Glossary

R-squared is a statistical measurement that determines the proportion of a security's return, or the return on a specific portfolio of securities, that can be explained by variations in the stock market, as measured by a benchmark index.

For example, an r-squared of 0.08 shows that 80% of a security's return is the result of changes in the market -- specifically that 80% of its gains are due to market gains and 80% of its losses are due to market losses. The other 20% are the result of factors particular to the security itself.

A rally is a significant short-term recovery in the price of a stock or commodity, or of a market in general, after a period of decline or sluggishness.

Stocks that make a particularly strong recovery in a particular sector or in the market as a whole are often said to be leading the rally, a reference to the term's origins in combat, where an officer would lead his rallying troops back into battle. While a rally may signal the beginning of a bull market, it doesn't necessarily do so.

The random walk theory holds that it is futile to try to predict changes in stock prices.

Advocates of the theory base their assertion on the belief that stock prices react to information as it becomes known, and that, because of the randomness of this information, prices themselves change as randomly as the path of a wandering person's walk.

This theory stands in opposition to technical analysis, whose practitioners believe you can predict future stock behavior based on statistical patterns of prior performance.

Ranking is a method of assigning a value to an investment in relation to comparable investments by using a scale.

The scale might be a straightforward numerical (1 to 5) or alphabetical (A to E) system, or one that also uses stars, checks, or some other icon to convey the evaluation.

Research firms and individual analysts typically establish and publish their criteria -- though not their methodology -- for establishing their rankings.

These criteria, which also differ by investment type, may include quantitative information such as past earnings, price trends, and the issuing company's financial fundamentals, or more qualitative assessments, such as the state of the marketplace.

Ranking can be a useful tool in evaluating potential investments or in reviewing your current portfolio. Before depending on a ranking, though, you'll want to understand how it has been derived and how accurate the system for assigning the values has been over time.

Rate of return is income you collect on an investment expressed as a percentage of the investment's purchase price. With a common stock, the rate of return is dividend yield, or your annual dividend divided by the price you paid for the stock.

However, the term is also used to mean percentage return, which is a stock's total return -- dividend plus change in value -- divided by the investment amount.

With a bond, rate of return is the current yield, or your annual interest income divided by the price you paid for the bond. For example, if you paid $900 for a bond with a par value of $1,000 that pays 6% interest, your rate of return is $60 divided by $900, or 6.67%.

Rating means evaluating a company, security, or investment product to determine how well it meets a specific set of objective criteria.

For example, a bond issue may be rated along a spectrum from highest quality investment grade to speculative, or from AAA to D.

Rating typically affects the interest rate a fixed-income security must pay to attract investors, forcing lower-rated bond issuers to pay higher rates. Other investors may shun low-rated investments entirely, unwilling to take the risk that the issuer might default. However, ratings are not infallible, even in industries, such as insurance, that are regularly scrutinized.

Rating differs from ranking, which assigns the relative standing of two or more similar items in relation to each other.

A rating service, such as A.M. Best, Moody's Investors Service, or Standard & Poor's, evaluates bond issuers to determine the level of risk they pose to would-be investors.

Though each rating service focuses on somewhat different criteria in making its evaluation, the assessments tend to agree on which investments pose the least default risk and which pose the most.

These rating services also evaluate insurance companies, including those offering fixed annuities and life insurance, in terms of how likely a provider is to meet its financial obligations to policyholders.

REITs are publicly traded companies that pool investors' capital to invest in a variety of real estate ventures, such as apartment and office buildings, shopping centers, medical facilities, industrial buildings, and hotels.

After an REIT has raised its investment capital, it trades on a stock market just as a closed-end mutual fund does.

There are three types of REITs: Equity REITs buy properties that produce income. Mortgage REITs invest in real estate loans. Hybrid REITs usually make both types of investments.

All three are income-producing investments, and by law 90% of a REIT's taxable income must be distributed to investors. That means the yields on REITs may be higher than on other equity investments.

Your real interest rate is the interest rate you earn on an investment minus the rate of inflation.

For example, if you're earning 6.25% on a bond, and the inflation rate is 2%, your real rate is 4.25%. That's enough higher than inflation to maintain your buying power and have some in reserve, which you could use to build your investment base.

But if the inflation rate were 5%, your real rate would be only 1.25%.

Real property is what's more commonly known as real estate, or realty.

A piece of real property includes the actual land as well as any buildings or other structures built on the land, the plant life, and anything that's permanently in the ground below it or the air above it. In that sense, real property is different from personal property, which you can move from place to place with you.

