Glossary

529 College Savings Plans		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		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.
Barbell		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		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		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		A method of registering and transferring ownership of securities electronically which eliminates the need for physical certificates.
Certificates of Deposit (CD)		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)		A multi-class bond backed by a pool of mortgage pass-through securities or mortgage loans.
Corporate Bonds		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		(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)		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		Securities issued by the U.S. Government include both Treasury Securities and Agency Securities
Government National Mortgage Association (GNMA)		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		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.
Municipal bond		Municipal bonds are fixed income investments that are debt obligations of various state and local governments. The funds may be used to support general governmental needs or special projects. Prior to the Tax Reform Act of 1986, virtually all municipal obligations were exempt from federal income taxes (Alternative Minimum Tax could apply) and most state and local income taxes in the bond's state of issuance. The 1986 Act, however, divided municipal bonds into 2 categories: (1) Public purpose bonds are tax-exempt because they are issued for projects for use of the general public; (2) Private purpose bonds are taxable because they are issued for projects that are used for private purposes.
Preferred Stock		An equity security that is junior to the issuing entity's debt obligations but senior to common stock in the payment of dividends and the liquidation of assets. The dividend can be fixed or floating and is usually stated as a percentage of par value. Preferred stock usually has no voting rights and frequently has a mandatory or optional redemption provision.
Taxable Equivalent Yield		The interest rate that must be received on a taxable security to provide the holder the same after-tax return as that earned on a tax-exempt security. The formula for determining the taxable equivalent yield is: Tax-Exempt Yield/100% - Marginal Tax Bracket = Taxable Equivalent Yield< /p >
The Uniform Transfer to Minors Act		(UTMA) was set up by the Uniform Law Commission to provide a convenient way to make gifts of money and securities to minors. Similar in some ways to trusts, custodial accounts place property under the control of a person who isn't the beneficial owner or the person who has the ultimate right to the assets in the account. In the case of a trust, a trustee manages the property for the benefit of the beneficiaries, whereas in the case of a custodial account, the custodian manages the property for the benefit of the minor. The custodian will manage the account for the benefit of the minor until the minor reaches the legal age to control the assets, usually 18 or 21. Another benefit of the custodial account is that the income of a custodial account is taxed to the child at the child's tax bracket.
Treasury Securities		Debt obligations of the U.S. Government sold periodically through auctions are secured by the full faith credit of the U.S. Government and are therefore considered to have less risk of default than other types of bonds. Treasuries are offered at various schedules and maturities: (1) Treasury bills are short-term securities with maturities of one year or less and issued in minimum denominations of $10,000. Auctions of 91-day and 182-day Bills take place weekly and 52-week Bills take place every 4 weeks. (2) Treasury Notes are intermediate securities with maturities of 1 to 10 years and denominations of $1000 to $1 million. (3) Treasury Bonds are long-term debt instruments with maturities of 10 years or longer issued in minimum denominations of $1000. (Payment of principal and interest are  backed by the full faith & credit of the U.S. goverment but does not eliminate market risk).