Share this Page URL

Part: 5 Here's Our Advice > Glossary - Pg. 289

Glossary 289 money will achieve a certain rate of return. It is important to understand that the rate on the contract is what is guaranteed-- not the insurance company issuing the contract. In recent years, insurance carriers have gone bankrupt, as was the case with Executive Life, Confederation Life, and Mutual Benefit Life. hardship withdrawal A premature in-service distribution from a qualified retirement plan such as a 401(k) or 403(b) plan, predicated upon a plan participant's immediate and heavy financial need that may be satisfied only by means of the withdrawal. holding period The length of time that a security is held. immediate annuity An annuity that begins payments after a single premium is paid. income In mutual fund parlance, the money paid as stock dividends or bond interest. An income distri- bution is a return to shareholders of income paid on the underlying holdings of a fund. income fund A mutual fund that concentrates on providing income for shareholders by investing primarily in securities that pay interest or dividends rather than securities with greater growth. index fund A portfolio structured so that its return will be close to that of an index. individual retirement account (IRA) A tax-sheltered account that permits investment earnings to accumulate tax-deferred until they are withdrawn. Penalties usually apply for withdrawals before age 59½. Taxpayers whose in- come is below certain levels may be able to deduct all or part of their IRA contributions, making the IRA a double tax shelter for them. inflation risk The loss of value in an investment caused by increasing loss of purchasing power of the cur- rency. A constant rate of inflation, even if it is high, may not be risky. For instance, when a long- term bond is purchased, the price of the bond--and, therefore, its yield--already reflects the current inflation rate and future expected rates. interest The amount that a borrower pays a lender for the use of the lender's money--for example, mortgage interest, credit card interest, or interest on a car loan. interest rate The interest payable each year, expressed as a percentage of the principal. interest rate risk The decline in market value that occurs when the interest rates on new, similar investments rise. For example, a five-year corporate bond paying 8 percent interest is purchased. The next year rates rise, and a similar five-year bond pays 10 percent interest. The principal value of the client's bond declines. intermediate bond A debt security with a holding period ranging from 7 to 15 years to maturity. international or foreign stock fund A mutual fund that invests in equity securities of issuers located outside the United States. Some international funds can invest in the United States during adverse market conditions. investment company An arrangement in which investors pool their assets into a corporation or trust that then employs professional management to invest the assets according to a stated objective. Mutual funds are one form of investment company.