A real property tax is a local tax on the value of real estate. The property may be assessed at full value, which is presumably the price that the owner could sell it for in the current market, or using some other valuation method.

The taxing agency, such as a county, city, town, or village, sets a tax rate, which is multiplied by the assessed value of each property to determine the tax due on that property.

You may be able to deduct real property taxes on your federal income tax return, but large deductions for real estate taxes are one of the factors that may result in your owing the alternative minimum tax (AMT).

You find the real rate of return on an investment by subtracting the rate of inflation from the nominal, or named, rate of return.

For example, if you have a return of 6% on a bond in a period when inflation is averaging 2%, your real rate of return is 4%. But if inflation were 4%, your real rate of return would be only 2%.

Finding real rate of return is generally a calculation you have to do on your own. It isn't provided in annual reports, prospectuses, or other publications that report investment performance.

When an event is reported as it happens -- such as a quick jump in a stock's price or the constantly changing numbers on a market index -- you are getting real-time information.

Traditionally, this type of information was available to the public with a 15- or 20-minute time delay or was reported only periodically by news services.

Because of the Internet and cable TV, however, more and more individual investors have access to real-time financial news. Knowing what's happening enables you and others to make buy and sell

decisions based on the same information that institutional investors and financial services organizations are using.

Real time, when used in computer technology, means that there is an interactive program that collects data and reports results immediately. The alternative, called batch processing, occurs when data is collected, stored, and then reported later in the evening or the next day.

When you sell an investment for more than you paid, you have a realized gain.

For example, if you buy a stock for $20 a share and sell it for $35 a share, you have a realized gain of $15 a share. In contrast, if the price of the stock increases, and you don't sell, your gain is unrealized, or a paper profit.

Realizing your gains means you lock in any increase in value, which could potentially disappear if you continued to hold the investment.

But it also means you may owe tax on that profit when you sell unless the investment is tax exempt or you hold it in a tax-deferred or tax-free account. In a tax-deferred account, you can postpone paying the tax until you begin withdrawing from the account.

However, if taxes are due and you have owned the investment for more than a year when you sell, you pay tax at the long-term capital gains rate, which, for most types of investments, is lower than the rate at which you pay federal income tax on ordinary income.

When you recapture assets, you regain them, usually because of the provisions of a contract or legal precedent.

When a contract is involved, you may be entitled to recapture a percentage of the revenues from something you produce in addition to being paid the cost of producing it.

For example, a hotel developer might be entitled to recapture a portion of the hotel's profits. Most of the time, recapture works in your favor, but depending on the situation, it can also mean a financial loss.

A negative form of recapture occurs when the government makes you repay tax benefits that you've profited from in the past. For example, say that your divorce settlement calls for you to pay $150,000 to your ex-spouse over three years. If you pay all the money in the first two years in order to qualify for a tax deduction, and pay nothing in the third year, the IRS may force you to recapture part of your deduction in the third year and pay taxes on it.

Broadly defined, a recession is a downturn in a nation's economic activity. The consequences typically include increased unemployment, decreased consumer and business spending, and declining stock prices.

Recessions are typically shorter than the periods of economic expansion that they follow, but they can be quite severe even if brief. Recovery is slower from some recessions than from others.

The National Bureau of Economic Research (NBER), which tracks recessions, describes the low point of a recession as a trough between two peaks, the points at which a recession began and ended -- all three of which can be identified only in retrospect.

The Conference Board, a business research group, considers three consecutive monthly drops in its Index of Leading Economic Indicators a sign of decline and potential recession up to 18 months in the future. The Board's record in predicting recessions is uneven, having correctly anticipated some but expected others that never materialized.

When you have converted one type of individual retirement account (IRA) to another type -- such as a traditional IRA to a Roth IRA -- and then convert it back to the original type, you are recharacterizing the IRA.

Similarly, you can recharacterize a contribution you've made to one type of IRA as a contribution to another type of IRA. In either case, when the recharacterization is handled correctly, the original conversion or contribution is erased, as if it never happened. To be valid, a recharacterization must be handled as a transfer between IRA providers or internally by a single provider.

Further, it must be completed before the date your tax return is due, including extensions. You must also report the action to the IRS, and in some cases, you must file an additional form.

To be paid a stock dividend, you must own the stock on the day that the corporation's board of directors names as the record date, also known as the date of record.

For example, if a company declares a dividend of 50 cents a share payable on September 1 to shareholders of record as of August 10, you must own the shares on August 10 to be entitled to the dividend.

To be the legal owner on the record date you must buy the stock at least three business days before the record date. That is the last day on which trades will settle on the record date.

