Investing Glossary

A

Accredited investor

An investor who meets income or net worth thresholds set by regulators, allowing access to private investments like hedge funds, private equity, and startups. In the US, roughly $200,000 in annual income ($300,000 with a spouse) or $1 million in net worth excluding your primary home. Qualifying is a statement about your balance sheet, not about your skill.

Accumulation phase

The years when you are adding money to a portfolio rather than drawing it down. Falling markets during accumulation are an opportunity because future contributions buy more shares.

Active management

Paying a manager to select securities or time markets in an attempt to beat an index. Standard scorecards of active funds show the large majority trail their benchmark over 10 and 15 year windows, mostly because fees and trading costs are certain while outperformance is not.

Adjusted gross income (AGI)

Total income minus specific deductions such as deductible retirement contributions and HSA contributions. Many tax provisions phase in or out based on AGI or its cousin, modified AGI (MAGI).

ADR (American depositary receipt)

A US-traded certificate representing shares of a foreign company. Lets you buy an overseas business in dollars during US market hours, though foreign withholding tax and a custody fee often apply.

After-tax contribution

Money put into a retirement plan that was already taxed. In a 401(k), after-tax contributions beyond the normal deferral limit are the raw material for the mega backdoor Roth.

Alpha

The return an investment earns above what its risk level would predict. If a fund beat its benchmark by 2 percentage points after adjusting for risk, that 2 points is alpha. Persistent positive alpha is rare and hard to distinguish from luck.

Alternative investment

Anything outside stocks, bonds, and cash: private equity, private credit, hedge funds, venture capital, art, farmland, collectibles. Typically illiquid, expensive, and hard to benchmark honestly.

Alternative minimum tax (AMT)

A parallel US tax calculation that limits certain deductions and preferences. It most commonly surfaces for people exercising incentive stock options.

Amortization

Paying off a debt gradually through scheduled payments covering both interest and principal. Early mortgage payments are mostly interest: on a $400,000 loan at 6%, the first monthly payment of about $2,398 includes roughly $2,000 of interest and only $398 of principal.

Annual percentage rate (APR)

The yearly cost of borrowing including certain fees, stated as a percentage. Useful for comparing loans, though it does not capture everything.

Annual percentage yield (APY)

The yearly return on a deposit including the effect of compounding. A 5% rate compounded monthly is an APY of about 5.12%.

Annuity

An insurance contract that pays a stream of income, often for life, in exchange for a lump sum or a series of payments. Simple single premium immediate annuities can be a rational way to buy longevity insurance. Variable and indexed annuities are often sold with high fees, long surrender periods, and features that are hard to price.

Arbitrage

Profiting from price differences of the same asset in different markets, buying where it is cheap and selling where it is expensive. True risk-free arbitrage is rare and disappears quickly.

Ask

The lowest price a seller is currently willing to accept for a security. When you buy at the market, you typically pay the ask.

Asset allocation

How you divide your portfolio among asset classes like stocks, bonds, and cash. It is the decision that explains most of the variation in a portfolio's returns and risk over time, far more than security selection.

Asset class

A broad category of investments that behave similarly, such as stocks, bonds, real estate, commodities, and cash.

Asset location

Deciding which account type holds which asset. Tax-inefficient holdings such as taxable bonds and REITs generally belong in tax-deferred accounts, while broad stock index funds are already tax efficient enough for a brokerage account.

Asset protection

Structuring ownership (retirement accounts, entities, insurance) to shield assets from creditors. Protections vary sharply by state, which matters to business owners and to physicians worried about malpractice exposure.

Average cost basis

A method of computing what you paid for shares by averaging all purchase prices. Common for mutual funds. Specific identification usually gives more control at tax time.

B

Backdoor Roth IRA

A two-step maneuver for people whose income is too high to contribute to a Roth IRA directly: contribute to a nondeductible traditional IRA, then convert it to Roth. Legal and widely used. The catch is the pro-rata rule, so it works cleanly only when you have no other pre-tax IRA balances.

Backtesting

Testing a strategy against historical data. Useful for sanity checks, dangerous as evidence: strategies tuned to the past routinely fail in the future.

Balanced fund

A single fund holding a fixed mix of stocks and bonds, commonly 60/40. Simple, automatically rebalanced, and hard to tinker with, which is a feature.

Bank loan fund

A fund holding floating-rate senior loans to below-investment-grade companies. Low duration but real credit risk; these fall in recessions.

Basis point

One hundredth of a percentage point, written bp or bps. A fee of 25 basis points is 0.25%, or $25 per year on $10,000.

Bear market

A decline of 20% or more from a recent high. Normal, recurring every few years, and historically followed by recovery for broad indexes, though never on a schedule you can plan around.

Behavioral finance

The study of how real investors actually behave: loss aversion, recency bias, overconfidence, herding. It explains why the average investor's realized return trails the funds they own.

