Adjusted Gross Income On your tax return, your Adjusted Gross Income (AGI) is all the income you made in a year, minus certain "above-the-line" deductions, such as pre-tax contributions to an Individual Retirement Account (IRA) or Health Savings Account (HSA). AGI is sometimes used as a benchmark for certain tax credits, deductions, and other benefits. Accredited Investment Fiduciary The Accredited Investment Fiduciary® (AIF®) is a professonional certification that an advisor can earn to show their commitment to fiduciary excellence, meaning they will work in their clients' best interests. Adjustable Rate Mortgage An adjustable rate mortgage (ARM) is a home loan with a flexible interest rate that changes over the life of the loan based on the market. American Opportunity Tax Credit The American Opportunity Tax Credit (AOTC) applies to qualified education expenses for an eligible student's first four years of higher education. Applicable Federal Rate The applicable federal rate (AFR) is the minimum interest rate that is allowed for loans, set by the Internal Revenue Service (IRS). It is commonly used for intrafamily loans (i.e. loans between family members). Assets Under Management Assets Under Management (AUM) is the total market value of investments managed by a person or firm on an investors' behalf. Automated Clearing House AN ACH is an electric payment made between banks for payment purposes. Examples of payments made via ACH: -Direct deposit of paychecks -Debits for regular payments -Money transfers that don't need to be instantaneous (NOTE: for immediate transfers, wires are often used instead) Book-to-Market The Book-to-Market ratio (BTM) compares a company's value, which is based on their assets minus their liabilities, to the market value, which is based on the price of its shares. Brokerage Account A brokerage account is an arrangement where an investor deposits money with a licensed brokerage firm, which places trades on behalf of the customer. It has no special tax advantages like an IRA or 401(k) does, and capital gains/losses are realized when assets in the account are sold. Capital Asset Pricing Model The Capital Asset Pricing Model (CAPM) is a model that calcuates an investment's expected rate of return. Capital Expenditures Capital Expenditures (CapEx) are funds used by a company to acquire, upgrade and maintain physical assets (property, plants, buildings, tech, equipment). Capital Gain A capital gain ccurs when you sell an asset for more than what you originally paid for it. CERTIFIED FINANCIAL PLANNER® A CFP® is a certification that indicates an in-depth knowledge of financial planning. Like the Accredited Investment Fiduciary® (AIF®) designation, CFP® professionals are also held to a strict fiduciary standard, meaning they will work in their clients' best interests. Consumer Price Index The Consumer Price Index (CPI) represents the variation in prices that consumers pay for goods and services. It is commonly used as a measure of inflation. Cyclical Stocks Cyclical stocks have a direct relationship to the economy. Their prices (in theory) go up as the economy grows, and vice versa when it shrinks. Examples of industries with cyclical stocks might include automotive, airlines, luxury goods, and hospitality. Debt-to-Income Your Debt-to-Income (DTI) ratio is the sum of all your monthly debt payments divided by your gross monthly income. Lenders use the DTI to help measure your ability to repay potential loans. Dividend A dividend is a distribution of a company’s earnings to its shareholders, determined by a company’s board of directors. Dividends are often distributed quarterly – paid in cash or reinvested in additional stock. Durable Power of Attorney A Durable Power of Attorney (POA) is a representative you appoint to make medical, legal, and financial decisions on your behalf if you are unable. This appointment remains effective if you become incapacitated, and endures until your death. Earnings Per Share Earnings Per Share (EPS) is the result of a company's net profit divided by the number of common shares it has outstanding. It shows how much a company earns for each share of its stock. Coverdell Education Savings Account A Coverdell Education Savings Account (ESA) is a trust or custodial account set up to pay for qualified education expenses for the account's beneficiary. ESAs are typically funded by parents for their dependent children. Electronic Funds Transfer An Electronic Funds Transfer (EFT) moves money electronically from an account in one financial institution to an account in another financial institution. Employee Retirement Income Security Act The Employee Retirement Income Security Act (ERISA) was enacted in 1974 and estatblishes standards for employer-sponsored pension plans and retirement plans (like 401k plans). Employee Stock Purchase Plan An employee stock purchase plan (ESPP) allows employees to contribute a portion of their after-tax earnings toward an account that purchases company stock, often at a discount. Employees can then choose to sell that stock whenever it will be financially beneficial for them. Exchange Traded Fund An ETF is an investment fund