If you buy the stock after that day, you are buying the stock ex-dividend, which means you are not entitled to the dividend. The first day the buyer is not entitled to receive the dividend is called the ex-dividend date and is currently two days before the record date in most cases.

When a security is offered to the public for the first time, the underwriter prepares a preliminary prospectus, called a red herring.

While the name may refer to the parts of the document printed in red ink, the implication is that the document has been written to present the company in the best possible light. The reference is to the rather distinctive odor of the fish in question, which, the story goes, fleeing fugitives sometimes used to throw bloodhounds off their scent.

Although the preliminary prospectus contains important information about the company, its offerings, financial projections, and investment risk, it is customarily revised before the final version is issued.

When a fixed-income investment matures, and you get your investment amount back, the repayment is known as redemption.

Bonds are usually redeemed at par, or face value, traditionally $1,000 per bond. However, if a bond issuer calls the bond, or pays it off before maturity, you may be paid a premium, or a certain dollar amount over par, to compensate you for lost interest.

You can redeem, or liquidate, open-end mutual fund shares at any time. The fund buys them back at their net asset value (NAV), which is the dollar value of one share in the fund.

Some open-end mutual funds impose a redemption fee when you sell shares in the fund, often during a specific, and sometimes brief, period of time after you purchase those shares.

The fee is usually a percentage of the value of the shares you sell, but it may also be a flat fee, or fixed amount.

The purpose of the fee is to prevent large-scale withdrawals from the fund in response to changes in the financial markets, which might require the fund manager to sell holdings at a loss in order to meet the fund's obligation to buy back your shares.

Refinancing is the process of paying off an existing loan by taking a new loan and using the same property as security.

Homeowners may refinance to reduce their mortgage expense if interest rates have dropped, to switch from an adjustable to a fixed rate loan if rates are rising, or to draw on the equity that has built up during a period of rising home prices.

Closing costs for a refinance are generally comparable to those for any mortgage. If you're refinancing to reduce your payments, you'll want to calculate how long it will take before you recover the closing costs and begin to save money.

If you're planning to move within a few years, refinancing may not actually save you enough to justify the closing expenses. And if you refinance to use some of your home equity, you run the added risk that prices could drop and you could end up owing more on your mortgage than you could realize from selling your home.

Stock exchanges in cities other than New York are called regional exchanges. They list both regional stocks, which may or may not be listed on the New York exchanges, as well as stocks that are listed in New York.

Because of the National Market System, securities listed on one exchange can be traded on any other exchange if the price there is better than the price on the exchange where the stock is listed.

The number of regional exchanges is shrinking, however, as the result of mergers and acquisitions by larger exchanges.

When a bond is registered, the name of the owner and the particulars of the bond are recorded by the issuer or the issuer's agent.

When registered bonds are issued in certificate form, a bond can be sold only if the owner endorses the certificate, or signs it over to someone else. In contrast, bearer bonds are considered the property of whoever holds them, since there is no record of ownership.

Currently, however, most bonds are registered electronically, so there are no certificates to endorse. Instead, you authorize the transaction over the phone or by computer.

Investment advisory firms that register with the Securities and Exchange Commission (SEC) and agree to be regulated by SEC rules are known as registered investment advisers.

Only a small percentage of all investment firms, and an even smaller number of individuals, register, though being registered is often interpreted as a sign that the adviser meets a higher standard.

Registered representatives are licensed to act on investors' orders to buy and sell and to provide advice relevant to portfolio transactions.

They may be paid a salary, a commission, usually a percentage of the market price of the investments their clients buy and sell, or by annual fee figured as a percentage of the value of a client's account.

Registered reps work for a broker-dealer that belongs to the exchange or operates in the market where the trades are handled. The reps must pass a series of exams administered by NASD to qualify for their licenses and are subject to NASD oversight.

A regressive or flat income tax system taxes everyone at the same rate, as sales tax does.

Advocates say it's simpler and does away with the kinds of tax breaks that tend to favor the wealthy. Opponents say that middle-income taxpayers carry too large a proportion of the total tax bill.

Both the Securities and Exchange Commission (SEC) and the Federal Reserve have regulations known as Regulation D.

The SEC's Regulation D specifies which securities can be sold within the United States without having to be registered with the Commission.

Among the other restrictions, these securities can be made available only to accredited investors -- individuals with a net worth of at least $1 million or an annual income of $200,000 or more, and institutions with assets of $5 million or more.

