The Young Investor s Guide To Understanding The Terms Used In Investing.

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1 The Young Investor s Guide To Understanding The Terms Used In Investing. The Young Investor Dictionary compliments of Integrity Mutual Funds.

2 YOUNG INVESTOR DICTIONARY Asset Something of value. The property owned by a mutual fund is called its assets or principal. Bank-o-matic (see check-o-matic below). Bear market Stock prices are going down. Blue chip Larger, older and well known companies that have a long history of profit and growth. Bond A bond is like a loan. The bond issuer (the one who needs the money) agrees to pay the lender, or bond holder, (the one who has the money to loan), a fixed rate of interest until the date that the issuer is supposed to pay back the bond/loan. The rate of interest is called the bond s coupon rate. Broker/Dealer A broker-dealer is a company that buys and sells (trades) securities for customers as well as for its own account. A broker buys and sells on behalf of a customer. A dealer buys and sells for his own account. Bull market Stock prices are going up. Budget A projection of one s expected income and planned purchases. It is a guide that helps one monitor how closely the planned income and expenditures are occurring over time. Capital appreciation The value of the asset increases. 1

3 Capital gain The profit you make when you sell an investment for more money than you paid for it. The manager of a mutual fund can also have a capital gain when he sells shares for more than what he paid. Capital loss The money you lose when you sell an investment for less money than you paid for it. The manager of a mutual fund can also have a capital loss when he sells shares for less than what he paid. CDSC (contingent deferred sales charge) CDSC refers to a way to buy shares without paying a front-end sales charge. The sales charge is usually deferred for several years and will go away if the shares are not redeemed within a specified time. The amount deferred will normally decrease over time. Example: A deferred sales charge of 5% may decrease each succeeding year --5,4,3,2,1,0. Some refer to CDSC as a back-end sales charge. Certificate of deposit (CD) Money that you deposit, usually in a bank, for a fixed period of time and at a fixed rate of interest. FDIC insured. Checking account An account that you set up at a bank so that you can pay for things with a written check, signed by you, instead of paying in cash. Check-o-matic Setting up an investment plan that instructs your bank to send a specified amount of money to your investment company at regular intervals. 2 Compound interest Compound interest is earning interest on the interest that you had earned earlier and adding it to the the principal. Example: You earned $5 in interest on your $100 savings account last year. This year you are earning another $5 on the $100 but you are also earning interest on the $5 you earned last year. So you are earning interest on $105 this year. Each year you will be earning interest on a larger amount called the principal.

4 Consumer Price Index (CPI) The difference in the price of a certain list of goods and services when compared from one year to the next. Credit risk When one loans money to an individual, there is the possibility that the individual may not be able to pay the interest that was promised or even pay the money back. Custodian A person or bank that is responsible for a young person until legal age is reached. A custodian will manage and maintain the assets for the young person (minor). Diversification Investing in several different types of investments for the purpose of reducing risk. Dividend When a company makes a profit, it may pay some of that profit to the shareholders in the form of a dividend. Dollar cost averaging Instead of buying all the shares one wants at once, one spreads the investment over time by investing a fixed amount at regular intervals. The same amount of money will buy fewer shares when the price is up and more shares when the price is down. The average price could then be lower than if one bought them all at once. Dow Jones Industrial Average The average of the stock prices of 30 large, well-known companies in the United States. When the average price of these shares is up, it usually indicates that the market is doing well. Earned Income In the investment world it is the profit after expenses are paid. Equity Ones ownership interest in a company. 3

5 Equities Another name for stocks. Equity Income The earnings from a company, usually paid out as dividends and/or capital gain. FDIC (Federal Deposit Insurance company) A government agency (FDIC) that provides deposit insurance which guarantees checking and savings deposits in member banks up to $100,000 per account. Fiscal year A company usually does its accounting reports to cover a 12-month period. Fiscal year is a term used for that 12-month period of accounting records. It could be January through December. or some other 12-month period. Form 10-K The annual report that the Securities and Exchange Commission (SEC) requires all companies that sell shares to the public, to file and make the report available to the general public. Income statement A financial statement that summarizes the company s operating results for a specific period. It shows the companies income and expenses and how much money they made or lost. Index In the investment world, it is a list of certain stocks or bonds set up for the purpose of tracking their performance each day. Inflation When prices go up over a period of time. Interest A fee paid by a borrower of money to the lender. Investing Buying shares of a company. (See share) 4

