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Part: 5 Here's Our Advice > Glossary - Pg. 287

Glossary 287 diversification A technique for reducing investment risks. An investor diversifies by investing in several different areas. Disaster in one area usually does not affect an investment in the others. To diversify effectively, the investor must be certain that the areas are genuinely independent. A broad- based growth mutual fund is diversified in one sense because it covers many different sectors, but its performance also depends on that of the stock market overall. dividend Earnings paid by a corporation to its stockholders. In preferred stock, dividends usually are fixed (although payment is not guaranteed); with common shares, dividends vary with the fortunes of the company. dollar cost averaging A strategy that calls for buying a specified dollar amount of stock or other security at regular intervals. By investing the same amount at regular intervals, regardless of the current price of the security, the investor averages out the dollar cost of the investments. Dow Jones Industrial Average (DJIA) The most well-known and quoted stock market index. Consists of only 30 actively traded stocks. downside risk The potential for loss if a particular investment is purchased or sold. For example, the downside risk from holding Treasury bills is quite small. Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) Major legislation expected to cut taxes by $1.35 trillion between 2001 and 2011, when it will expire. In addition to reducing income tax rates, EGTRRA significantly expands opportunities and tax incentives for retirement and education saving. It also improves portability of retirement plans, repeals the estate tax, doubles the child tax credit, and provides regulatory relief to sponsors of qualified retirement plans, among other provisions.