The Federal Reserve's Regulation D sets the requirements for depositary institutions, including the amount of cash the bank must hold in reserve and the number of transfers or withdrawals permitted for a savings account -- which is six transfers every four week cycle with no more than three by check or electronic payment.

Regulation T is the Federal Reserve Board rule that governs how much you can borrow through your margin account to cover the purchase price of a security. This initial margin is 50% of the total cost.

The New York Stock Exchange (NYSE) and NASD additionally require your account to have a minimum margin of $2,000 or the full cost of the purchase, whichever is less, at the time you trade, plus a maintenance margin of at least 25% of the total market value of the securities in your account at all times.

Individual broker-dealers may and often do require higher minimum and maintenance margins.

Under Regulation Z, a Federal Reserve Board rule covering provisions of the Consumer Credit Protection Act of 1968, lenders have to tell you certain terms of the credit they're offering, in writing, before you borrow.

Also known as the Truth in Lending Act, the regulation stipulates that lenders must disclose the true cost of loans. For example, they must make the interest rate, annual percentage rate (APR), and other terms of the loan simple to understand.

Regulation Z establishes uniform methods for calculating the cost of credit, disclosing credit terms, and resolving errors on certain types of credit accounts.

Rehypothecation occurs when your broker, to whom you have hypothecated -- or pledged -- securities as collateral for a margin loan, pledges those same securities to a bank or other lender to secure a loan to cover the firm's exposure to potential margin account losses.

When you open a margin account, you typically sign a general account agreement with your broker, in which you authorize your broker to rehypothecate.

When you own certain stocks and most mutual funds, you can reinvest the dividends or distributions to buy more shares instead of receiving a cash payout.

In a corporate Dividend Reinvestment Plan (DRIP), for example, a company offers you the right to reinvest any cash dividends automatically to buy more stock. When you open a mutual fund account, you're generally offered an automatic reinvestment option as well.

One benefit of reinvestment programs is that in most cases you can make the new investments without incurring the usual sales charges, so it can be a lower cost way to build your investment portfolio.

One potential drawback, if you're reinvesting in a taxable account, is that you acquire shares at different prices, so figuring the cost basis for capital gains or losses when you sell can be more complicated than if you made fewer, larger purchases. It's also true that you owe income or capital gains tax in the year the money is reinvested, which isn't the case in a tax-deferred or tax-free account.

You will also want to consider the impact of reinvestment on the diversification of your portfolio, since buying additional shares increases the percentage of your portfolio that is allocated to a particular stock or mutual fund.

Reinvestment risk occurs when you have money from a maturing fixed-income investment, such as a certificate of deposit (CD) or a bond, and want to make a new investment of the same type.

The risk is that you will not be able to find the same rate of return on your new investment as you were realizing on the old one. In fact, the return could be significantly lower, based on what's happening in the economy at large, though it could also be higher.

For example, if a bond paying 6% interest matures when the current rate is 4%, you must settle for a lower return if you buy a new bond unless you're willing to buy one of lower quality.

One way to limit reinvestment risk is by using an investment technique known as laddering, which means splitting your investment among a number of bonds or CDs that mature gradually over a series of years.

That way only part of your total investment will mature and have to be reinvested at any one time.

A renewable term life insurance policy allows you to extend your coverage for an additional period without having to requalify for coverage, provided that you have paid your premiums in full and on time.

Being able to renew your policy can be an important advantage if your health has declined since your original purchase. That's because another insurer might refuse to sell you a policy or might charge more for comparable coverage.

Renewable term policies do not guarantee the same rate for the new coverage period. In fact, at each renewal, the cost is likely to increase to reflect the fact that you're older and therefore pose a greater risk to the insurer.

Your required beginning date is the date by which you must take your first minimum required distribution from retirement savings plans that require distributions.

For an individual retirement account (IRA), it's April 1 of the year following the year you turn 70 1/2. For a 401(k), it's either the April 1 of the year following the year you turn 70 1/2 or the April 1 following the year you retire, unless you own 5% or more of the company sponsoring the plan. If that's the case, your deadline is April 1 of the year after the year you turn 70 1/2.

The Federal Reserve requires its member banks to keep a certain percentage of their customer deposits in cash and other liquid assets in reserve at all times.

The required percentage may be revised at the Fed's discretion, but it has not been changed in recent years.

When a bank finds itself with excess reserves, it can lend them to other banks that may need them. These very short-term loans are known as federal funds and the interest rate the lenders charge is called the federal funds rate. That's also the benchmark rate for many corporate and international government loans.

Resistance, or resistance level, is the top of a stock's current trading range, and the point at which the price is higher than investors are willing to pay. As stockholders sell at resistance level, the stock price goes down because supply exceeds demand.

