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401 (k) Plan

401 k plans represent a type of a retirement plan that is offered by almost all employers to their employees. If you participate in such a plan you are allowed to make monthly contributions from your salary. The good thing about such retirement plans is that the contributions are invested in a plan, which provides you with returns.

The contributions you make are pre-tax. Therefore, you enjoy a lower income tax. The plan usually includes different mutual funds to which employees can allocate their money.

An increasing number of employers have started to provide matching of contributions. Another benefit of 401k plans is that deposits and earnings made are deferred from taxes until you decide to withdraw the money from the account.

403 (b) Plan

403 (b) plans are a type of a retirement plan that carries most of the characteristics of 401k plans. However, they differ from the latter since they are generally for religious, educational and other groups, which are defined as non profit. The investments in 403 b plans are annuities. Thus, 403b plans are often referred to as annuity plans. The contributions to 403b plans are deferred from taxes until you withdraw money from the account.

529 Plan

529 plans or qualified tuition plans are a form of tax-advantaged college savings plan. They are named after section 529 of the Internal Revenue Code.

529 plans are usually state-sponsored. However, universities and educational institutions may also form groups and sponsor their own 529 plans. The one who acquires the plan is called the donor, and the student that would use the saved funds or prepaid tuition credits is called the beneficiary.

529 plans may be sold directly by the state or the sponsoring group. However, they may also be obtained through brokers. In the case of the latter, you usually have to pay additional fees to cover the broker’s commission (the sales load).

Annual Report

By law all companies that are traded publicly are required to issue an annual report. The SEC requires the issuance of such a report each year and it should be provided to all the shareholders. The annual report includes information on the financial results the company has achieved throughout the fiscal year.

Many companies use annual reports as a way to state the positive results that have been achieved by the company’s management team. As a result, you can often find information on problems that have been experienced by the company in the footnotes.

In order to guarantee for the validity of the annual report an accredited accounting firm examines the report. If the report corresponds to the actual condition of the company the accounting form certifies the validity of the annual report.

Asset Allocation

When you establish your investment portfolio it is important to make the appropriate asset allocation. The latter represents the distribution of the assets you have available for investing in such a way that it is consistent with the financial goals you have predetermined. Asset allocation is usually done by allocating different proportions among stocks, bonds and cash.

Baby Boomers

Baby Boomers are the people that were born between the years 1946 and 1964. Their number is usually estimated to be around 76 million. This group of people combined has an outstanding reserve of buying and investing resources. As a result, many specialists give voice to the concern that the retirement of this group of people will have a profound impact on the economic conditions. Additionally, this will lead to deep social changes.

Balance Sheet

The balance sheet is an obligatory element of every company’s annual report. It includes information on a company’s:

These are tied to a particular time period. By referring to the balance sheet you can find out what is the real value of a company.

Avoid falling in the common mistake of referring to the balance sheet as the bottom-line. The latter is found in the income statement of the company and has no place in its balance sheet.

Balanced Investment Strategy

When you establish your investment plan you should include considerations about the strategy you will follow in order to achieve you financial goals. The balanced investment strategy represents one of the strategies you can follow. It includes the asset allocation among investments that bring both income and growth. Many investors prefer this strategy since they hope that a fall in one of the investments will be compensated by an increase in the other.

Basis Point

Generally the value of a basis point is equal to one hundredth of a percent. This means that one percent is equal to 100 basis points. You often hear such statements in the media that the Fed has increased a particular rate by a certain number of basis points.

1 basis point = 1/100 of 1%

1% = 100 basis points

Bear Market

Often times the stock market experiences continuing decline. This condition is commonly referred to a bear market. The decline should be characterized as of being of a long-term nature (usually two quarters). You can identify a bear market by studying the different market indicators. If there is a consistent fall in them, then the market is probably bearing.

Bellwether

Bellwether stocks are generally viewed as an indicator of overall market or sector direction. The term bellwether itself is used to describe a company that is recognized as the leader in its industry. Since bellwether stocks are perceived as indicators of market trends, when a bellwether stock goes up or down in price, the entire sector of this stock may move in the same direction.

Microsoft, for instance, is a bellwether stock in the computer software sector. Other bellwether companies are Wal-Mart, Intel, General Electric, McDonald’s, etc.

Beta

Volatility of a particular stock is measured by what is commonly called beta. Since stocks are characterized by their dynamic nature in terms of rising and falling prices, knowing how volatile a stock is will be extremely valuable. Such knowledge will facilitate your decision making in terms of knowing when to sell and buy a stock.

The higher the value of the beta, the higher the volatility of the stock is. If the value of beta is of a low amount than the corresponding increases and decreases in the price of the stock are also of a low value. However, if the economic conditions are unfavorable, then it will be good for the beta to be of a lower amount. On the other hand, if the market is experiencing an upward movement, then a high beta will be beneficial for the investor.

Beta changes are triggered by changes in the future prospects of the company. Therefore, beta figures can be used to judge the future trends in the price of the stock.

Blue Chip Stock

The companies that are regarded as being one of the most prestigious and stable in the stock market are commonly referred to as blue chip stocks. Such companies have shown consistent earnings and usually have long-term growth potential.

Interesting fact: Blue was the color of the wagering chip with the highest value. It is believed that the name comes from there and that the stocks the term is actually referring to are considered to be safe and winning bets.

Bull Market

Often times the stock market experiences continuing rise. This condition is commonly referred to a bull market. In order to determine whether the market is under such conditions you should study the market indicators. If they show significant growth in the value of the stocks over the long term, then the market can be defined as a bull market. The latter is usually characterized by having fewer sellers than buyers.

Business Cycle

The economy is characterized by undergoing different business cycles. The latter represent ups and downs that are experienced over the long-term. The cycle usually goes on the following path: recession — recovery — recession — recovery — and so on.

Being an educated investor, you should be able to notice when the economy is moving from one cycle to the other.

Buy and Hold Strategy

Opposite to short-term trading, the buy and hold investment strategy if applied calls for the making of long-term investments. The focus of this investment strategy is on quality investments that have a high potential for growth.

This strategy requires the investor to exercise the appropriate investment discipline and try to avoid making frequent trades.

CANSLIM

CANSLIM investing carries some of the features of momentum investing with some further added to it. It was developed by William J. O’Neil and in his book How to Make Money in Stocks. It represents a method of observing, buying and selling common stocks.

More than 500 stocks were picked by O’Neil through the use of a computer database. This was done over the period between 1953 and 1993. After making a thorough analysis of these stocks, O’Neil managed to identify seven characteristics that all of these stocks share. These traits are synthesized by the acronym CANSLIM.

Every criterion against which an investor should evaluate a stock is represented by a letter of the acronym. So, here are the seven common traits found by O’Neil: