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Part: 5 Here's Our Advice > Glossary - Pg. 285

Glossary 285 capital gains tax The tax applicable to gains and losses from the sale of capital assets. capital loss The loss taken on the sale of property or securities. cash A holding of a relatively stable asset denominated in currency terms. A mutual fund holding "cash" does not have a pile of dollar bills somewhere; the money is invested in interest-bearing, short-term securities. cash equivalent An investment with the greatest liquidity (the ability to be turned into cash) with little or no risk of decreasing in value. cash flow The amount of money that a company generates. Cash flow is a factor used in valuing stocks or companies. The figure differs from income because income calculations include relatively abstract accounting concepts, such as depreciation, which reduce taxable profits without af- fecting cash in hand. Speculators and take-over specialists value companies with high cash flow because they can use the cash to pay off incurred debt. cash refund annuity A form of annuity contract that provides that, if at the death of the annuitant the installments paid out have not totaled the amount of the premium paid for the annuity, the difference will be paid to a designated beneficiary in a lump sum. cash reserves Funds that are held "on-deck" in short-term securities such as Treasury bills and certificates of deposit, awaiting a more permanent investment opportunity. certificate of deposit Usually called a CD, a certificate of deposit is a short- to medium-term instrument (one month to five years) that is issued by a bank or a savings and loan association to pay interest at a rate higher than that paid by a passbook account. CD rates move up and down with general market interest rates. There is usually a penalty for early withdrawal. collectible An asset, generally of limited supply, that is sought for a variety of reasons--including, it is hoped, an increase in value. Stamps, antiques, coins, and works of art are among the many things normally classified as collectibles. Investors often regard collectibles as a hedge against inflation; their values tend to appreciate most when general prices are rising. The collectibles market represents a very tricky investment for inexperienced investors. commission A broker's fee for handling transactions for a client in an agency capacity. common stock A unit of equity ownership in a corporation. Owners of this kind of stock exercise control over corporate affairs and enjoy capital appreciation. They are paid dividends only after owners of preferred stock have received their dividends. Their interest in the assets, in case of liquidation, is junior to all others. common stock fund A mutual fund that limits its investment to shares of common stock. Common stock funds vary in risk from relatively low to quite high, depending on the types of stocks in which the funds invest. company stock fund A fund option within a 401(k) plan that invests in the common stock of the employer. These funds allow employees to participate in the growth of their employer. Company stock funds are not diversified investments as mutual funds are.