A tax form that reports dividends or distributions you've earned on stocks or mutual funds.
A tax form that reports your gains and losses from selling stocks or other investments in your brokerage account.
A defined contribution plan in which an employer takes money directly from an employee's salary and places it into a tax-deferred retirement account, which means that the employee doesn't pay taxes on this money until they withdraw it. There are limits on when money can be withdrawn, and there are penalties for early withdrawals. The decision about how and where the money is invested is usually the employee's. Employers often match a percentage of employee contributions, sometimes as much as 50 cents on the dollar.
A 529 plan is a U.S. state-sponsored, tax-advantaged way to invest assets toward the cost of education. Withdrawals from a 529 account can be used to pay for qualified educational expenses at any eligible U.S. college, university, trade school, or apprenticeship program. Withdrawals can also be used for K-12 tuition expenses.
Money that has already been taxed.
Alternative Minimum Tax
The AMT applies to U.S. taxpayers who have certain types of income (such as the spread reported from an exercise and hold of incentive stock options) that receive favorable tax treatment. The AMT sets a limit (i.e., a floor) on the amount these benefits can be used to reduce total tax.
Annual contribution limits
IRS rules that determine how much you can contribute to retirement accounts for the year.
A measure of how much value an investment has gained or lost on average each year, over a specific number of years or other time period. It takes compound growth (compounding) into account. Also called annual return.
An investment strategy that involves balancing asset classes (like stocks, bonds, and cash) in your portfolio, based on your goals, risk tolerance, timeline, and other factors. Also referred to as an asset mix.
One of the three major types of investments: stocks, bonds, and cash equivalents.
A document issued by a company that details the number of shares, award price, vesting schedule, and any other terms and conditions related to a stock grant. Also referred to as a grant agreement.
The price you pay per share when you exercise your options. The award price is set by your company. Also referred to as an exercise price, grant price, option price, or strike price.
A market in which share prices have declined more than 20% from a recent high.
A person or entity (like a charity) who is designated to receive or inherit benefits or other assets.
Widely held large market capitalization companies that are considered financially sound and are leaders in their respective industry or local stock market.
A bond represents a loan you make to a government, municipality, or corporation (issuer). In return, that issuer promises to pay you a specified rate of interest to be received on a predetermined schedule (generally annually, semiannually, or quarterly).
A bond ladder is a portfolio of individual bonds that mature on different dates. This strategy is designed to provide current income while minimizing exposure to interest rate fluctuations.
A person who acts as an intermediary between a buyer and seller of securities, sometimes charging a commission.
A taxable account that you open with a brokerage firm. The account allows you to invest in stocks, bonds, cash, ETFs, mutual funds, and other investments.
A market in which share prices have risen 20% or more from recent lows.
Capital gain occurs when you sell a stock at a higher price than when you purchased it. For example, if you purchased a stock for $10 (and sold it after the value increased to $15), you could be taxed on the $5 capital gain.
Capital gains tax
Tax on gains (profits) you make from the sale of capital assets, like stocks and other investments. Under U.S. tax laws, if you hold an investment for more than a year before you sell it for a gain, you may qualify for a long-term capital gains tax rate. Gains from investments held for less than a year are usually considered short-term capital gains and are taxed as ordinary income (which is usually a higher tax rate than long-term capital gains).
Capital loss occurs when you sell a stock at a lower price than when you purchased it.
Certificate of deposit (CD)
CDs are bank deposits that pay a stated amount of interest for a specified period of time and promise to return your money on a specific date. They are federally insured and issued by banks and savings-and-loans institutions.
CERTIFIED FINANCIAL PLANNER™ (CFP®)
A professional planner who has met the Certified Financial Planner Board of Standards' requirements in education, experience, and ethical conduct; passed a 10-hour comprehensive examination in investment, tax, estate, retirement, and insurance planning; and agreed to follow a code of ethics.
The date when the restrictions end the vesting of restricted stock or options. This can also be referred to as a lapse.
