| 529 College Savings Plans |
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529 College Saving Plans were created under Section 529 of the Internal Revenue Service code to help people save for the cost of higher education. It is used to pay educational costs at any accredited post-secondary school in the United States, for a beneficiary such as a child or grandchild. The benefit is that anyone can contribute: parents, grandparents, other relatives, and even family friends and you can change beneficiaries within the same family as often as you like. Therefore, unlike the UTMA where the minor will have control of assets at the age of consent in that state, the 529 will benefit whomever the custodian chooses and will only go towards education costs. If that is done to a sibling then there is no taxable impact, but if it is not a sibling then the assets are subject to income taxes. Contributions made to the account accumulate tax-free in a professionally managed portfolio made up of mutual funds and are distributed free of Federal taxes when used for qualified educational expenses. It also allows gift tax exclusions under certain circumstances and offers special advantages for estate planning purposes. The 529 plan allows for higher contribution limits (in excess of $250,000) than other college savings programs, such as Education IRAs, with no income restrictions. |
| Agency Securities |
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Securities issued by government sponsored entities and, although not direct obligations of the U.S. Government, are considered to have less risk of default than other types of bonds because of they are government sponsored. These securities are currently issued by entities created to reduce borrowing costs for certain sectors of the economy, including farmers, homeowners, and students. General Obligation (GO) Bonds Municipal bonds backed by the full faith and credit (taxing and borrowing power) of the municipality issuing the bonds. |
| Alpha |
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Measures 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 a fund has underperformed, given the expectations established by the fund's beta. |
| Barbell |
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A barbell is when you invest in securities of multiple maturities to limit the risk of fluctuating prices by concentrating your holdings in long and short maturities. |
| Bond |
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Debt issued for a period of more than one year. The U.S. government, local governments, water districts, companies and many other types of institutions sell bonds. When an investor buys bonds, he or she is lending money. The seller of the bond agrees to repay the principal amount of the loan at a specified time. Interest-bearing bonds pay interest periodically. |
| Bond swap |
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A swap is the simultaneous sale of one security and the purchase of another to achieve tax savings, to increase current income, upgrade the credit quality or change maturities. By swapping the securities an investor can convert a paper loss to an actual loss, which can be used to offset capital gains. |
| Book Entry |
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A method of registering and transferring ownership of securities electronically which eliminates the need for physical certificates. |
| Certificates of Deposit (CD) |
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A certificate issued for a deposit made at a banking institution. The bank agrees to pay a fixed interest rate for the specified period of time, and repays the principal at the maturity. CDs can be purchased directly from the banking institution or through a securities broker. |
| Collateralized Mortgage Obligation (CMO) |
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A multi-class bond backed by a pool of mortgage pass-through securities or mortgage loans. |
| Corporate Bonds |
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Debt obligations issued by private or public companies to raise funds for a variety of corporate purposes such as building a new facility, purchasing equipment, or expanding the business. |
| Coverdell Education Savings Accounts |
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(Education IRAs) can be used to save and pay for more than college expenses, elementary and secondary school expenses, including the purchase of a computer system, educational software and Internet access for the child. Contributions of $2,000 can be made on behalf of a child under age 18. Contributions aren't deductible but withdrawals can be made tax-free if used to pay eligible education expenses. |
| Federal National Mortgage Association (FNMA) |
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Also known as "Fannie Mae". A U.S. government sponsored private corporation authorized to purchase and sell home mortgages. FNMA facilitates the orderly operation of the secondary market for these mortgages. |
| Government Bonds |
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Securities issued by the U.S. Government include both Treasury Securities and Agency Securities. |
| Government National Mortgage Association (GNMA) |
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Also referred to as "Ginnie Mae". An agency of the federal Department of Housing and Urban Development empowered to provide assistance in financing home mortgages. GNMA is responsible for management and liquidation of federally owned mortgage portfolios, and issues bonds that are secured by single family mortgages, and guaranteed by the full faith and credit of the U.S. Government. (Payment of principal and interest are backed by the full faith & credit of the U.S. goverment but does not eliminate market risk). |
| Laddering |
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Building a laddered portfolio means that you buy a collection of bonds with different maturities staggered over your investment time frame reducing your portfolio's sensitivity to interest rate risk. |
| Series I Bond |
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An inflation-indexed savings bond offered by the U.S. government that pays a fixed interest rate that is lower than the rate of traditional savings bonds, but also pays a variable rate that increases with inflation which is recalculated twice a year. |