that that holds a large number of other securities within it, like stocks or bonds, leading to greater diversification. As opposed to a mutual fund, an ETF can be traded intra-day on stock exchanges (like a stock), while a mutual fund can only be traded once (at the market's close) each day. Export Tax Incentive An Export Tax Incentive (ETI) are incentives provided to businesses that are designed to encourage exports of certain goods or services. Fiduciary A fiduciary is a person or organization that acts on behalf of another person(s). Fiduciaries put clients’ interests ahead of their own, have a duty to preserve good faith and trust, and are bound legally and ethically to act in the others’ best interests. Five-Year Aging Period The Five-Year Aging Period begins the 1st day of the taxable year for when the Roth IRA owner makes a regular contribution or the 1st day of the 1st conversion/rollover contribution. Fixed Asset A Fixed Asset is a long-term tangible piece of property or equipment that a firm owns and uses in its operations to generate income. Flexible Spending Accounts A Flexible Spending Account (FSA) is an account to which you can make pre-tax contributions to be used tax-free for a specified purpose, typically health care or dependent care costs. Remember, if you don't use it, you lose it! Free Application for Federal Student Aid The Free Application for Federal Student Aid (FAFSA) is a form that current and prospective college students can submit to determine whether or not they are eligible for federal financial aid, and if so, how much (and what types) of aid they qualify for. In determining need, the FAFSA examines the assets & income of not only the student, but also their parents. Full Retirement Age The Full Retirement Age (FRA) is the age at which you can receive full retirement benefits as provided through Social Security. Government Sponsored Enterprises Government Sponsored Enterprises (GSE) are federally charted corporations that are publicly owned by stockholders. Grantor Retained Annuity Trust A Grantor Retained Annuity Trust (GRAT) is a trust used in estate planning to minimize taxes on large financial gifts to family members. Health Savings Accounts A Health Savings Account (HSA) is an account to which you can make pre-tax contributions to be used tax-free, specifically for qualified medical expenses. HSAs are offered alongside high-deductible health plans (HDHPs), and the "use it or lose it" stipulation does not apply to HSAs like it does to FSAs. High Net Worth Individuals A High Net Worth Individual (HNI) is defined by an individual's investible assets. HNIs have an excess of $1 million invested. Home Equity Line of Credit Like a mortgage, a Home Equity Line of Credit (HELOC) is a loan that is secured by the equity you have in your home. However, a HELOC can be "tapped" whenever needed, and can be used for a variety of different purposes (i.e. home renovations, consolidation of other debt, etc.) Incentive Stock Options Incentive Stock Options (ISOs), like other types of stock options, are the right (but not the obligation) to buy shares of company stock at a predetermined price (the "strike price"). The unique factor of ISOs is that, if the employee "exercises" their right and buys the shares, they can get special tax treatment on the gains if they hold the shares for a certain amount of time before selling. Individual Retirement Account An Individual Retirement Account (IRA) is an investment account you set up yourself (hence "individual"), and can make pre-tax contributions up to an annual maximum, until your retirement. At retirement, the money you had previously deferred during your working years is taxed as ordinary income upon withdrawal. Investment Policy Statement An Investment Policy Statement (IPS) is a written set of guidelines between a wealth manager and the client, where the two parties agree upon (and document) an investment strategy for the wealth manager to use in managing the client's assets. Limited Power of Attorney A Limited Power of Attorney (LPOA) allows the appointed agent to act and make decisions regarding specific activities, as outlined by the principal. Maturity Date The Maturity Date is the date upon which a debt becomes due. If you're the lender (i.e. if you own a bond in your portfolio), you are repaid your principal on this date. If you're the borrower (i.e. if you have a mortgage or car loan), you pay the remainder of the loan on this date. Modified Adjusted Gross Income On your tax return, your Modified Adjusted Gross Income (MAGI) is calculated by taking your Adjusted Gross Income (AGI) and "adding back" certain things that were previously deducted. These add-back items (if any) can be rare or only occur in niche situations, so for many people, AGI and MAGI end up being the same. Monte Carlo Simulation The Monte Carlo simulation is used to model the probability of several different outcomes when the potential for random variables is present. This type of simulation is used for a range of problems in many fields such as investing, business, engineering, and science, and is also referred to as a multiple probability simulation.