Common stock is partial ownership of a company. An owner of a company's common stock is considered to have an equity position in the corporate structure of that company, which gives them voting rights on different issues. Additionally, common stockholders can collect dividends if the company distributes some of its earnings to stockholders. Common stock can also be referred to as an equity security, a share, or simply a stock.
An investment concept that involves reinvesting earnings from your original investment to increase your total investment and help your money grow faster over time. Also called compounding.
What was initially paid for an investment, as opposed to its current fair market value.
Cryptocurrency is a virtual currency secured through one-way cryptography. It appears on a distributed ledger called a blockchain that's transparent and shared among all users in a permanent and verifiable way that's nearly impossible to fake or hack into. It is not reliant on any central authority, such as government or bank, to uphold or maintain it. Cryptocurrency's value stems from a combination of scarcity and the perception that it is a store of value, an anonymous means of payment, or a hedge against inflation.
An investment strategy that involves building a portfolio from a mix of asset classes (like stocks, bonds, and cash) that tend to behave differently. A diversified portfolio also includes a broad range of investments within each asset class. For example, with stocks you might want a mix of international and domestic stocks; stocks from various industries; and stocks from small, midsize, and large companies.
Portions of a company's earnings that can be distributed to shareholders, usually in cash. Some companies pay stock dividends (additional shares) instead of cash. Not all companies pay dividends and the dividend amount can change.
Dollar-cost averaging is the practice of investing a fixed dollar amount on a regular basis, regardless of the share price.
Dow Jones Industrial Average (DJIA or "the Dow")
The Dow Jones Industrial Average, Dow Jones, or simply the Dow, is a stock market index of 30 prominent companies listed on stock exchanges in the United States. The DJIA is one of the oldest and most commonly followed equity indexes.
Taxable pay from employment or self-employment, including wages, salaries, tips, union strike benefits, and certain disability payments. Does not include investment, retirement, Social Security, alimony, or child support income.
Refers to the period at the beginning of each quarter when corporations report their earnings from the previous quarter.
Employee stock option exercise and equity award agreement
The document that gives your brokerage firm the authority to act as your broker as part of an equity award transaction.
Employee stock purchase plan (ESPP)
An ESPP allows you to buy shares of your employer's stock at a discounted price, typically through after-tax payroll deductions.
Employer-sponsored retirement account
A retirement plan provided by your employer, such as a 401(k), 403(b), 457(b), or Thrift Savings Plan (TSP). Most employer plans offer a choice of investments and have tax benefits. Many employers will also match a portion of the money you contribute to your account.
A form of compensation based on the value of your company stock given to you by your employer. Equity compensation can include employee stock purchase plans (ESPPs), stock options, restricted stock awards (RSAs), restricted stock units (RSUs), performance stock awards (PSAs), and performance stock units (PSUs). These can also be referred to as equity awards.
An equity security is partial ownership of a company. An owner of a company's common stock is considered to have an equity position in the corporate structure of that company, which gives them voting rights on different issues. Additionally, common stockholders can collect dividends if the company distributes some of its earnings to stockholders. An equity security can also be referred to as a stock, common stock, or share.
Exchange-traded fund (ETF)
An ETF is an investment fund or portfolio of securities that holds assets like stocks, bonds, or commodities. Like stocks, ETFs trade on an exchange and experience price fluctuations throughout the day.
To act on the right to purchase company stock at the grant price set by the option grant.
Exercise and hold
The transaction in which you purchase your company's stock at the grant price and keep the shares in your brokerage account for sale at a future date. Also referred to as "cash purchase and hold the shares."
Exercise and sell
The transaction in which you buy and then immediately sell shares.
The date on which investors exercise their options.
The price you pay per share when you exercise your options. Also referred to as an award price, grant price, option price, or strike price.
Fair market value (FMV)
The amount that a willing buyer would pay a willing seller for a share of company stock. The fair market value on the day stock options are granted typically determines the award price.
