Balance sheet The firm's financial statement that provides a picture of its assets, debts, and net worth at a specific point in time. Balanced fund A common trust fund or mutual fund that maintains a balanced portfolio, generally 50% bonds or preferred stocks and 50% common stocks, but this percentage can and does vary. Beta A measure of a stock's risk relative to the market, usually the Standard & Poor's 500 index. The market's beta is always 1.0; a beta higher than 1.0 indicates that, on average, when the market rises, the stock will rise to a greater extent and when the market falls, the stock will fall to a greater extent. A beta lower than 1.0 indicates that, on average, the stock will move to a lesser extent than the market. The higher the beta, the greater the risk. Bid price The price a buyer is willing to pay for a security. This price is usually lower than the Ask price. Blackout period When a plan sponsor decides to switch from one plan vendor to another, there is typically a period during which participants are not permitted to make changes in their investment selections. This is known as the blackout period. Once the blackout period commences and until it ends, participants can no longer direct the investments in their accounts. Blackout periods can last up to 60 days. Bond A certificate of debt issued by a company or the government. Bonds generally pay a specific rate of interest and pay back the original investment after a specified period of time. Book value per share The accounting value of a share of common stock. It is determined by dividing the net worth of the company (common stock plus retained earnings) by the number of shares outstanding. Bundled plan A 401k package which includes all investment, administration, education, and recordkeeping that is sold as one unit. This is in contrast to a basic 401k plan in which the plan sponsor can individually hire each component provider separately. Business and industry risk Uncertainty of an investment's return due to a fall-off in business that is firm-related or industry-wide. Buy-and-hold A strategy in which the stock portion of your portfolio is fully invested in the stock market at all times. Call option The right to purchase stock at a specified (exercise) price within a specified time period. Callable bond A bond that can be redeemed by the issuer prior to its maturity. Usually a premium is paid to the bond owner when the bond is called. Cash Balance Plan A defined benefit plan in which each participant has an account that is credited with a dollar amount that resembles an employer contribution, generally determined as a percentage of pay. Each participant's account is credited with earned interest. The plan provides the benefits in the form of a lump-sum distribution or annuity. Cash or deferred arrangement (CODA) See Salary Reduction Plan. Capital gain An increase in the value of a capital asset such as common stock. If the asset is sold, the gain is a "realized" capital gain. A capital gain may be short-term (one year or less) or long-term (more than one year). Catch-up provision A provision found in some 401k plans that allows an eligible employee who are at least age 50 to make higher annual contributions in the years prior to retirement. Certificate of deposit A bank deposit that pays a specified rate of interest for a certain period of time. Churning The unethical and excessive trading of a client account in order to generate commissions for a broker, but which may not in the best interests of the client. Not only does the client pay high commissions, they also gets stuck with a high tax bills due to the short-term holding of assets. Cliff vesting A 401k plan with "Cliff Vesting" vests 100% of employer contributions after a specified number of years of service. After three years of service, benefits must be fully vested. Collective investment trust Investments created by a bank or trust company for employee benefit plans, such as 401k plans, that pool the assets of retirement plans for investment purposes. They are governed by rules and regulations that apply to banks and trust companies instead of being registered with the SEC. These funds are also referred to as collective or commingled trusts. Commission Broker's fee for buying or selling securities. Common stock An investment representing ownership interest in a corporation. Compliance testing Testing required by the IRS to make sure that the 401k plan is fair to both highly compensated and ordinary employees. Compounding The ability of an asset to generate earnings that are then reinvested and generate their own earnings (earnings on earnings). Contingent beneficiary


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