Benchmark

A standard, usually a market index, against which a fund or portfolio's performance is measured. An honest benchmark matches the strategy's risk and asset mix.

Beneficiary

The person or entity named to receive an account at your death. Beneficiary designations override your will, which is why stale ones are a classic estate planning failure.

Beta

How much an investment moves relative to the overall market. A beta of 1.5 means the stock has historically moved about 1.5% for every 1% market move, in either direction.

Bid

The highest price a buyer is currently willing to pay. When you sell at the market, you typically receive the bid.

Bid-ask spread

The gap between bid and ask, a hidden trading cost. A penny spread on a $100 stock is 0.01%; a 30 cent spread on a thin ETF is 0.3%, which dwarfs its expense ratio if you trade often.

Blue chip

A large, established, financially sound company with a long record of reliable operation.

Bond

A loan you make to a government or company. You receive scheduled interest and your principal at maturity. Less volatile than stocks, not risk free.

Bond fund

A pooled fund holding many bonds. Effectively a ladder that rolls itself, marked to market daily. It has no maturity date, so its value fluctuates with rates.

Bond ladder

Owning bonds with staggered maturities so a portion matures each year, smoothing reinvestment and matching known future expenses.

Book value

A company's assets minus liabilities, roughly what would remain if it sold everything and paid all debts. The denominator in price to book.

Break-even (options)

The underlying price at which an option trade neither gains nor loses at expiration. For a long call, strike plus premium: a $50 strike bought for $3 breaks even at $53.

Broker

A firm that executes buy and sell orders. Most individual investors use online discount brokers with zero-commission stock and ETF trades.

Brokered CD

A bank CD bought through a brokerage. Lets you shop many banks and sell on a secondary market instead of paying an early withdrawal penalty, though the sale price floats with rates.

Bull market

A sustained rise in prices, often dated from a 20% gain off a low.

Buyback

A company repurchasing its own shares, reducing share count and raising earnings per share. Economically similar to a dividend but taxed only when you sell.

Buy and hold

Owning broad investments through market cycles instead of trading in and out. Its edge is arithmetic: fewer costs, fewer taxes, fewer chances to be wrong twice.

C

Callable bond

A bond the issuer can redeem early, usually when rates fall. You get your money back exactly when reinvesting is least attractive, so callable bonds must pay extra yield.

Call option

A contract giving the buyer the right, not the obligation, to buy 100 shares at a set strike price before expiration. Buying calls is a leveraged bet on a rise within a deadline.

Capital call

A private fund's demand that committed investors send in cash. Committing to private funds means holding liquidity in reserve.

Capital gain

Profit from selling an investment above your cost basis. In the US, gains on assets held more than a year get preferential long-term rates (commonly 0%, 15%, or 20% federal, plus possible net investment income tax).

Capital gains distribution

Gains a mutual fund realizes internally and must pass through to shareholders, taxable even if you did not sell and even if the fund lost money that year. ETFs largely avoid this through in-kind redemptions.

Capital loss

Loss from selling below cost basis. Losses offset gains dollar for dollar, then up to $3,000 of ordinary income per year, with the remainder carried forward indefinitely.

Capitalization rate (cap rate)

A property's net operating income divided by its price. A building producing $60,000 of NOI priced at $1,000,000 has a 6% cap rate. Lower cap rate means a more expensive property per dollar of income.

CAPE ratio

Cyclically adjusted price to earnings, comparing price to average inflation-adjusted earnings over ten years. A rough gauge of whether a whole market is expensive. It has been weakly informative about long-run returns and useless for timing.

Cash balance plan

A defined benefit plan that looks like an account balance. Popular with high-income professionals and physician practices because contribution limits can far exceed a 401(k)'s, shifting large amounts of income into tax-deferred status.

Cash equivalent

A very safe, very liquid holding such as a money market fund, Treasury bill, or short CD.

Cash flow (real estate)

Rent minus all operating expenses, vacancy, capital reserves, and debt service. The number that survives every honest deduction, not the number on the listing.

Catch-up contribution

Extra retirement plan contributions allowed starting at age 50, on top of standard limits, for both 401(k) plans and IRAs.

Certificate of deposit (CD)

A bank time deposit paying a fixed rate for a fixed term, FDIC insured to $250,000 per depositor, per bank, per ownership category. Early withdrawal usually forfeits some interest.

Charitable remainder trust

A trust that pays you income for a term or life, with the remainder going to charity. Provides a partial deduction now and can defer gain on appreciated assets.

Churning

Excessive trading in a client account to generate commissions. Prohibited, and a reason to prefer fee-only advisors.

Closed-end fund

A fund with a fixed share count that trades on an exchange and can sit at a large premium or discount to net asset value. Many use leverage and carry high fees.

