Investment Terms

A required minimum distribution is the amount of money that must be withdrawn from an employer-sponsored retirement plan, traditional IRA, SEP, or SIMPLE individual retirement account by owners and qualified retirement plan participants of retirement age. A required minimum distribution acts as a safeguard against people using a retirement account to avoid paying taxes. RMDs are determined by divi...

In sports betting, a parlay bet is when a bettor makes two or more bets and ties them together into one bet. A parlay bet may contain two individual bets or many more. Depending on the sportsbook or the region, they may also be called accumulators or multis. The disadvantage of a parlay bet is that if any of the bets in the parlay loses, then the entire parlay is lost. A parlay bet is a bet made u...

Net interest margin is a measurement comparing the net interest income a financial firm generates from credit products like loans and mortgages, with the outgoing interest it pays holders of savings accounts and certificates of deposit. Expressed as a percentage, the NIM is a profitability indicator that approximates the likelihood of a bank or investment firm thriving over the long haul. This met...

Chapter 11 is a form of bankruptcy that involves a reorganization of a debtor’s business affairs, debts, and assets, and for that reason is known as "reorganization" bankruptcy. Chapter 11 bankruptcy is the most complex of all bankruptcy cases. It is also usually the most expensive form of a bankruptcy proceeding. For these reasons, a company must consider Chapter 11 reorganization only after care...

Headline inflation is the raw inflation figure reported through the Consumer Price Index that is released monthly by the Bureau of Labor Statistics. The CPI calculates the cost to purchase a fixed basket of goods to determine how much inflation is occurring in the broad economy. The CPI uses a base year and indexes the current year's prices, according to the base year's values. Headline inflation...

Airlines have notoriously been known to have difficulty remaining profitable given their high fixed costs, the desire of passengers to find the cheapest tickets, and seasonality factors. The load factor is an indicator that measures the percentage of available seating capacity that is filled with passengers. It is released monthly by the International Air Transport Association. A high load factor...

Loss aversion in behavioral economics refers to a phenomenon where a real or potential loss is perceived by individuals as psychologically or emotionally more severe than an equivalent gain. The psychological effects of experiencing a loss or even facing the possibility of a loss might even induce risk-taking behavior that could make realized losses even more likely or more severe. Loss aversion i...

The Institute of Supply Management Non-Manufacturing Index is an economic index based on surveys of more than 400 non-manufacturing (or services) firms' purchasing and supply executives. The ISM services survey is part of the ISM Report On Business Manufacturing and ServicesThe Purchasing Managers' Index is a barometer on the overall economy by showing the economic trends in both the manufacturing...

A virtual currency is a digital representation of value only available in electronic form. It is stored and transacted through designated software, mobile, or computer applications. Transactions involving virtual currencies occur through secure, dedicated networks or over the Internet. They are issued by private parties or groups of developers and are mostly unregulated. The advantages of virtual...

The North American Free Trade Agreement was a pact eliminating most trade barriers between the U.S., Canada, and Mexico that went into effect on Jan. 1, 1994. Some of its provisions were implemented immediately, while others were staggered over the 15 years that followed.1 U.S. President Donald Trump railed against it during his campaign, promising to renegotiate the deal and tear it up if the Uni...

A special purpose acquisition company is a company without commercial operations and is formed strictly to raise capital through an initial public offering for the purpose of acquiring or merging with an existing company. Also known as blank check companies, SPACs have existed for decades, but their popularity has soared in recent years. In 2020, 247 SPACs were created with $80 billion invested, a...

Tax-loss harvesting is the timely selling of securities at a loss in order to offset the amount of capital gains tax due on the sale of other securities at a profit. This strategy is most often used to limit the amount of taxes due on short-term capital gains, which are generally taxed at a higher rate than long-term capital gains. However, the method may also offset long-term capital gains. This...

A donor-advised fund is a private fund administered by a third party and created for the purpose of managing charitable donations on behalf of an organization, a family, or an individual. Donor-advised funds have become increasingly popular primarily because they offer the donor greater ease of administration while still allowing them to maintain significant control over the placement and distribu...