For example, if, on a repeated basis, as stock A's price reaches $60, stockholders begin to sell, then $60 is considered its resistance level. But a trading range isn't fixed and investor attitudes change, so the resistance level tends to move higher or lower over time.

If stock A rises to $63 without a surge of selling, the current resistance line has been breached. This may be the result of a rising market or a bullish assessment of the stock's value. On the other hand, if selling increases at $57, that may become the new resistance level.

Conversely, the level at which demand exceeds supply and investors typically buy a certain stock is called support. It's the point that's considered the bottom of a stock's current trading range.

Technical analysts use the concepts of resistance and support in anticipating future stock price movements.

Restricted securities are stocks or warrants that you acquire privately, through stock options or a corporate merger, rather than by buying them in the open market.

For example, you may receive restricted stock if you put money into a startup company.

If the company has not yet registered with the Securities and Exchange Commission (SEC) for an initial public offering (IPO), its securities cannot be transferred or resold until the issuing company meets the SEC registration requirements for publicly traded securities.

If you exercise stock options and buy stock at a reduced price, you may be required to hold those stocks for a period of time before liquidating them.

Retail investor refers to an individual who buys and sells securities for his or her own account through a traditional or online brokerage firm.

While some retail investors hold portfolios worth millions of dollars and others own just a few securities, they are different from institutional investors, such as pension funds, money managers, or financial services companies, who have discretionary control over at least $100 million in securities.

Retained earnings, also known as retained surplus, are the portion of a company's profits that it keeps to reinvest in the business or pay off debt, rather than paying them out as dividends to its investors.

Retained earnings are one component of the corporation's net worth and increase the supply of cash that's available for acquisitions, repurchase of outstanding shares, or other expenditures the board of directors authorizes.

Smaller and faster-growing companies tend to have a high ratio of retained earnings to fuel research and development plus new product expansion. Mature firms, on the other hand, tend to pay out a higher percentage of their profits as dividends.

Your return is the profit or loss you have on your investments, including income and change in value.

Return can be expressed as a percentage and is calculated by adding the income and the change in value and then dividing by the initial principal or investment amount. You can find the annualized return by dividing the percentage return by the number of years you have held the investment.

For example, if you bought a stock that paid no dividends at $25 a share and sold it for $30 a share, your return would be $5. If you bought on January 3, and sold it the following January 4, that would be a 20% annual percentage return, or the $5 return divided by your $25 investment.

But if you held the stock for five years before selling for $30 a share, your annualized return would be 4%, because the 20% gain is divided by five years rather than one year.

Percentage return and annual percentage return allow you to compare the return provided by different investments or investments you have held for different periods of time.

Return on equity (ROE) measures how much a company earns within a specific period in relation to the amount that's invested in its common stock.

It is calculated by dividing the company's net income before common stock dividends are paid by the company's net worth, which is the stockholders' equity.

If the ROE is higher than the company's return on assets, it may be a sign that management is using leverage to increase profits and profit margins.

In general, it's considered a sign of good management when a company's performance over time is at least as good as the average return on equity for other companies in the same industry.

Your return on investment (ROI) is the profit you make on the sale of a security or other asset divided by the amount of your investment, expressed as an annual percentage rate.

For example, if you invested $5,000 and the investment was worth $7,500 after two years, your annual return on investment would be 25%. To get that result, you divide the $2,500 gain by your $5,000 investment, and then divide the 50% gain by 2.

Return on investment includes all the income you earn on the investment as well as any profit that results from selling the investment. It can be negative as well as positive if the sale price plus any income is lower than the purchase price.

Revenue is the money you collect for providing a product or service.

Revenue is different from earnings, which is what's left of your revenue after subtracting the costs of producing or delivering the product or service and any taxes you paid on the amount you took in.

When corporations release their financial statements, those that provide services, such as power or telecommunications companies, describe their income as revenues, while those that manufacture products, such as lightbulbs or books, describe their income as sales.

The money a government collects in taxes is also called revenue. The US body that collects those taxes is called the Internal Revenue Service (IRS). In the United Kingdom, it's Inland Revenue.

Revenue bonds are municipal bonds issued to finance public projects, such as airports and roadways. The bonds are backed by revenue to be generated by the project.

For example, if the construction of a tunnel is financed with municipal revenue bonds, the tolls paid by motorists are used to pay back the bondholders. However, bondholders usually have no claims on the bond issuer's other assets or resources.

In a reverse merger, a privately held company purchases a publicly held company and, as part of the new entity, becomes public without an initial public offering (IPO).