COBRA

The US right to continue employer health coverage after leaving a job, typically for 18 months, by paying the full premium yourself. Relevant when changing jobs or starting residency.

Collar

Owning a stock while buying a protective put and selling a covered call. Caps both downside and upside, often at near-zero net premium.

Commodity

A raw physical good such as oil, copper, or wheat. Commodities produce no cash flow, so their long-run real return has been near zero; they are traded for hedging and speculation, not compounding.

Compound interest

Earning returns on prior returns. $10,000 at 7% becomes about $19,700 in 10 years, $38,700 in 20, and $76,100 in 30. The last decade contributes more than the first two combined, which is the whole argument for starting early.

Concentration risk

Having too much of your outcome tied to one holding, sector, or employer. Owning heavy company stock while your paycheck comes from the same firm doubles the same bet.

Contingent deferred sales charge

A back-end fee for selling a fund or annuity within a set number of years. A signal that the product was sold, not bought.

Contrarian investing

Deliberately buying what is unpopular and selling what is crowded. Emotionally hard, occasionally lucrative, frequently early.

Conversion (Roth)

Moving money from a pre-tax account to a Roth account and paying ordinary income tax on the converted amount now in exchange for tax-free growth later. Most attractive in low-income years such as residency, fellowship, a sabbatical, or early retirement before Social Security starts.

Correlation

How closely two investments move together, from +1 to -1. Combining assets with low correlation reduces portfolio swings without requiring lower expected return.

Cost basis

What you paid, including commissions and reinvested dividends. Gain equals proceeds minus basis, so tracking basis accurately saves real tax dollars.

Coupon

A bond's fixed interest payment as a percentage of face value. A $1,000 bond with a 5% coupon pays $50 per year, usually as two $25 payments.

Covered call

Selling a call against stock you own. You collect premium and cap your upside at the strike. It converts uncertain appreciation into certain income, which is a trade, not free money.

Credit rating

A grade such as AAA or BB indicating how likely a borrower is to repay. BBB- and above is investment grade; below that is high yield.

Credit spread (bonds)

The extra yield a risky bond pays over a Treasury of the same maturity. Spreads narrow in calm periods and widen violently in recessions, which is when lower-rated bonds fall alongside stocks.

Credit spread (options)

An options position where you sell one option and buy a further out-of-the-money one, collecting net premium with a defined maximum loss.

Cryptocurrency

A digital asset secured by cryptography and recorded on a distributed ledger. No cash flows, so valuation rests entirely on what the next buyer will pay. Extremely volatile, with drawdowns above 70% multiple times in its short history.

Custodian

The institution that holds your securities for safekeeping, keeping client assets separate from the firm's own.

Custodial account (UTMA/UGMA)

An account an adult manages for a minor. The money legally becomes the child's at the age of majority, and it counts heavily against financial aid, which is why 529 plans usually win for education savings.

D

Day trading

Buying and selling within the same day. Academic studies of retail day traders consistently find the large majority lose money net of costs, with persistence of skill confined to a tiny minority.

DCF (discounted cash flow)

Valuing a business by projecting future cash flows and discounting them to today at a required return. Rigorous in form, extremely sensitive to assumptions in practice.

Deductible (insurance)

What you pay out of pocket before coverage begins. Higher deductibles lower premiums, which makes sense when you can absorb the deductible from savings.

Default

Failure to make required debt payments. Bondholders typically recover only part of face value, historically around 40 cents on the dollar for senior unsecured corporate debt, with wide variation.

Deferred compensation (457 plans)

Pay you elect to receive later. Governmental 457(b) plans are a genuine extra tax-deferred bucket alongside a 403(b). Nongovernmental 457(b) balances remain the employer's assets and are exposed to employer insolvency, which is a real consideration at hospitals and nonprofits.

Defined benefit plan

A pension promising a formula-based benefit in retirement, with the employer bearing investment risk.

Defined contribution plan

A plan such as a 401(k) where contributions are defined and the outcome depends on your investments. You bear the risk.

Deflation

A general fall in prices. It raises the real burden of debt and usually accompanies a weak economy.

Delta

How much an option's price changes for a $1 move in the underlying. A 0.40 delta call gains roughly $0.40 per $1 rise, and is loosely read as a 40% chance of finishing in the money.

Derivative

A contract whose value derives from something else. Options, futures, and swaps are the common examples.

Disability insurance

Income replacement if illness or injury stops you from working. For high earners early in a career, this is usually the single most valuable insurance policy, because human capital dwarfs invested assets. See own-occupation.

Diversification

Spreading money across many holdings so no single failure sinks you. Often called the only free lunch in investing because it lowers risk without necessarily lowering expected return.

Dividend

A cash payment from company profits to shareholders, typically quarterly. Not guaranteed and not free money: the share price drops by roughly the dividend on the ex-date.

Dividend yield

Annual dividends per share divided by price. A $100 stock paying $3 yields 3%.

Dollar-cost averaging

Investing a fixed amount on a schedule regardless of price. It is how paycheck investing naturally works and it removes timing decisions, though investing a windfall all at once has historically beaten spreading it out about two thirds of the time.

Donor-advised fund (DAF)

A charitable account you fund now, deduct now, and grant from later. Donating appreciated shares held over a year avoids capital gains tax and deducts fair market value, which is the efficient way for investors to give.

Dow Jones Industrial Average

A price-weighted index of 30 large US companies. Famous, but price weighting makes it a poor representation of the market compared with the S&P 500.

Drawdown

The decline from a peak to the subsequent trough. A fall from $100,000 to $70,000 is a 30% drawdown, and it then requires a 43% gain to get back to even.

Due diligence

The investigation you perform before committing capital. In private deals, its absence is the most common cause of loss.

Duration

A bond's sensitivity to rate changes, in years. Duration 6 means roughly a 6% price fall if rates rise one percentage point, and a 6% gain if they fall one point.

E

Earnings per share (EPS)

Profit divided by shares outstanding. The denominator of the P/E ratio.

EBITDA

Earnings before interest, taxes, depreciation, and amortization. A rough proxy for operating cash generation that ignores real costs including the capital spending needed to stay in business.

Efficient frontier

The set of portfolios offering the highest expected return for each level of risk. A useful concept and a fragile calculation, since the inputs are estimates.

Efficient market hypothesis

The theory that prices already reflect available information, making consistent outperformance very difficult. It does not require prices to be right, only that they are hard to beat after costs.

Emergency fund

Cash for surprises, commonly three to six months of expenses, held in a high-yield savings account, money market fund, or T-bills. Its job is preventing forced selling and high-interest borrowing, not earning returns.

Emerging markets

Stock and bond markets of developing economies such as India, Brazil, and Indonesia. Higher growth potential with added political, governance, and currency risk.

Employer match

Money your employer adds to your 401(k) based on your contributions. A 50% match on the first 6% of a $200,000 salary is $6,000 per year, an immediate 50% return that no investment strategy can match.

Equity

Ownership. A share of stock is equity in a company; home equity is market value minus the mortgage balance.

ESG investing

Selecting investments using environmental, social, and governance criteria. Definitions vary widely between providers, fees are typically higher, and evidence that screens improve returns is mixed.

Estate tax

A federal (and in some states, state) tax on transfers at death above an exemption amount. State thresholds are often far lower than the federal one.

ETF (exchange-traded fund)

A fund holding a basket of securities that trades on an exchange like a stock. Broad index ETFs combine low cost, intraday liquidity, and strong tax efficiency.

Ex-dividend date

The cutoff for receiving a declared dividend. Buy on or after it and the seller keeps that payment.

Exercise

Using an option's right to buy or sell the underlying at the strike price.

Expected return

The probability-weighted average outcome, not a promise. A portfolio with a 7% expected return will rarely return 7% in any single year.

Expense ratio

A fund's annual fee as a percentage of assets. On $500,000 over 30 years at 7% gross, paying 0.04% instead of 1.00% is worth roughly $900,000 in ending value. Fees are the one variable you control with certainty.

Expiration date

The date an option contract ceases to exist. Time works against option buyers as it approaches.

F

Face value

What a bond repays at maturity, typically $1,000. Also called par.

Factor investing

Tilting toward characteristics with historical return premiums, such as value, size, profitability, and momentum. Premiums are real in long datasets but can underperform for a decade or more, which is why most tilts get abandoned at the worst time.

FDIC insurance

US federal deposit insurance covering $250,000 per depositor, per insured bank, per ownership category. It covers bank deposits, not securities held at a brokerage (that is SIPC, which is different).

Fed funds rate

The overnight rate at which banks lend to each other, targeted by the Federal Reserve. It anchors most short-term US rates.

Fee-only advisor

An advisor paid solely by clients, with no commissions from products. Distinct from fee-based, which permits commissions and is deliberately confusing wording.

FICA

US payroll taxes funding Social Security (6.2% up to the wage base) and Medicare (1.45%, with an extra 0.9% above high income thresholds). Self-employed people pay both halves.

Fiduciary

An advisor legally required to act in your best interest. Ask any advisor to confirm in writing that they act as a fiduciary at all times.

FIRE

Financial Independence, Retire Early. A framework built on a high savings rate and low-cost investing. The math is mostly the savings rate: saving 50% of income tends to reach independence in roughly 17 years, saving 15% takes about 40.

Fixed income

Investments paying a set schedule of interest, primarily bonds.

Float

Shares actually available for public trading, excluding locked-up insider and restricted shares. A small float can make a stock violently volatile.

Forward contract

A private agreement to trade an asset at a set price on a future date. Like a futures contract but customized and not exchange-cleared.

Free cash flow

Cash from operations minus capital expenditures. Harder to manipulate than reported earnings and the input to most honest valuation work.

Front-end load

A sales commission deducted when you buy a fund. A 5.75% load means only $9,425 of a $10,000 investment goes to work. There is no evidence loaded funds outperform to compensate.

Front-running

Trading ahead of a known upcoming order to profit from the move it causes. Illegal for brokers using client information.

Fundamental analysis

Valuing a business through its financial statements, competitive position, and management rather than its price chart.

Futures

Exchange-traded contracts obligating a buyer and seller to trade an asset at a set price on a set date. Highly leveraged; used for hedging and speculation.

G

Gamma

How fast an option's delta changes as the underlying moves. High gamma near expiration is why short-dated options behave erratically.

GDP (gross domestic product)

The total value of goods and services an economy produces. Notably, GDP growth and stock returns correlate weakly across countries.

Gift tax annual exclusion

The amount you can give any individual per year without filing a gift tax return, commonly cited around $18,000 to $19,000 per recipient per year in recent years and indexed for inflation.

Glide path

The schedule by which a target-date fund shifts from stocks toward bonds as the target year approaches.

Golden handcuffs

Compensation that vests over time, making it costly to leave. Common in signing bonuses, retention packages, and hospital contracts with repayment clauses.

Grantor trust

A trust whose income is taxed to the person who created it. A common estate planning structure because paying the trust's tax is itself a tax-free gift to beneficiaries.

Gross margin

Revenue minus cost of goods sold, divided by revenue. High and stable gross margin often signals pricing power.

Growth stock

A company expected to grow revenue and earnings faster than average. Investors pay higher valuations for that growth, so disappointments hurt more.

Growth investing

A style focused on buying fast-growing companies even at high prices, betting the growth justifies the valuation.

H

Hard money loan

Short-term, asset-backed real estate financing at high rates from private lenders. Used by flippers when speed matters more than cost.

Health savings account (HSA)

The only US account with a triple tax benefit: deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses. Requires a high-deductible health plan. Used as a stealth retirement account by paying current medical costs from cash, investing the HSA, and saving receipts.

Hedge

A position taken to offset losses in another, like insurance. It costs something; a free hedge is usually a misunderstood one.

Hedge fund

A lightly regulated private fund for accredited and institutional investors. Fees are typically around 2% of assets plus 20% of profits, a hurdle that the average fund has not cleared relative to simple index portfolios over the past two decades.

High-deductible health plan (HDHP)

A plan meeting IRS deductible and out-of-pocket thresholds, and the prerequisite for contributing to an HSA.

High-yield bond

A bond rated below investment grade, also called junk. Pays more, defaults more, and correlates with stocks in downturns, which undermines the ballast role bonds usually play.

High-yield savings account

A bank savings account paying near short-term market rates, FDIC insured. A sensible home for an emergency fund.

Holding period

How long you own an investment. In the US, more than one year qualifies gains for long-term capital gains rates.

House money effect

Treating gains as less real than original capital and taking bigger risks with them. The market does not know which dollars were which.

Human capital

The present value of your future earnings. For a 30-year-old physician it can be worth several million dollars, which is why disability and term life insurance matter far more than portfolio tinkering early on.

I

I bond (Series I savings bond)

A US savings bond whose rate combines a fixed rate for the bond's life with an inflation rate resetting every six months. Principal never falls in nominal terms. Purchase limits (commonly $10,000 electronic per person per year), a 12-month lockup, and a three-month interest penalty before five years apply.

Illiquidity premium

Extra expected return for accepting the inability to sell quickly. Sometimes real, often just an unmeasured price that hides volatility rather than removing it.

Impermanent loss

The loss a crypto liquidity provider suffers when the two pooled assets diverge in price relative to simply holding them. Trading fees may or may not compensate for it.

Incentive stock option (ISO)

An employee option with potentially favorable tax treatment if holding requirements are met, but exercising can trigger alternative minimum tax on the paper spread even without selling.

Index

A measured basket of securities representing a market or segment. Indexes are yardsticks; funds tracking them are index funds.

Index fund

A fund that simply holds the securities in an index. Low cost, broadly diversified, tax efficient, and historically difficult for active funds to beat after fees.

Inflation

The general rise in prices, which erodes purchasing power. At 3%, prices roughly double in 24 years, so a $60,000 lifestyle needs about $120,000 by then.

Initial public offering (IPO)

A company's first public share sale. Buyers at the open have historically earned unimpressive returns relative to the broad market over the following years.

Insurable interest

The requirement that a policyholder would suffer real loss from the insured event. It is why you cannot buy life insurance on a stranger.

Interest rate risk

The risk that rising rates push down bond prices. Measured by duration.

Intrinsic value (options)

How far an option is in the money right now. A $50 call with the stock at $58 has $8 of intrinsic value; any price above that is time value.

Intrinsic value (stocks)

What a business is truly worth based on its cash flows, as distinct from its market price.

Investment grade

Bonds rated BBB- / Baa3 or higher, indicating relatively low default risk.

Investment policy statement (IPS)

A short written document stating your target allocation, contribution plan, rebalancing rules, and what you will do in a crash. Its purpose is to bind your future panicked self to your current calm self.

IRA (individual retirement account)

A tax-advantaged US retirement account you open yourself. Traditional IRAs may be deductible and are taxed on withdrawal; Roth IRAs use after-tax money and grow tax free.

Irrevocable life insurance trust (ILIT)

A trust that owns a life insurance policy so the death benefit sits outside your taxable estate.

J

Joint tenancy with right of survivorship

Co-ownership where the survivor automatically inherits the whole asset, bypassing probate. Convenient, but it also exposes the asset to the co-owner's creditors.

Junk bond

Informal name for a high-yield bond, rated below investment grade.

Jumbo loan

A mortgage above conforming loan limits, so it cannot be sold to the government-sponsored enterprises. Underwriting is stricter and pricing differs from conforming loans.

K

401(k)

A US employer-sponsored retirement plan funded by salary deferrals, often with an employer match. Capturing the full match is almost always the highest-return move available.

403(b)

The 401(k) equivalent at nonprofits, hospitals, and schools. Historically riddled with high-cost annuity products, so check the fund menu and fees carefully.

457(b)

A deferred compensation plan available to government and some nonprofit employees, usable in addition to a 403(b). Governmental versions hold assets in trust; nongovernmental versions do not.

K-1

The tax form reporting your share of income from a partnership, LLC, or MLP. K-1s arrive late, complicate returns, and can create filing obligations in multiple states.

Kelly criterion

A formula for the bet size that maximizes long-run growth given an edge. Most practitioners bet a fraction of it because full Kelly is extremely volatile.

L

Large cap

A company with a large market capitalization, commonly above $10 billion.

LEAPS

Long-dated options, typically expiring more than a year out. Slower time decay than short-dated options, higher premium up front.

Leverage

Using borrowed money to amplify returns. It magnifies gains and losses alike and introduces the possibility of forced selling at the worst moment, which is the failure mode that actually ruins people.

Liability

A debt or obligation such as a mortgage, student loan, or unpaid bill. Net worth is assets minus liabilities.

Life insurance, term

Pure death benefit for a fixed number of years with no cash value. Cheap, simple, and the right product for nearly everyone who needs coverage: a healthy 35-year-old can often buy $2 million of 20-year term for a few thousand dollars a year.

Life insurance, whole and universal

Permanent policies combining a death benefit with a cash value. Sold heavily to high earners because commissions are large. They can serve narrow estate-liquidity or business needs, and they are a poor substitute for tax-advantaged investing for most people.

Limit order

An order to trade only at a specified price or better. You control price; the order may never fill.

Liquidity

How fast and cheaply an asset converts to cash without moving its price. Large-cap stocks are highly liquid; real estate and private funds are not.

Load

A sales commission charged on a mutual fund, at purchase (front-end) or sale (back-end). Avoidable, and worth avoiding.

Long-term care insurance

Coverage for extended custodial care such as a nursing home or in-home aide, costs that Medicare largely does not cover. Premiums are not usually guaranteed, and historical rate increases on older policies were substantial.

Loss aversion

The documented tendency to feel losses roughly twice as intensely as equivalent gains. It explains panic selling and the reluctance to sell losers.

Lump sum investing

Investing available cash all at once. Historically it has beaten spreading the money out roughly two thirds of the time, simply because markets rise more often than they fall.

M

Margin

Borrowing from your broker against your holdings. If prices fall enough, the broker liquidates positions on its own timetable, not yours.

Margin call

The broker's demand for more collateral when a leveraged account falls below maintenance requirements. Forced selling follows, typically near lows.

Marginal tax rate

The rate on your next dollar of income, distinct from your effective (average) rate. A physician in the 32% federal bracket paying 5% state faces a 37% marginal rate, which is what determines the value of a deduction or a pre-tax contribution.

Market cap

Share price times shares outstanding. The measure by which broad indexes weight their holdings.

Market maker

A firm that continuously quotes both a bid and an ask, providing liquidity and earning the spread.

Market order

An order to trade immediately at the best available price. Fast, but the fill can surprise you in thin or fast markets.

Market timing

Attempting to move in and out of markets based on forecasts. It requires two correct decisions each round trip, and missing a small number of the best days materially reduces long-run returns because the best days cluster near the worst ones.

Maturity

The date a bond repays face value and stops paying interest.