A hardship withdrawal is an emergency removal of funds from a retirement plan, sought in response to what the IRS terms "an immediate and heavy financial need. This type of special distribution may be allowed without penalty from such plans as a traditional IRA or a 401k, provided the withdrawal meets certain criteria regarding the need for the funds and their amount. However, even if penalties ar...

The Dow Jones Industrial Average also known as the Dow 30, is a stock market index that tracks 30 large, publicly-owned blue-chip companies trading on the New York Stock Exchange and Nasdaq. The Dow Jones is named after Charles Dow, who created the index in 1896 along with his business partner Edward Jones. The DJIA is the second-oldest U.S. market index; the first was the Dow Jones Transportation...

The Federal National Mortgage Association typically known as Fannie Mae, is a government-sponsored enterprise founded in 1938 by Congress during the Great Depression as part of the New Deal. It was established to stimulate the housing market by making more mortgages available to moderate- to low-income borrowers. Fannie Mae does not originate or provide mortgages to borrowers. But it does purchase...

A cold wallet is used offline for storing bitcoins or other cryptocurrencies. With a cold wallet, also originally known as cold storage, the digital wallet is stored on a platform not connected to the internet, thereby protecting the wallet from unauthorized access, cyber hacks, and other vulnerabilities that a system connected to the internet is susceptible to. Cold storage methods are useful for...

Bitcoin Cash is a cryptocurrency that was created and launched to bring decentralization back to cryptocurrency. It is the result of a 2017 Bitcoin "hard fork," which occurs when an existing blockchain splits into two. Bitcoin Cash allows a greater number of transactions in a single block than Bitcoin, which should lower fees and transaction times. Bitcoin Cash is the result of a Bitcoin hard fork...

Principal trades involve a brokerage's own inventory of securities, while agency trading involves trading with another investor, potentially at another brokerage. Principal trading occurs when a brokerage buys securities in the secondary market, holds these securities for a period of time, and then sells them. The purpose behind principal trading is for firms (also referred to as dealers) to creat...

Comparable store sales refer to the revenue generated by a retail location in the most recent accounting period relative to the revenue it generated in a similar period in the past. Investors and analysts reviewing a retail company’s financial statements rely on comparable store sales to provide a picture of how established stores have performed over time relative to the performance of new stores....

The price-to-rent ratio is the ratio of home prices to annualized rent in a given location. This ratio is used as a benchmark for estimating whether it's cheaper to rent or own property. The price-to-rent ratio is used as an indicator for whether housing markets are fairly valued, or in a bubble. The price-to-rent ratio is used as an indicator of whether housing markets are fairly valued, or in a...

The Value Line Composite Index is a stock index containing approximately 1,700 companies from the NYSE, American Stock Exchange, Nasdaq, Toronto, and over-the-counter markets. The Value Line Composite Index has two forms: The Value Line Geometric Composite Index (the original equally weighted index) and the Value Line Arithmetic Composite Index (an index that mirrors changes if a portfolio held eq...

Decentralized applications (dApps) are digital applications or programs that exist and run on a blockchain or peer-to-peer network of computers instead of a single computer. DApps are outside the purview and control of a single authority. DApps—which are often built on the Ethereum platform—can be developed for a variety of purposes including gaming, finance, and social media. A standard web app,...

The Internal Revenue Service offers tax credits to owners and manufacturers of certain plug-in electric drive motor vehicles, including passenger vehicles, light trucks, and two-wheeled vehicles. Taxpayers who own vehicles that qualify may file Form 8936 with their income taxes to claim the tax credit. Form 8936 is an IRS form for claiming the Qualified Plug-in Electric Drive Motor Vehicle Credit...

Carbon credits, also known as carbon offsets, are permits that allow the owner to emit a certain amount of carbon dioxide or other greenhouse gases. One credit permits the emission of one ton of carbon dioxide or the equivalent of other greenhouse gases. Companies that pollute are awarded credits that allow them to continue to pollute up to a certain limit, which is reduced periodically. Meanwhile...