In wealth management, this simulation is used to predict the probability of financial independence. The random variables in this scenario are your specific financial data (i.e. income, savings, assets, liabilities, spending habits, & goals). With this data, a large number of various market return scenarios are simulated to produce millions of potential future outcomes that provide a probability of success. Mutual Fund A mutual fund is an investment fund that that holds a large number of other securities within it, like stocks or bonds, leading to greater diversification. As opposed to an ETF, a mutual fund can only be traded once (at the market's close) each day, while an ETF can be traded intra-day on stock exchanges (like a stock). Non-Cyclical Stocks Non-cyclical stocks tend to demonstrate relatively stable performance, regardless of the current state of the economy. Examples of industries with non-cyclical stocks might include household/personal products, food/beverage, utilities, and health care. Non-Qualified Deferred Compensation Non-Qualified Deferred Compensation (NQDC) plans allow an employee (typically an executive) to defer part of their compensation, and the income tax on it, until a later date. Non-qualified plans are not protected by the Employee Retirement Income Security Act (ERISA), like 401(k)s and other qualified plans are. Therefore, if the plan sponsor runs into financial trouble, the deferred compensation could be forfeited. Non-Qualified Stock Options Non-qualified stock options (NSOs or NQSOs) are the right (but not the obligation) to buy shares of company stock at a predetermined price (the "strike price"). If the employee "exercises" their right and buys the shares, then turns around and sells them at a profit on the open market, the profit is typically taxed as a mix between ordinary income and capital gains. Payable on Death Placing a Payable on Death (POD) designation on assets names a beneficiary to receive the assets upon the death of the owner, thus avoiding probate. POD designations are commonly placed on bank accounts. Power of Attorney A Power of Attorney (POA) designation gives one the authority to act on behalf of another person in legal, financial, or medical matters. Price-to-Earnings Ratio The Price-to-Earnings (P/E) ratio is a calculation that divides a company's share price by its earnings per share (EPS). Primary Bond Market The selling of newly issued bonds to the public – most of the money received in the sale goes to the issuer. Principal, Interest, Taxes and Insurance PITI is the sum components of a mortgage payment, including your principal amount, interest payment, and what is owed for taxes and insurance. Private Mortgage Insurance Private Mortgage Insurance (PMI) is typically required for conventional loan borrowers when a down payment of less than 20% is made at the time of closing. This is because the loan is considered "riskier" to the lender without a sufficient downpayment, so PMI acts as a safeguard to the lender in these instances. Probate Probate is a legal process in which the validity and authenticity of a will are determined in court. It can also refer to the general administration of a deceased person’s estate, if they die without a will. Beneficiary designations, joint titiling, and trust provisions are some ways to avoid assets going through probate. Qualified Birth or Adoption Distribution A QBOAD is a type of distribution from retirement accounts that allows withdrawal of up to $5,000 without penalty within 1 year of a birth or adoption. Qualified Charitable Distribution A Qualified Charitable Donation (QCD) allows those older than 70.5 to donate to a charity directly from their Individual Retirement Account (IRA). The advantage of doing this is that the dollars leave the IRA tax-free if they go directly to charity, whereas a normal (non-charitable) distribution from a traditional IRA would otherwise be taxed as ordinary income. QCDs can be used to satisfy part (or all) of one's Required Minimum Distribution (RMD). Required Beginning Date The Required Beginning Date (RBD) is the date an account holder is required to take their first Required Minimum Distribution (RMD). Required Minimum Distributions A Required Minimum Distribution (RMD) is the amount of money that must be withdrawn from retirement accounts on an annual basis, once the account holder reaches a certain age. For accounts into which pre-tax income was previously deferred, like a traditional IRA or 401(k), RMDs occur so tax on this income isn't deferred forever. RMDs are calculated each year based on the prior year account balance & a life expectancy factor. Roth Individual Retirement Account A Roth IRA is an investment account you set up yourself (hence "individual" retirement account), and can make after-tax contributions up to an annual maximum, until your retirement. The advantage of a Roth IRA is that, since after-tax dollars go in and the tax is already paid, the funds can grow tax-free indefinitely. Restricted Stock Units A Restricted Stock Unit (RSU) is a type of equity compensation where a company awards shares of stock to an employee (a "grant"). Pieces of the grant then "vest" according to a schedule, meaning blocks of shares are released to the employee incrementally over time. At each vest, the shares released are taxed to the employee as ordinary