The glossary below is provided to define and help you understand terms related to investing that will be used throughout this site. Click on a letter below to go directly to the section of words beginning with that letter.
Actively Managed Funds:
Funds that seek to perform better than comparable indices, but with greater risk. While actively managed funds seek to outperform the market, they also carry the risk of underperformance.
The process of dividing investments among different kinds of assets, such as stocks, bonds, and short-term investments, to achieve the best risk/reward trade-off based on an individual’s specific situation and goals.
A specific category of assets or investments, such as stocks, bonds, cash, and real estate. Assets within the same class generally exhibit similar characteristics.
A fund that invests in both stocks and bonds in an attempt to achieve higher returns than all-bond funds, but with more security than all-stock funds.
Your retirement savings plan lets you set aside money from your paycheck before federal (and usually state) income taxes are calculated. This lowers your taxable income, thereby reducing the income taxes you pay.
A fund that invests in bonds. When you buy a bond fund, you’re actually lending money to companies or governments, which then promise to repay the loan and provide a certain interest rate. Bonds generally have more risk than short-term investments, but less than stocks.
Low-risk, short-term investment designed to protect your principal.
Spreading your savings among a variety of investments. Diversification helps reduce market risk and helps protect against volatility that can result from putting your money in just one investment or asset class.
Emerging Markets Fund:
A fund that invests in companies located in countries that are still developing. Emerging markets investments are extremely volatile, creating high risk in anticipation of higher returns over time.
A fund that invests only in stocks. Over time, equity funds can offer high returns but, in the short term, their value can rise or fall quickly.
401(a) Savings Plan:
A retirement plan in which your employer may contribute money on your behalf, in the form of basic and/or matching contributions.
401(k) Savings Plan:
A retirement plan in which an employee may set aside paycheck money on a before-tax basis.
403(b) Savings Plan:
A retirement plan in which an employee of certain nonprofit employers may set aside paycheck money on a before-tax basis.
Growth Stock Fund:
A fund that invests in companies which have strong earnings and growth prospects. The stock of these companies usually has a high price/earnings ratio.
A fund that attempts to mirror the performance of a particular investment index (industry or market segment), such as the S&P 500. Index funds are passively managed and typically have lower fees than actively managed funds.
*Also called passively managed funds
An increase in what it costs to purchase goods and services. Typically, the inflation rate is expressed as a percentage and is measured over a finite period—usually a month or a year.
The likelihood that an investment’s growth won’t keep pace with inflation over time.
International Equity Fund:
A fund that seeks capital appreciation by investing primarily in common stocks of companies outside the United States. Currency fluctuations and political developments could add risk to the portfolio.
Investment Comfort Level:
The amount of risk you can handle. Some investors are conservative; they cannot handle wide fluctuations in the market, while others are aggressive; they can handle market fluctuations because they accept the risk of losing their investment for the potential of earning higher returns. Other investors fall somewhere in the middle and have a moderate comfort level.
The possibility that your investments will decrease in value. Aggressive investments that have the potential for higher returns also have the potential for higher investment risk.
Large-Cap Equity Fund:
A fund that generally seeks growth of capital by investing primarily in common stocks of well-established companies—companies that offer the opportunity to increase in share value and may have a solid record of paying dividends. A large-cap stock is the stock of a company having a market capitalization over $10 billion.
The value of the outstanding stock of a company. For example, if a company has one million shares outstanding and a stock price of $50 per share, the company’s market capitalization would be $50 million.
The chance that the value of investments will go up or down over time.
Mid-Cap Equity Funds:
Investments that seek long-term growth by investing in stocks of mid-sized companies which typically have market capitalizations of between $2 billion and $10 billion. Mid-cap stock funds invest in either "growth" stocks or "value" stocks or both—potentially investing in companies with smaller or larger market capitalization.
A financial vehicle that allows a group of investors to pool their money together with a predetermined investment objective. The mutual fund will have a fund manager who is responsible for investing the pooled money into specific securities (usually stocks or bonds). When you invest in a mutual fund, you are buying shares of the mutual fund and become a shareholder of the fund.
Personalized, online feedback about your retirement outlook from Aon Hewitt Financial Advisors. The feedback considers how much you’re saving, your current investment mix, and when you plan on retiring. It also includes suggestions for changes you can make that may increase your retirement income.
Independent, unbiased, and licensed investment advisors (Aon Hewitt Financial Advisors) create a personalized plan, monitor and manage your investments for you. The fee for this service is based on the size of your AHRP account.
A disclosure document required by the Securities and Exchange Commission (SEC) for mutual funds and company stocks. The prospectus is made available for review by the prospective investor.
Rate of Return:
The amount an investment changes in value (gains or losses) over a period of time, expressed as a percentage of the initial investment.
The risk of reaching retirement without enough money to live as comfortably as you had planned. Investing too conservatively can sometimes create this type of risk, particularly when you consider the effect of inflation over your working life.
Retirement Savings Plan:
A tax-qualified savings plan sponsored by an employer that lets employees invest regularly on a before-tax and (Roth) after-tax basis. The before-tax money employees set aside in a retirement savings plan account reduces their wages for federal (and usually state) income tax purposes. Before-tax contributions become taxable when they’re paid out. Roth contributions do not impact wages for federal (or state) income tax purposes and are not taxed when they are paid out.
Roth 401(k) & Roth 403(b) Accounts:
Accounts in which an employee may set aside paycheck money on an after-tax basis.
A mutual fund that invests entirely or predominantly in a single sector. Sector funds tend to be riskier and more volatile than the broad market because they are less diversified, although the risk level depends on the specific sector. Some common sector funds are financial services funds, gold and precious metals funds, health care funds, and real estate funds, but sector funds exist for just about every sector.
These can include certificates of deposit (CDs), Treasury bills, and money market instruments. Short-term investments generally offer a relatively low level of risk, but over the long term, they generally provide lower long-term returns than stocks or bonds.
Small-Cap Equity Fund:
A fund that generally seeks long-term growth by investing in stocks of smaller up-and-coming companies. Small company stock funds can be subject to greater price fluctuations than large company stock funds, but they can also provide the greatest potential return over the long term. Small-cap stock has a market capitalization between $500 million and $2 billion.
Stable Value Fund:
Intended to maintain a constant dollar value and provide a consistent rate of return to investors, stable value funds typically are the least volatile of the three investment types (stocks, bonds, and stable value funds) in the long run. In exchange for the lower volatility of your investment, stable value returns have historically been lower than returns on stocks and bonds.
When you buy stock, you’re really buying part ownership in a company. Stocks have a higher level of short-term risk than bonds or short-term investments, but over the long run, they have provided better returns (earnings). Of course, past performance is no guarantee of future results.
*Also known as equities
Target Retirement Choice:
A single investment choice that includes a diversified mix of funds. The asset allocation is designed for a specific time horizon and based on a target date, such as retiring in 2030. As the target date draws closer, the asset allocation will typically become more conservative.
An important factor in determining your retirement strategy, your time horizon is the amount of time until you’ll need money from your retirement plans.
Value Stock Fund:
A fund that invests in company stocks that sell at a low price relative to company earnings (perhaps because of disappointing performance or low market interest) but are thought by the fund manager(s) to have significant appreciation potential.
Ownership of employer contributions to your AHRP account and the related earnings. Vesting is based on how long you’ve worked for an AHRP employer. If you’re 100% vested and leave your employer, you have full access to the employer contributions and earnings in your account.
The ups and downs of the value of an investment. Stock investments tend to have higher volatility than bond or stable value investments.