treasuries.
Unit
A representation of ownership in an investment that doesn’t issue shares. Most collective investment funds are divided into units instead of shares. See share.
Unit class
Investment funds divided into units, instead of shares. Collective investment funds and other funds may offer more than one type or group of units, each of which is considered a class, such as “Class A”. For most investment funds, each class has different fees and expenses, but all of the classes invest in the same pool of securities and share the same investment objectives.
Unit value
The dollar value of each unit on a given date.
Unitholder
An owner of units in an investment. See shareholder.
Value fund
A fund that invests primarily in stocks that are believed to be priced below what they’re really worth.
Variable annuity
A variable annuity is a long-term investment product that provides a variable rate of return based on the performance of the investments you select. A variable annuity is a contract between you and an insurance company, and it’s sold by prospectus. While it may take some time, you should read the prospectus. The prospectus describes risk factors, fees and charges that may apply to you.
Variable annuity charges
Variable annuities have fees and charges that include mortality and expense, investment management and administrative fees, contract fees and the expense of the underlying investment options. Variable annuities also have insurance-related charges, such sales expenses and surrender and transfer charges when an employee is terminated or withdraws from the plan’s investment.
Variable return investment
Investments for which the return is not fixed. Variable return investments include stock and bond funds, as well as investments seeking to preserve principal but not guaranteeing a particular return. Examples include money market funds and stable value funds.
Volatility
The amount and frequency of fluctuations in the price of a security, commodity or market within a specified time period. Generally, an investment with high volatility is said to have higher risk because there’s an increased chance that the price of the security will have fallen when an investor wants to sell.
Withdrawal
Also called a distribution, a withdrawal is the money you take from your financial account, such as an IRA. For retirement accounts, distributions made prior to age 59½ may be subject to a 10% penalty tax. All taxable distributions at any age are subject to ordinary income tax, and surrender charges may apply. You may incur fees or penalties when you make a withdrawal, depending on the type of product and whether the account is qualified or non-qualified.
Wrap fee
A fee or expense that is added to, or “wrapped around,” an investment to pay for one or more product features or services.
Yield
The value of interest or dividend payments from an investment. The yield is usually stated as a percentage of the investment price.
12b-1 Fee
A fee assessed on certain mutual funds or share classes permitted under an SEC rule to help cover the costs associated with marketing and selling the fund. 12b-1 fees may also be used to cover shareholder servicing expenses.