It's described as reverse because in the more typical merger pattern a public company purchases a private company to expand its business.

A reverse mortgage is a loan available to a homeowner 62 or older who may be eligible to borrow against the equity in his or her home.

Generally with a reverse mortgage, you receive money from a lender while you stay in your home. You don't have to pay the money back for as long as you live there and keep the property in good repair, but the loan must be repaid when you die, sell your home, or move to a different primary residence.

The amount you can borrow depends on your age, your home's value, your equity in it, and current interest rates. You can access the money as a lump sum, a line of credit, or a combination of these methods.

All reverse mortgages require closing costs, much like a regular mortgage, and they can charge fixed or variable interest rates. The fees can make a reverse mortgage an expensive way to borrow.

More than 90% of reverse mortgages, officially known as home equity conversion mortgages (HECMs), are insured by the US government's Federal Housing Administration (FHA). The FHA caps the size of reverse mortgages depending on the county in which your home is located and guarantees that you will receive the full amount of your loan.

Private alternatives to HECMs, called proprietary reverse mortgages, often offer higher limits. These loans may have higher costs, however.

If a company's stock is trading at a low price, the company may decide to reduce the number of existing shares and increase their price by consolidating the shares.

For example, a 1-for-2 reverse stock split halves the number of existing shares and doubles the price. In that case, if you hold 100 shares of a stock selling at $5 a share, for a combined value of $500, in a 1-for-2 reverse stock split, you would own 50 shares valued at $10 a share, which would still give you a combined value of $500. Stocks may be reverse split 1-for-5, or 5-for-10, or in any ratio the company chooses.

Reverse splits are generally used to ensure that a stock will continue to meet listing requirements on the market where it is traded or to encourage purchases by institutional investors, who may not buy stocks priced below a specific point.

A revocable trust is a living trust that can be modified or revoked by the grantor, or person who establishes the trust and transfers property to it.

The trust can be a useful estate-planning tool because, when you die, the assets in the trust pass directly to the beneficiaries you've named in the trust rather than through your will.

But because you haven't relinquished control over the assets, as you do when you transfer them to an irrevocable trust, they are still included in your estate. If its total value, including the trust assets, is greater than the exempt amount, federal or state estate taxes may be due.

For the same reason, during your lifetime, you continue to collect the income that the assets in the revocable trust produce, and you owe income or capital gains taxes on those earnings at your regular rates. That's not the case with an irrevocable trust, which has its own tax identity.

A revolving credit arrangement allows you to borrow up to your credit limit without having to reapply each time you need cash. As you repay the money you have borrowed, it is available to be borrowed again.

For example, if you have a credit card with a credit limit of $1,500 and you make a purchase of $400, the amount of credit you have available is $1,100. But when you repay the $400, your credit limit goes back to $1,500 -- assuming you haven't charged anything else on the card.

At any given time, your balance due may fluctuate from zero to the maximum credit limit. If you don't use the credit line in any billing cycle, no fees apply in most cases. But if you have a balance due and don't repay the full amount, finance charges are added to your next bill.

Some revolving credit arrangements, such as a home equity line of credit, may have a predetermined end date, but the majority are open-ended as long as you make at least the minimum required payment on time.

A rider is a modification to an insurance policy that typically adds a new coverage or higher coverage in return for higher premiums.

For example, you might add a rider to your life insurance policy to provide coverage for your spouse, or a rider to your homeowners policy to provide additional liability insurance for a specific event. Dental care and prescription insurance are typical riders on health insurance policies.

If two or more people own property jointly with rights of survivorship and one of the owners should die, the deceased owner's share of the property automatically passes to the surviving owners.

This arrangement for joint ownership is in contrast to the arrangement known as tenants-in-common, in which a deceased owner's share becomes part of his or her estate and can be sold or distributed to heirs according to the terms of his or her will.

Couples who own their own home jointly often opt for right of survivorship to allow the surviving partner to enjoy full ownership rights to their home.

In a rights offering, also known as a subscription right, a company offers existing shareholders the opportunity to buy additional shares of company stock in proportion to the number they already own before any new shares are offered to the public.

Such an offering is usually mandated by the corporate charter.

To act on the offering, you turn over the rights you receive, typically one for each share of stock you own, and the money needed to make the purchase within the required period, often two to four weeks. The amount of money that's required is known as the subscription price.

You don't have to buy the additional shares, and you can transfer your rights to someone else if you prefer. But buying helps you maintain the same percentage of ownership you had in the company before the new shares were issued rather than having that percentage diluted.

