Financial Glossary

A retirement savings plan sponsored by an employer that allows employees to contribute a portion of their paycheck — before taxes — into an investment account. Employers may also contribute through matching or profit-sharing. Contribution limits are set annually by the IRS.

A retirement savings plan similar to a 401(k) but designed for employees of public schools, nonprofits, and certain other tax-exempt organizations. Like a 401(k), contributions are typically made pre-tax.

A retirement savings plan available to employees of state and local governments and certain nonprofits. Unlike 401(k) and 403(b) plans, early withdrawals from a 457(b) are not subject to a 10% penalty.

An investment strategy where a portfolio manager makes specific buy and sell decisions with the goal of outperforming a benchmark index. Actively managed funds typically have higher fees than passively managed funds.

A financial product — typically offered by an insurance company — that provides a stream of payments over time, often used as a source of retirement income. Annuities can be fixed, variable, or indexed, and they come with varying fees and terms.

Anything of value that you own, including cash, investments, real estate, and retirement accounts. Your total assets minus your total liabilities equals your net worth.

The strategy of dividing your investments among different asset classes — such as stocks, bonds, and cash — based on your goals, risk tolerance, and time horizon. Asset allocation is one of the most important decisions in building a portfolio.

A group of investments that share similar characteristics and tend to behave similarly in the market. The three main asset classes are equities (stocks), fixed income (bonds), and cash or cash equivalents.

One one-hundredth of one percent (0.01%). Investment fees, interest rates, and yield differences are often expressed in basis points. For example, a fee of 50 basis points equals 0.50%.

A standard — usually a market index like the S&P 500 — used to measure the performance of an investment or portfolio. Comparing your returns to a benchmark helps you evaluate how your investments are doing relative to the broader market.

A person or entity designated to receive the benefits from a financial account, insurance policy, or estate upon the account holder's death. Keeping beneficiary designations up to date is one of the most commonly overlooked parts of financial planning.

A debt instrument where an investor lends money to a borrower — typically a corporation or government — in exchange for periodic interest payments and the return of principal at maturity. Bonds are generally considered lower risk than stocks but offer lower long-term returns.

An investment fund that pools money from multiple investors to invest primarily in bonds and other debt securities. Bond funds provide diversification and professional management but are still subject to interest rate and credit risk.

A bull market refers to a period of rising prices and investor optimism. A bear market is the opposite — a sustained period of declining prices, usually defined as a drop of 20% or more from recent highs.

An increase in the value of an investment above its original purchase price. A capital gain is "unrealized" while you still hold the asset and "realized" when you sell it. Realized capital gains may be subject to taxes.

A decrease in the value of an investment below its original purchase price. Capital losses can be used to offset capital gains for tax purposes.

A short-term, low-risk investment — such as a money market fund or Treasury bill — that offers high liquidity and stability but relatively low returns. Often used as a safe holding place within a portfolio.

An additional amount that individuals age 50 or older are allowed to contribute to a retirement account (such as a 401(k) or IRA) beyond the standard annual contribution limit. This is designed to help people closer to retirement boost their savings.

Interest earned on both the original principal and on the accumulated interest from prior periods. Compounding is one of the most powerful forces in long-term investing — the earlier you start saving, the more time compounding has to work in your favor.

An investment approach that prioritizes preservation of capital and lower risk, typically through a higher allocation to bonds and cash alternatives and a lower allocation to stocks. Conservative strategies generally produce more stable but lower returns over time.

An increase in income or benefits — such as Social Security payments — designed to keep pace with inflation and maintain purchasing power over time.

A retirement plan — commonly called a pension — where the employer promises a specific monthly benefit at retirement based on a formula that typically includes salary history and years of service. The employer bears the investment risk.

A retirement plan — such as a 401(k), 403(b), or SIMPLE IRA — where the employee and/or employer contribute money into an individual account. The retirement benefit depends on contributions made and investment performance. The employee bears the investment risk.

The practice of spreading your investments across a variety of asset classes, industries, and geographies to reduce the risk of being overexposed to any single investment. Diversification doesn't guarantee against loss, but it can help reduce overall portfolio volatility.

A payment made by a company or fund to its shareholders, typically from profits. Dividends can provide a steady stream of income and can be reinvested to purchase additional shares.

An investment strategy where you invest a fixed dollar amount at regular intervals — regardless of market conditions. This approach reduces the impact of short-term volatility because you buy more shares when prices are low and fewer when prices are high. Contributing to your 401(k) each paycheck is a common example.

A contribution an employer makes to an employee's retirement account based on the employee's own contributions. For example, an employer might match 50 cents for every dollar an employee contributes, up to a certain percentage of salary. Not taking full advantage of an employer match is essentially leaving free money on the table.

An ownership stake in a company, typically in the form of stock. The term "equities" is often used interchangeably with "stocks."

A federal law enacted in 1974 that sets minimum standards for most employer-sponsored retirement and health plans. ERISA establishes rules around fiduciary responsibility, plan reporting, and participant rights.

The process of arranging for the management and distribution of your assets after death. Estate planning typically involves wills, trusts, beneficiary designations, powers of attorney, and strategies to minimize estate taxes.

An investment fund that holds a basket of securities — such as stocks or bonds — and trades on a stock exchange like an individual stock. ETFs typically track an index and offer low fees, diversification, and intraday liquidity.

The annual fee an investment fund charges its shareholders, expressed as a percentage of assets. The expense ratio covers management fees, administrative costs, and other operating expenses. Lower expense ratios mean more of your money stays invested.

A person or organization that is legally and ethically obligated to act in another person's best interest. In financial planning, a fiduciary advisor must put your needs ahead of their own — the highest standard of care in the industry.

An asset class made up of investments — primarily bonds — that pay a set amount of interest or dividends on a regular schedule. Fixed income investments are generally considered lower risk than equities and are often used to provide stability and income in a portfolio.

A sales commission charged when you purchase shares in a mutual fund. The fee is deducted from your investment upfront, reducing the amount that actually gets invested.

An investment fund that invests in other funds rather than directly in individual securities. This approach provides additional diversification but may result in layered fees.

The gradual shift in asset allocation within a target date fund over time — typically moving from a higher allocation in stocks to a higher allocation in bonds and cash as the target retirement date approaches.

A fund that invests primarily in companies expected to grow faster than the overall market. Growth funds tend to carry higher risk but offer greater potential for long-term capital appreciation.

A tax-advantaged account available to individuals enrolled in a high-deductible health plan. Contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are also tax-free — making it one of the most powerful savings tools available, especially for retirees.

An investment fund that focuses primarily on generating regular income for investors — through dividends or interest payments — rather than capital appreciation.

A measurement of the performance of a specific section of the market. Common indexes include the S&P 500 (large U.S. stocks), the Dow Jones Industrial Average, and the Bloomberg U.S. Aggregate Bond Index.

A fund designed to match the performance of a specific market index by holding the same securities in the same proportions. Index funds are passively managed and typically have lower fees than actively managed funds.

The gradual increase in the prices of goods and services over time, which reduces the purchasing power of your money. Inflation is one of the biggest long-term risks to retirement savings — even at a modest 3% annual rate, prices roughly double every 24 years.

The risk that rising interest rates will cause the value of existing bonds or bond funds to decline. When new bonds offer higher yields, older bonds with lower rates become less attractive, pushing their prices down.

A tax-advantaged retirement savings account that individuals can open on their own, outside of an employer-sponsored plan. Traditional IRAs offer tax-deductible contributions and tax-deferred growth. Roth IRAs offer tax-free growth and tax-free withdrawals in retirement.

A financial obligation or debt that you owe, such as a mortgage, car loan, student loan, or credit card balance. Your net worth is calculated as total assets minus total liabilities.

How quickly and easily an investment can be converted to cash without significantly affecting its value. Stocks and money market funds are highly liquid. Real estate and certain alternative investments are much less liquid.

A sales commission charged on certain mutual funds, either at the time of purchase (front-end load) or at the time of sale (back-end load). Many modern funds are "no-load," meaning they do not charge a sales commission.

The total market value of a company's outstanding shares, calculated by multiplying the stock price by the number of shares. Companies are generally categorized as large-cap, mid-cap, or small-cap based on their market capitalization.

A type of mutual fund that invests in short-term, high-quality debt securities. Money market funds aim to maintain a stable share price and provide modest returns with very low risk. They are often used as a cash alternative within a portfolio.

An investment vehicle that pools money from many investors to buy a diversified portfolio of stocks, bonds, or other securities. Mutual funds are managed by professional portfolio managers and are priced once per day after the market closes.

Connecticut's state-run retirement savings program that requires employers with five or more employees to either offer a qualified retirement plan or enroll their workers in MyCTSavings. While the program gives employees a way to save, it has significant limitations. There are no ERISA protections for participants, employees bear all of the fees, and the program provides no investment advice or financial planning. Employers who fail to comply face annual fines of up to $500 for 5–24 employees, $1,000 for 25–99 employees, and $1,500 for 100 or more employees. For most businesses, offering a private retirement plan — such as a 401(k) or SIMPLE IRA — provides far better benefits for employees and greater flexibility for the employer.