Fractional shares allow you to invest in stocks based on a dollar amount, so you may end up with a fraction of a share, a whole share, or more than one share. Fractional shares pay dividends proportionate to the percentage of the share you own.
Futures are a type of derivative contract agreement to buy or sell a specific commodity asset or security at a set future date for a set price.
An award of stock options, restricted stock units (RSUs), or performance stock units (PSUs).
A document issued by a company that details the number of shares, award price, vesting schedule, and any other terms and conditions related to a stock grant. Also referred to as an award agreement.
The date your stock options, restricted stock units (RSUs), or performance stock unit (PSU)s were granted to you.
The unique identifier for each equity award.
The price of the award at the time of the grant. In the case of stock options, this is the price you pay per share when you exercise your options. Also referred to as an award price, strike price, option price, or exercise price.
For tax purposes, this refers to the period of time you hold incentive stock options (ISO) shares or qualified ESPPs in order to receive favorable U.S. tax treatment when the shares are ultimately sold. If you fail to meet the holding period, a "disqualifying disposition" occurs, changing the tax consequences. More generally, the holding period is the period of time a company requires that granted and/or exercised shares be held before they are sold.
Incentive stock options (ISOs)
Also called "qualified" or "statutory" stock options, ISOs are considered tax-advantaged stock options based on U.S. tax law. With ISOs, the spread (the difference between the award price and the fair market value) will count as income for the alternative minimum tax (AMT) in the year you exercise your options. If you exercise and hold the shares for more than one year past the exercise date and more than two years past the original grant date, the sale of the stock becomes a qualifying disposition, and any realized profit is typically taxed at the long-term capital gains rate. If you sell earlier, the spread will be taxed at your ordinary income tax rate.
A group of securities designed to represent a particular market, sector, or commodity. Well-known market indexes include the S&P 500® Index, the Dow Jones Industrial Average, the NASDAQ Composite Index, and the Wilshire 5000 Index.
Individual Retirement Account (IRA)
An IRA is an account for persons with earned income that allows them to save for retirement by providing various tax advantages.
Initial public offering (IPO)
An IPO refers to the process of offering shares of a private corporation to the public in a new stock issuance. Public share issuance allows a company to raise capital from public investors.
In-the-money stock options
Stock options that have a market price higher than the grant price. If you have in-the-money (ITM) stock options, they're already profitable. For example, if you have stock options with a grant price of $10 per share and the market value is $12 per share, you're "in the money" by $2 per share.
Putting your money into something (like stocks, bonds, or a mutual fund) with the goal of a financial gain. All investments carry a risk of loss.
The date when the restrictions end at the vesting of restricted stock or options. This can also be referred to as a cliff.
A designated purchase period in certain tax-qualified employee stock purchase plans (ESPPs) where stock can be purchased at the lower of two prices: either as of the initial date of the offering period or the final date of the period, whichever is lower.
The current price a stock is trading at in the stock market.
Modified adjusted gross income (MAGI)
Your MAGI is your adjusted gross income (AGI) with certain tax deductions and income added back in.
Mutual funds pool money from many investors to purchase a broad range of investments like stocks, bonds, cash, or other types of securities. When you purchase a mutual fund, you get exposure to all the investments included in that fund. Mutual funds charge fees to manage your investment that can vary by fund and share class. Mutual funds are purchased or sold once a day at market close.
Non-fungible tokens (NFTs)
NFTs are an emerging asset class. Like cryptocurrencies, NFTs are stored on a blockchain. Each NFT is unique and cannot be duplicated (i.e., non-fungible). In that sense, NFTs are more like the Hope Diamond or Picasso's Guernica—a one-of-a-kind work for which there is no substitute. Indeed, an NFT's perceived scarcity, whether because it's a unique piece of art or a limited-issue collectible, makes it potentially lucrative—but also substantially less liquid than, say, your average stock or bond. As a result, you may need to drop the price or hold on to your NFT if the demand isn't there when you want or need to sell it.