Risk is the possibility you'll lose money if an investment you make provides a disappointing return. All investments carry a certain level of risk, since investment return is not guaranteed.

According to modern investment theory, the greater the risk you take in making an investment, the greater your return has the potential to be if the investment succeeds.

For example, investing in a startup company carries substantial risk, since there is no guarantee that it will be profitable. But if it is, you're in a position to realize a greater gain than if you had invested a similar amount in an already established company.

As a rule of thumb, if you are unwilling to take at least some investment risk, you are likely to limit your investment return.

When you evaluate an investment's risk-adjusted performance, you aren't looking simply at its straight performance figures but at those figures in relation to the amount of risk you took (or would have taken) to get the return the investment produced.

One method is to investigate the investment's price volatility over various periods of time, including different market environments.

For example, you might consider how far the price fell in the most recent bear market against its price in a bull market, or how it performed in a recent market correction. In general, the greater the volatility, the greater the risk.

However, many analysts believe that looking exclusively at past performance can be deceptive in evaluating the risk you are taking in making a certain investment, since it can't predict what will happen in the future.

When you buy a US Treasury bill that matures in 13 weeks, you're making a risk-free investment in the sense that there's virtually no chance of losing your principal (since the bill is backed by the US government) and no threat from inflation (since the term is so short).

Your yield, or the amount you earn on that investment, is described as risk-free return. By subtracting the risk-free return from the return on an investment that has the potential to lose value, you can figure out the risk premium, which is one measure of the risk of choosing an investment other than the 13-week bill.

Risk management is a set of strategies for analyzing potential risks and instituting policies and procedures to deal with them. The work of assessing the possibilities, setting priorities, and finding cost-effective solutions is also described as business continuity planning.

In a business environment, some risks, such as economic pressures or technology meltdowns, are universal while others are unique to a particular venture or physical location.

Large companies may use a combination of strategies to manage risk, including buying insurance, creating redundant systems, diversifying physical locations or core businesses, and establishing other hedges.

For an individual investor, risk can be managed in several ways: insuring at least a portion of your portfolio, allocating your assets across classes, diversifying your holdings, and hedging with derivative products.

A risk premium is one way to measure the risk you'd take in buying a specific investment. Some analysts define risk premium as the difference between the current risk-free return -- defined as the yield on a 13-week US Treasury bill -- and the potential total return on the investment you're considering.

Other measures of risk premium, which are applied specifically to stocks, are a stock's beta, or the volatility of that stock in relation to the stock market as a whole, and a stock's alpha, which is based on an evaluation of the stock's intrinsic value.

Similarly, the higher interest rates that bond issuers typically offer on bonds below investment grade may be considered a risk premium, since the higher rate, and potentially greater return, is a way to compensate for the greater risk.

Some investors and financial analysts try to estimate the risk an investment poses by speculating on how much the investment is likely to increase in value as opposed to how much it could decline.

For example, a stock priced at $50 that analysts think could increase to $90 or decrease to $30 has a 4:2 risk ratio, because they estimate the stock could go up $40 but down $20.

Critics point out that it is impossible to provide an accurate estimate of future prices, rendering risk ratios meaningless.

Risk tolerance is the extent to which you as an investor are comfortable with the risk of losing money on an investment. If you're unwilling to take the chance that an investment that might drop in price, you have little or no risk tolerance.

On the other hand, if you're willing to take some risk by making investments that fluctuate in value, you have greater risk tolerance. The probable consequence of limiting investment risk is that you are vulnerable to inflation risk, or loss of buying power.

If you move your assets from one investment to another, it's called a rollover.

For example, if you move money from one IRA to another IRA, that transaction is a rollover. In the same vein, if you move money from a qualified retirement plan, such as a 401(k), into an IRA, you create a rollover IRA.

Similarly, when a bond or certificate of deposit (CD) matures, you can roll over the assets into another bond or time deposit.

A rollover IRA is an individual retirement account or annuity you create with tax-deferred assets you move from an employer sponsored retirement plan to a self-directed investment account.

If you arrange for a direct rollover, the trustee of your employer's plan transfers the assets to the trustee you select for your IRA. In that case the total value of the account moves from one to the other.

If you handle the rollover yourself, by getting a check from your employer's plan and depositing it in your IRA, your employer must withhold 20% of the total to prepay taxes that will be due if you fail to redeposit the full amount of the money you're moving into a tax-deferred account within 60 days.

The required withholding forces you to supply the missing 20% from another source to meet the deposit deadline if you want to maintain the tax-deferred status of the full amount and avoid taxes and a potential early withdrawal tax penalty on the amount you don't deposit in the IRA.

The Roth 401(k), which was introduced in 2006, allows you to make after-tax contributions to your account in an employer sponsored plan.

Earnings may be withdrawn tax free, provided that you have left your job, are at least 59 1/2, and your account has been open five years or more.

Both the Roth 401(k) and the traditional 401(k) have the same contribution limits and distribution requirements. You can add no more than the annual federal limit each year, and you must begin taking minimum required distributions (MRD) by April 1 of the year following the year you reach age 70 1/2. You can postpone MRDs if you are still working.

You may not move assets between traditional and Roth 401(k) accounts, though you may be able to split your annual contribution between the two. If you leave your job or retire, you can roll Roth 401(k) assets into a Roth IRA, just as you can roll traditional 401(k) assets into a traditional IRA.

Most 401(k) plans, including the Roth, are self-directed, which means you must choose specific investments from among those offered through the plan.

A Roth IRA is a variation on a traditional individual retirement arrangement (IRA).

Because contributions are made with after-tax dollars, the Roth IRA allows you to withdraw your earnings completely tax free any time after you reach age 59 1/2, provided your account has been open at least five years.

You may also be able to withdraw money earlier without penalty if you qualify for certain exceptions, such as using up to $10,000 toward the purchase of a first home. And since a Roth IRA has no required withdrawals, you can continue to accumulate tax-free earnings as long as you like.

You can make a nondeductible annual contribution, up to the annual federal limit, any year you have earned income, even after age 70 1/2, though you can never contribute more than you earn. If you are 50 or older, you may also make annual catch-up contributions.

To make a full contribution to a Roth IRA, your modified adjusted gross income (MAGI) must be less than the annual limit set by Congress.

You may make partial contributions on a sliding scale if your MAGI is between the amounts that Congress sets for your filing status. These annual limits are lower if you file as a single than if you're married and file a joint return.

You may also qualify to convert a traditional IRA to a Roth IRA if your MAGI in the year you convert is less than the cap, currently $100,000, which applies whether you are single or married. The amount you're converting is not included in that total.

A round lot is the normal trading unit for stocks and bonds on an organized securities exchange or market, also called a trading platform.

For example, shares of stock traded in multiples of 100 are typically considered round lots, as are bonds with par values of $1,000 and $5,000.

Rule 144A of the Securities Act of 1933 makes it easier for private companies to raise money in US capital markets and for institutional investors to trade restricted securities not registered with the Securities and Exchange Commission (SEC).

Specifically, the rule allows private companies, both domestic and international, to sell unregistered securities, also known as Rule 144 securities, to qualified institution buyers (QIBs) through a broker-dealer. The rule also permits QIBs to buy and sell these securities among themselves. To be a QIB, the institution must control a securities portfolio of $100 million or more.

The NASDAQ Portal Market is an electronic trading platform for Rule 144A securities. Only NASDAQ members and QIBs have access to this platform.

Companies issuing unregistered securities may raise enough capital in the 144A market to remain private. They may also use a 144A offering as an intermediary step toward an initial public offering (IPO).

A practice, called the Rule of 78, means that lenders front-load the interest they charge on a short-term loan to guarantee their profit if you pay off your loan before the end of its term.

In other words, you pay most of the interest before you begin to make substantial repayment of principal.

For example, on a one-year loan, you'd pay 15% of the interest in the first month, 14% in the second month, and only 1% in the last month. The practice is called the Rule of 78 because that's the sum of the twelve payments in a one-year loan (1+2+3+...+12 = 78).

It's illegal to calculate loans with terms longer than 61 months using the Rule of 78, and a number of states outlaw the practice for all loans. But where the Rule of 78 is used, the loans may be described as precomputed or precalculated loans, or as loans that offer a rebate of finance charges if you prepay.

This capitalization-weighted index, published by the Frank Russell Company tracks the 1000 largest stocks that are included in the Russell 3000 Index and represents approximately 92% of the market value of US stock.

The Index is rebalanced annually, at the end of June, and is widely used as a benchmark of large-cap US stock performance.

The Russell 2000 Index, published by the Frank Russell Company tracks the stocks of the 2,000 smallest companies in the Russell 3000 index.

The index includes many of the initial public offerings (IPOs) of recent years and is considered the benchmark index for small-cap investments.

The Russell 3000 Index, a market capitalization weighted index published by the Frank Russell Company, tracks the 3,000 largest companies in the United States. Its subsets, the Russell 1000 and the Russell 2000, are widely used benchmarks of the US large-cap and small-cap markets.