income. Revocable Trust A trust that can be altered during the grantor's lifetime (the grantor being the person who sets up the trust). Revocable trusts typically do not have any special income/estate tax advantages while the grantor is alive, and the primary purpose is to avoid probate at death. Standard & Poors 500 Index An index that tracks stock performance of the 500 largest companies in the United States. It is commonly used as one of the main proxies for the performance of the domestic stock market, as well as a benchmark for both passive and active investment managers. S&P Indices Versus Active S&P Indices Versus Active (SPIVA) are semi-annual reports that compare the performance of active managers (investment managers that try to beat the market) to the benchmark they are trying to beat (typically the S&P 500). Secondary Bond Market Bonds bought from and sold to other investors Self Canceling Installment Notes Self-Canceling Installment Notes (SCIN) are a unique form of promissory note that allows buyers and sellers to securely transfer real estate, business interests, and other assets while helping to optimize income, gift and estate taxes. Simplified Employee Pension A Simplified Employee Pension (SEP) is a retirement plan option for small business owners and their employees. Employer contributions, made on a discretionary basis, are tax deductible. Contributions limits are typically higher than traditional IRAs, and employees receive immediate vesting of their employer's contributions. Standing Letter of Authorization A Standing Letter of Authorization (SLOA) authorizes a client's financial advisor to instruct their qualified custodian to distrubute funds and transfer securities on the client's behalf. Tax-Deferred The payment of taxes on contributions into an investment account is postponed, with the understanding taxes that will be paid under certain conditions in the future. For instance, a person makes pre-tax contributions into a traditional IRA, thus deferring taxes on their contributions until later in life when they have to start withdrawing from the account by way of Required Minimum Distributions. Tax-Advantaged A term to describe any investment account that provides tax benefits. These benefits could take place when you contribute money into the account (i.e. deferring pre-tax income into a traditional IRA), when the money grows within the account (i.e. no capital gains within an IRA, 401(k), or HSA), and/or when you take money out of the account (i.e. tax-free withdrawals from a Roth IRA). Transfer on Death Placing a Transfer on Death (TOD) designation on assets names a beneficiary to receive the assets upon the death of the owner, thus avoiding probate. TOD designations are commonly placed on non-cash assets, such as brokerage accounts or vehicles. Trustee A trustee is a person or firm that holds and administers property or assets for the benefit of a third party. Uniform Transfers to Minors Account A Uniform Transfers to Minors account (UTMA) allows a "custodian" (often a parent or grandparent) to place assets into the account, for the benefit of a minor (often a child or grandchild). When the child reaches the "age of majority" (i.e. no longer a minor), assets are released to them outright. Zero-Coupon Bonds Zero-Coupon Bonds are issued at a deep discount, and interest payments aren't made until the bond matures. The bond makes a single payment at maturity that is higher than the initial purchase price. 401(k) A 401(k) is a type of employer-sponsored retirement savings account. Employees can choose to contribute a percentage of their income, and employers may match some or all of the contributions. The employee can then choose different investment options for the account, usually mutual funds or ETFs. 401(k)s provide tax advantages, by way of either tax-deferred contributions if a traditional 401(k), or tax-free growth if a Roth 401(k). 403(b) A 403(b) is a type of employer-sponsored retirement savings account. Its properties and advantages are nearly identical to a 401(k), but a 403(b) is designed for employees of public schools and other tax-exempt organizations. 529 Plan 529 Plans are tax-advantaged accounts designed to help pay for education. Contributions are made pre-tax, investments within the account grow tax-free, and withdrawals are also tax-free if used for qualified education expenses. Many states also offer an income tax deduction for making 529 contributions. Qualifying Disposition A qualifying disposition in an ESPP refers to the purchase, sale, or transfer of eligible stock 24 months after the beginning of the Offering Period and 12 months after Purchase Date. Disqualifying Disposition A disqualifying disposition in an ESPP refers to the purchase, sale, or transfer of eligible stock before 24 months after the beginning of the Offering Period or 12 months after the Purchase Date. Target Date Funds Target Date Funds simplify retirement investing by adjusting asset allocation from aggressive to conservative over the years as you approach your chosen retirement date, or ‘target date.’   Time-Weighted Rate of Return

The time-weighted rate of return is a measure of the compound rate of growth in a portfolio. Because this method significantly reduces the distorting effects created by inflows of new money, it is used to compare the returns of investment managers.