Non-qualified stock options (NQSOs)
Stock options that don't meet the requirements of a qualified (or statutory) stock option under the Internal Revenue Code. Upon exercise of a non-qualified stock option, you realize compensation equal to the spread between the fair market value of the stock on the exercise date and the price paid to purchase the shares. Compensation is taxable income, for which the company is obligated to withhold taxes. Ordinary income and tax withholding will be reported through payroll. When shares acquired through the exercise of a non-qualified stock option are subsequently sold, any gain is subject to capital gains tax. If the price of the stock goes down after exercise, you would be eligible to take a capital loss (as you would with any other security you may own).
The price you pay per share when you exercise your options. Also referred to as an award price, strike price, exercise price, or grant price.
A stock that trades for less than $5 per share and is not traded on a U.S. stock exchange is commonly referred to as a penny stock.
Performance stock units (PSUs) and performance stock awards (PSAs)
A form of equity compensation that is awarded to employees based on the company's performance over a given period and meeting a service (time) requirement.
The combined holding of stocks, bonds, cash, and other investments held by an individual investor, mutual fund, exchange-traded fund (ETF), or financial institution.
A class of stock that has a priority claim on the company's earnings before payment is made on the common stock if the company declares a dividend.
Money that has not yet been taxed.
Qualified stock options
See incentive stock options (ISOs).
Adjusting your portfolio periodically to keep it in line with your chosen asset allocation and risk level. In other words, maintaining the relative percentages of stocks, bonds, cash, and other investments you originally selected.
Required minimum distributions (RMDs)
RMDs are IRS-mandated withdrawals from your tax-deferred retirement accounts (like a 401(k) or traditional IRA) that you must take each year, starting at a certain age to avoid a tax penalty.
Restricted stock awards (RSAs) and restricted stock units (RSUs)
A form of equity compensation in which the company typically awards stock at a future date when the service (time) requirement is met. When these conditions are met, vesting occurs and shares are usually delivered. The shares then become the employee's assets.
How an investor feels about risk, the level of risk an investor is willing to take. Your risk tolerance helps you decide whether to invest more conservatively or more aggressively.
Robo-advisors are online services that provide automated portfolios based on your preferences. The robo-advisor automatically builds a diversified portfolio of funds based on your preferences, and the portfolio is automatically rebalanced by an algorithm.
A Rollover IRA is an account that allows you to move funds from your prior employer-sponsored retirement plan (like a 401(k) plan) into an IRA. With an IRA rollover, you can preserve the tax-deferred status of your retirement assets, without paying current taxes or early withdrawal penalties at the time of transfer.
A Roth Individual Retirement Account (IRA) is a retirement account to which you contribute after-tax dollars. While there are no current-year tax benefits, your contributions and potential earnings can grow tax-free, and you can withdraw them tax- and penalty-free after age 59½ and once the account has been open for five years.
The specific market price at which a security is sold.
A financial security is defined broadly to include an array of tradable investments like stocks, bonds, exchange-traded funds (ETFs), and mutual funds. Securities are financial assets that have value and can be bought, sold, or traded in a financial market.
Securities and Exchange Commission (SEC)
A U.S. government oversight agency responsible for regulating the securities markets and protecting investors.
A share represents partial ownership of a company. An owner of a share is considered to have an equity position in the corporate structure of that company, which gives them voting rights on different issues. Additionally, shareholders can collect dividends if the company distributes some of its earnings to shareholders. Shares can also be referred to as common stock, stock, or equity securities.
Short selling involves borrowing a security and selling it on the open market. You then purchase it later at a lower price, pocketing the difference after repaying the initial loan. For example, let's say a stock is trading at $50 a share. You borrow 100 shares and sell them for $5,000. If the price suddenly declines to $25 a share, at which point you purchase 100 shares to replace those you borrowed, you net $2,500 in the bargain.