The per-share value of a mutual fund or ETF, calculated by dividing the total value of the fund's assets minus its liabilities by the number of shares outstanding. NAV is calculated at the end of each trading day.

The total value of everything you own (assets) minus everything you owe (liabilities). Tracking your net worth over time is one of the simplest and most effective ways to measure your overall financial health.

An investment approach that seeks to match the performance of a specific market index rather than trying to beat it. Passively managed funds — such as index funds and many ETFs — typically have lower costs than actively managed funds.

A collection of investments — including stocks, bonds, mutual funds, ETFs, cash, and other assets — held by an individual or institution. A well-constructed portfolio is diversified and aligned with the investor's goals, risk tolerance, and time horizon.

A legal document that grants one person the authority to act on another person's behalf in financial or legal matters. A financial power of attorney is an important component of estate planning.

The original amount of money invested or the face value of a bond. Protecting principal is a key concern for conservative investors, particularly those in or near retirement.

The process of realigning your portfolio's asset allocation back to its original or desired target. Over time, market movements can cause your portfolio to drift — for example, a strong stock market may push your equity allocation higher than intended. Rebalancing brings it back in line.

The minimum amount you must withdraw each year from certain retirement accounts — such as a traditional 401(k) or traditional IRA — once you reach the required age (currently 73 under the SECURE 2.0 Act). Failure to take RMDs results in significant tax penalties.

Your ability and willingness to endure declines in the value of your investments in exchange for the potential of higher long-term returns. Risk tolerance is influenced by factors like your time horizon, financial goals, income stability, and personal comfort with uncertainty.

The transfer of funds from one retirement account to another — such as moving a 401(k) to an IRA — without triggering a taxable event. Rollovers are common when changing jobs or consolidating retirement accounts.

A type of individual retirement account funded with after-tax dollars. Qualified withdrawals — including all investment growth — are completely tax-free in retirement, making Roth IRAs one of the most powerful tools for long-term tax planning.

A feature within a 401(k) plan that allows employees to make contributions with after-tax dollars. Like a Roth IRA, qualified withdrawals from a Roth 401(k) are tax-free in retirement. Unlike a Roth IRA, Roth 401(k) contributions are not subject to income limits.

A retirement plan that allows employers — especially self-employed individuals and small business owners — to make tax-deductible contributions to individual retirement accounts on behalf of eligible employees. SEP IRAs have higher contribution limits than traditional IRAs and are simple to administer.

A retirement plan designed for small businesses with 100 or fewer employees. Both employers and employees can contribute. SIMPLE IRAs are easier and less costly to set up and maintain than a 401(k) but come with lower contribution limits.

A widely followed stock market index that tracks the performance of 500 of the largest publicly traded companies in the United States. The S&P 500 is one of the most common benchmarks used to measure the performance of equity investments.

An investment option commonly found in 401(k) plans that seeks to preserve capital, provide steady returns, and maintain liquidity. Stable value funds typically invest in high-quality bonds wrapped with insurance contracts to protect against interest rate fluctuations.

A security that represents partial ownership in a corporation. When you buy stock, you become a shareholder and are entitled to a proportional share of the company's profits and assets.

A fund designed to simplify retirement investing by automatically adjusting its mix of stocks, bonds, and other investments based on a selected target retirement year. As the target date approaches, the fund gradually shifts to a more conservative allocation. Also known as a lifecycle fund.

Refers to investment earnings — such as interest, dividends, or capital gains — that grow without being taxed until the money is withdrawn. Traditional 401(k)s and traditional IRAs are common examples of tax-deferred accounts.

The length of time you expect to hold an investment or the time between now and when you'll need the money. A longer time horizon generally allows for more aggressive investing because there's more time to recover from short-term market downturns.

The total cost of operating an investment fund over a year, expressed as a percentage of the fund's assets. This includes management fees, administrative costs, and any other ongoing expenses. Also known as the expense ratio.

A legal arrangement in which one party (the trustee) holds and manages assets on behalf of another party (the beneficiary). Trusts are commonly used in estate planning to control how and when assets are distributed.

The process by which an employee earns the right to keep employer contributions made to their retirement account. Vesting schedules can be immediate (you own the contributions right away) or graded (you earn ownership gradually over a set number of years).

The degree to which an investment's price fluctuates over time. High volatility means larger price swings — both up and down — and is generally associated with higher risk. Stocks tend to be more volatile than bonds.

An all-inclusive fee charged by a brokerage or advisory firm that bundles investment management, financial planning, brokerage services, and administrative costs into a single annual charge — usually expressed as a percentage of assets under management.

The income generated by an investment — expressed as a percentage of its price — typically from interest payments (bonds) or dividends (stocks). Yield is a useful measure for comparing the income-producing potential of different investments.