6 Investment advisor A company or individual providing investment advice for a fee. A mutual fund company will hire an investment advisor to manage the fund s assets. That investment advisor will use specialists called portfolio managers to manage the fund s investments according to the fund s investment objective as stated in the prospectus. Investment objective The three possible goals for any investment are: growth, capital appreciation and income. Investment risk The possibility of losing money or not gaining as much as expected. Issuer The company or government agency that provides/issues a security, like a stock or a bond. Letter to shareholders A letter from the company, which gives an overview of the company s performance over the past year. Liability Whatever one must pay back to a company or an individual. Load The sales charge paid to the financial advisor when he/she sells securities to an investor. Monetary policy This term refers to the actions undertaken by a central bank, such as the Federal Reserve, to influence the availability and cost of money and credit. Its purpose is to help promote national economic goals. Money market fund A mutual fund that attempts to maintain the value (NAV) of each share at $1.00 by investing in CDs and government securities. 5

7 Municipal Bond A bond issued by a government or a government agency. The interest earned from this type of bond is usually free from federal tax and may be free from state and local taxes. Mutual fund An investment company that invests in a group of securities, either stocks, bonds, or both, based on a stated investment objective. People can invest in a mutual fund by buying shares, which are units of ownership in the fund. A mutual fund will have an investment advisor. That advisor will hire investment professionals known as portfolio managers to manage the fund s portfolio. Since all mutual funds have expenses, all mutual funds charge fees to their shareholders. Generally, fees are deducted from the fund s assets prior to the calculation of an investment return. Net assets The total assets of a company minus all of its debts equal net assets. Net asset value (NAV) The market value of one share of a mutual fund. A fund s NAV is calculated by adding up the value of all of the fund s securities, subtracting the funds expenses and dividing this sum by the total number of shares owned by the shareholders. Normally, mutual fund companies calculate the NAV for their shares at the close of each business day No load A term used to describe mutual funds that have no sales charges. Portfolio The securities owned by a company, mutual fund, or an individual. Portfolio manager The person or group responsible for managing a pool of investments in a fund or an account for the benefit of investors. Profit Profit is what is left after all expenses are paid. 6

8 Principal Principal is the original amount of a debt or investment on which interest or dividends are paid. Prospectus A prospectus is a legal document that describes the fund s investment objective and policies, investment risks, services, expenses and who the investment advisor is. It also explains how to buy and sell shares. Redeem To sell shares back to the fund. Reinvest To use the dividends and capital gains, that could be distributed to the shareholder, to purchase more shares. Sales charge A fee paid when shares are purchased. This fee is called a commision and is usually paid to the selling agent (broker). Savings account An account, usually at a bank, where one is able to deposit money and receive interest on the amount in the account. Security A stock, bond or other investment vehicle sold to the public is called a security. Securities and Exchange Commission (SEC) A US government agency responsible for protecting investors and making sure the securities markets operate in a fair and honest manner. Share Share is like a deed, which shows ownership. A company or a mutual fund is divided into small parts called shares (stock). When one buys shares, one is actually buying pieces of a company or a mutual fund. 7

9 Shareholder A shareholder is one who owns shares of a mutual fund or a company. Share class Each share class has a different fee structure. Mutual funds may offer different types of share classes. Investors can choose the fee structure they want by selecting a particular share class. Example: (A) shares pay a front-end load but may have lower ongoing expenses. (B) shares do not pay a front-end load but have higher ongoing expenses. S&P 500 (Standard & Poor s 500) An index of 500 widely held US stocks, representing a variety of industries, which provides a measure of the performance of the US stock market. Statement of cash flows A financial statement that shows how much money a company has flowing in and out. Stock Another name for share, which provides ownership in a corporation. (See share ) Stock exchange The place where shares of stock are traded. Examples: the New York Stock Exchange (NYSE), American Stock Exchange (AMEX), Over- The-Counter (NASDAQ). There are also stock exchanges in Boston, Cincinnati, and Philadelphia and in cities overseas. Total return Total return is a combination of the increase in the fund s share price added to the money the fund earns from dividends and capital gains. 8 Transfer agent The firm that keeps the official record of a fund s registered shareholders and provides administrative work involved in the buying and selling of shares.

10 Volatility The rise and fall in the value of securities usually in short periods of time. Yield The amount of interest a bond issuer pays to bond holders. Zero coupon bond A fixed-income security that is sold at a deep discount from it face value and does not pay interest. It s value lies in the increase in value of the bond over time. Content was compiled by Franklin Huwe, Special Projects Manager Integrity Mutual Funds Integrity funds are sold by prospectus only. An investor should consider the investment objectives, risks, and charges and expenses of the investment company carefully before investing. The prospectus contains this and other information about the investment company. You may obtain a prospectus at no cost from your financial adviser or at Please read the prospectus carefully before investing. Integrity Funds Distributor, Inc. 1 Main Street North Minot, ND (800) Member: FINRA & SIPC integrityfunds.com 9