The difference between an equity award price and the fair market price of stock on a specific date.
Standard and Poor's S&P 500® Index
This is a stock market index tracking the stock performance of 500 of the largest companies listed on stock exchanges in the United States. It is one of the most commonly followed equity indices.
Stock Appreciation Rights (SARs)
Stock Appreciation Rights (SARs) are a form of equity compensation tied to your company's stock performance over a specific period. If the stock's value climbs during that preset time, you have the right to receive a portion of the increase in either cash or stocks.
Stock is partial ownership of a company. An owner of a company's stock is considered to have an equity position in the corporate structure of that company, which gives them voting rights on different issues. Additionally, stockholders can collect dividends if the company distributes some of its earnings to stockholders. Stock can also be referred to as equity securities, common stock, or shares.
A stock option gives you the right but not the obligation to buy stock at a specific price in the future for a set period of time.
Stock slices are fractional shares. Fractional shares allow you to invest in stocks based on a dollar amount, so you may end up with a fraction of a share, a whole share, or more than one share. Fractional shares pay dividends proportionate to the percentage of the share you own.
See ticker symbol.
The continuously updated price of a security during the trading session.
The price you pay per share when you exercise your options. Also referred to as an option price, exercise price, or grant price.
Tax-deferred contributions and earnings are not usually subject to federal, state, or local taxes until you withdraw them from your retirement account.
Tax-loss harvesting is the process of selling a security at a loss with the goal of offering current or future capital gains realized from selling securities at a profit. This allows investors to generate tax deductions for federal income tax purposes that can be used to offset recognized capital gains and up to $3,000 of ordinary income a year. Additional captured losses can be carried forward into future years if not used in the year in which they occurred.
Thematic investing is an investment approach that uses research to identify trends, opportunities, and relevant companies and groups them into overarching themes to invest in.
An arrangement of letters or characters that represent securities (stocks, mutual funds, etc.) that are publicly traded. For example: AMZN for Amazon.com Inc., AAPL for Apple Inc., and IBM for International Business Machines Corporation (IBM). A ticker symbol is also referred to as a stock symbol.
The time when you plan to withdraw the money you've invested. Goals like saving for college or retirement tend to have longer time horizons than saving for a vacation or a down payment on a house. In general, the longer your time horizon, the more risk you can assume because you have more time to recover from a loss.
A Traditional Individual Retirement Account (IRA) is a type of IRA in which you can make pre-tax contributions that can grow tax-deferred. With a traditional IRA, you'll pay ordinary income tax on your withdrawals, and you must start taking distributions once you reach your RMD age.
The award price of a stock option is greater than the current market price of the underlying stock.
The portion of a grant that has not yet met the vesting criteria as set forth in the grant agreement.
When an equity award is generally no longer subject to forfeiture and the employee acquires either the stock or the right to exercise a stock option.
A grant that has met the vesting criteria as set forth in the grant agreement. When an RSU vests, in most countries it's a taxable event and tax withholding is due. The most common method of funding this tax liability is to sell a portion of the now-vested shares.
The length of time or waiting period before an award vests.
A schedule that establishes the number of stock awards that vest each year over a specific period of time.
Volatility refers to the fluctuation of a company's stock price, or to fluctuation of stock prices throughout the market.
The W-8BEN is an IRS form used by non-U.S. citizens to certify their foreign status. Non-U.S. citizens are typically taxed less than U.S. citizens. Having a valid W-8BEN on file helps ensure non-U.S. citizens will be taxed at the correct rate.
The form used by U.S. persons, including resident aliens, to certify their Taxpayer Identification Number or Social Security number. A W-9 also certifies that the person is not subject to backup withholding (unless you are a U.S. exempt payee).
Investing involves risk, including loss of principal.
The information on this website is for educational purposes only and is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, you should consult with a qualified tax advisor, CPA, Financial Planner, or Investment Manager.1223-3XLV