Mega backdoor Roth

Making after-tax 401(k) contributions above the normal deferral limit, then converting them to Roth, either in-plan or by rolling to a Roth IRA. Requires that your plan allow both after-tax contributions and in-service conversions.

Mega cap

The very largest companies, often above $200 billion in market value. A handful of them can dominate index returns in any given year.

Medicare

US federal health coverage generally beginning at age 65. Part B and Part D premiums rise with income through IRMAA, which is why large Roth conversions or capital gains two years earlier can raise your Medicare bill.

Moat

A durable competitive advantage protecting profits from rivals: brand, network effects, switching costs, scale, or regulatory position.

Modified adjusted gross income (MAGI)

AGI with certain deductions added back. It governs Roth IRA eligibility, the net investment income tax, IRMAA surcharges, and student loan payment calculations.

Momentum

The tendency of recent winners to keep winning over intermediate horizons. Well documented across markets and prone to sharp crashes at turning points.

Money market fund

A mutual fund holding very short, high-quality debt, managed to a stable $1 share price. Not FDIC insured; government money funds are considered extremely safe and pass through partial state tax exemption on Treasury interest.

Mortgage-backed security (MBS)

A bond backed by a pool of mortgages. Homeowners refinance when rates fall and stay put when rates rise, giving MBS negative convexity: they lengthen when you least want it.

Municipal bond

Debt of a state or local issuer, generally exempt from federal income tax and often from in-state tax. Compare using taxable-equivalent yield: a 3.0% muni at a 32% marginal rate equals 3.0 / 0.68 = 4.41% taxable.

Mutual fund

A pooled fund priced once daily at net asset value. Can be active or index tracking; the standard format inside 401(k) plans.

N

NASDAQ

A major US electronic exchange, historically home to many technology companies, and the namesake of indexes like the Nasdaq-100.

Net asset value (NAV)

Per-share value of a fund's holdings minus liabilities. Mutual funds transact at NAV; ETFs trade near it.

Net investment income tax (NIIT)

An additional 3.8% US tax on investment income above MAGI thresholds ($200,000 single, $250,000 married filing jointly). It raises the top long-term capital gains rate from 20% to 23.8%.

Net operating income (NOI)

Rental revenue minus operating expenses, before debt service and taxes. The numerator of the cap rate.

Net worth

Everything you own minus everything you owe. The cleanest scoreboard for personal financial progress, and the one that new doctors often start negative.

Nominal return

Return before inflation. An 8% nominal return during 3% inflation is roughly a 5% real return.

Non-compete

A contract clause limiting where you may work after leaving. Enforceability varies by state and it materially affects the value of a job offer, particularly in medicine.

Nondeductible IRA contribution

A traditional IRA contribution you cannot deduct because of income and plan coverage limits. Tracked on Form 8606 and the first step of a backdoor Roth.

O

Open-end fund

A fund that issues and redeems shares on demand at NAV. The standard mutual fund structure.

Opportunity cost

The value of the best alternative you gave up. Holding cash for years in a 3% inflation world costs purchasing power even when the balance never falls.

Option

A contract granting the right, not the obligation, to buy (call) or sell (put) an asset at a set price by a set date. Most retail option buyers lose money, largely because they must be right about direction, size, and timing at once.

Options premium

The price paid for an option. It consists of intrinsic value plus time value, and time value decays to zero at expiration.

Ordinary income

Income taxed at regular rates: wages, interest, nonqualified dividends, short-term gains, and traditional retirement account withdrawals.

Overweight

Holding more of something than its benchmark weight, expressing a positive view. The opposite of underweight.

Own-occupation disability insurance

Disability coverage that pays if you cannot perform the duties of your own specialty, even if you can work in another job. For a surgeon who develops a hand tremor, true own-occupation coverage pays while she works as a consultant; a weaker any-occupation policy would not. The definition matters more than the price, and specialty-specific, non-cancelable, guaranteed-renewable wording is what to check.

P

Par value

A bond's face amount, typically $1,000, repaid at maturity.

Passive investing

Buying and holding broad index funds rather than picking winners or timing markets. Low cost, low effort, and historically difficult to beat after fees and taxes.

Passive income (tax sense)

Income from rentals and businesses in which you do not materially participate. Passive losses generally offset only passive income, which is why real estate professional status is so contested.

Pay yourself first

Automating savings before spending. It is the single most reliable behavioral technique in personal finance because it removes monthly willpower from the equation.

P/E ratio (price to earnings)

Share price divided by earnings per share. A P/E of 20 means paying $20 for each $1 of annual earnings. Useful for comparison, meaningless in isolation.

PEG ratio

P/E divided by expected earnings growth rate. A shortcut for comparing growth companies that depends entirely on a forecast.

PMI (private mortgage insurance)

Insurance protecting the lender, paid by the borrower, typically required with less than 20% down on a conventional mortgage. It can usually be cancelled once equity reaches roughly 20%.