Internal Rate of Return

The internal rate of return is the average rate earned by each and every dollar invested during the period. This rate is influenced not only by the movements in financial markets and decisions made by portfolio managers, but also by the timing and size of the cash inflows and outflows and the beginning and ending book or market values.

Equity Compensation Equity compensation is type of non-cash payment benefit that is offered to employees. It encompasses a range of programs, including stock options, restricted stock units, and employee stock purchase plans. Restricted Stock Awards Restricted stock awards (RSAs) are a type of equity compensation. Employees receive a grant of company stock, which limits the recipient's rights until the shares vest. Equity Grants An equity grant is a type of equity compensation. When receiving an equity grant, an employee gets a percentage of ownership in the company.  Certified Public Accountant A Certified Public Accountant (CPA) is an accounting professional that has met the licensing requirements of their state to earn the designation. CPAs have completed thorough educational training and passed an exam to obtain their certification. Alternative Minimum Tax A parallel tax system ensuring high-income earners pay a minimum amount of tax by limiting certain deductions and credits. Deferred Compensation Deferred compensation refers to a portion of an employee's salary that is not paid or taxed until a future date.  Actual Deferral Percentage A compliance test for retirement plans that compares the average salary deferrals of highly compensated employees to non-highly compensated employees. Safe Harbor Contributions Employer contributions to retirement plans that automatically satisfy certain IRS nondiscrimination tests, ensuring plan compliance. Simple IRA A retirement plan for small businesses allowing employees and employers to contribute. It’s easier to administer than a 401(k) and offers tax advantages. Defined Benefit Plans Employer-sponsored retirement plans that promise a specific benefit amount at retirement, typically based on salary and years of service. Thrift Savings Plan A retirement savings plan for federal employees and military members, similar to a 401(k), offering tax-deferred or Roth options. Lookback Provision A rule in equity compensation plans that determines eligibility or pricing based on prior periods, often used in stock purchase plans. Offering Date The date when employees are first eligible to participate in an equity compensation plan, such as an ESPP. Purchase Date The date when shares are actually bought under an equity compensation plan. Exercise Price The fixed price at which an employee can purchase company stock under an option agreement. Strike Price The fixed price at which an employee can purchase company stock under an option agreement. Grant Date The date on which an employee receives an award of stock options or other equity compensation. Alternative Minimum Taxable Income The income figure used to calculate AMT liability, including adjustments and preferences not counted under regular tax rules. Irrevocable Trust A trust that cannot be changed or revoked after it is created, often used for estate planning to protect assets and reduce taxes. Cash Balance Plan A type of defined benefit plan that acts like a defined contribution plan, crediting a participant’s account with a set percentage of pay plus interest. Roth 401(k) An employer-sponsored retirement account allowing after-tax contributions, with tax-free withdrawals in retirement. Tax-Exempt Bonds Bonds whose interest income is exempt from federal income tax, often issued by municipalities. Fixed-Income Investments Investments that provide regular income, such as bonds or CDs, typically with lower risk than stocks. Qualified Accounts Accounts with tax advantages under IRS rules, such as IRAs and 401(k)s. Non-Qualified Accounts Investment accounts without special tax benefits, like brokerage accounts. Index Funds Funds that track a market index, such as the S&P 500, offering broad diversification at low cost. Monte Carlo Simulation The Monte Carlo simulation is used to model the probability of several different outcomes when the potential for random variables is present. This type of simulation is used for a range of problems in many fields such as investing, business, engineering, and science, and is also referred to as a multiple probability simulation.

In wealth management, this simulation is used to predict the probability of financial independence. The random variables in this scenario are your specific financial data (i.e. income, savings, assets, liabilities, spending habits, & goals). With this data, a large number of various market return scenarios are simulated to produce millions of potential future outcomes that provide a probability of success. Expense Ratio The annual fee expressed as a percentage of assets that investors pay for fund management. Asset Allocation The strategy of dividing investments among different asset classes (stocks, bonds, cash) to balance risk and reward. Asset Location Placing investments in accounts that maximize tax efficiency (e.g., bonds in tax-deferred accounts, stocks in taxable accounts). Cost Basis The original value of an asset for tax purposes, used to calculate capital gains or losses when sold. Step-Up in Basis An adjustment of an inherited asset’s value to its fair market value at the date of death, reducing capital gains tax if sold.