Physician mortgage loan

A specialty mortgage offered to doctors and some other professionals with little or no down payment and no PMI, treating student loans favorably. Convenient, often at a slightly higher rate, and it makes buying too early easier, which is the actual risk.

Portfolio

Your full collection of investments across all accounts. What matters is how the whole behaves, not any single holding.

Preferred stock

A hybrid paying fixed dividends with priority over common stock, usually without voting rights or meaningful upside. Behaves like a long-duration bond with equity-like drawdowns.

Premium (insurance)

What you pay for coverage. Buy insurance for losses you cannot absorb, and self-insure the small stuff.

Premium (bond or fund)

The amount by which a bond or fund trades above face value or net asset value.

Price to book (P/B)

Price divided by book value per share. A traditional value metric, most meaningful for banks and asset-heavy businesses and least meaningful for software firms.

Price to sales (P/S)

Price divided by revenue per share. Used when a company has no earnings, which is also a warning about the analysis.

Principal

The original amount invested or borrowed, before returns or interest.

Private equity

Funds buying whole companies, typically with debt, and selling them later. Fees are high, results are dispersed, and reported volatility is understated by infrequent appraisal-based marks.

Pro-rata rule

The IRS rule that any traditional IRA conversion is treated as coming proportionally from all your pre-tax and after-tax IRA money, aggregated across every traditional, SEP, and SIMPLE IRA you own. Worked example: you have $93,000 pre-tax in a rollover IRA and add a $7,000 nondeductible contribution, so after-tax money is 7% of the $100,000 total. Convert $7,000 and only $490 is tax free; $6,510 is taxable. The standard fix is rolling pre-tax IRA balances into a current employer 401(k), which is excluded from the calculation, before doing a backdoor Roth.

Probate

The court process of settling an estate. Beneficiary designations, transfer-on-death registrations, and trusts avoid it.

Prospectus

The legal document describing a fund or offering, including strategy, risks, and fees. Dry reading; the fee table is the part worth finding.

PSLF (Public Service Loan Forgiveness)

A US program forgiving the remaining federal direct loan balance, tax free, after 120 qualifying monthly payments made while working full time for a government or 501(c)(3) employer. Central to physician finance: a resident with $300,000 of loans who makes income-driven payments through a 5-year residency and 5 more years at a nonprofit hospital may repay far less than the balance, with the rest forgiven. It requires direct loans, an eligible repayment plan, full-time qualifying employment, and annual employment certification. Refinancing federal loans into a private loan permanently disqualifies them.

Put option

The right to sell 100 shares at a set strike price before expiration. Buyers profit if the underlying falls; puts are the standard portfolio insurance, and like insurance they cost money every year you hold them.

Put-call parity

The pricing relationship linking a call, a put, the stock, and a bond at the same strike and expiration. It is why synthetic positions exist and why free lunches in options get arbitraged away.

Q

Qualified dividend

A dividend meeting holding period and issuer requirements, taxed at long-term capital gains rates rather than ordinary rates. REIT distributions generally do not qualify.

Qualified charitable distribution (QCD)

A direct transfer from an IRA to charity, available from age 70 and a half, that counts toward required minimum distributions and is excluded from income entirely, which beats deducting the gift.

Qualified business income deduction (QBI)

A US deduction of up to 20% of pass-through business income, subject to income thresholds and limits for specified service businesses, a category that includes medicine and law.

Quantitative easing (QE)

A central bank buying large quantities of bonds to lower long-term rates and support the economy.

Quantitative tightening (QT)

The reverse: letting bond holdings run off or selling them, which drains reserves from the banking system.

Quarterly earnings

The results public companies report every three months. Short-term stock moves usually hinge on results versus expectations rather than the raw numbers.

R

Rally

A sustained rise after a flat or falling period. Bear market rallies can be sharp and still fail.

Real estate professional status (REPS)

A US tax status requiring more than 750 hours and more than half your working time in real property trades. It converts otherwise-passive rental losses into deductions against ordinary income. Nearly impossible for a full-time physician to claim personally, which is why a spouse's participation is often the route.

Real return

Return after inflation. The only return that buys anything.

Rebalancing

Restoring your portfolio to its target mix by trimming what grew and adding to what lagged. Worked example: a $500,000 portfolio targeted at 70/30 drifts to 78/22 after a strong year, so you sell $40,000 of stocks and buy bonds to return to $350,000 / $150,000. Do it in tax-advantaged accounts or with new contributions to avoid triggering gains.

Recession

A significant, broad decline in economic activity. Markets typically fall before recessions are declared and recover before they end, which is why waiting for the all-clear does not work.

Recency bias

Assuming the recent past will continue. It is why investors buy the last decade's winners just as the premium disappears.

REIT (real estate investment trust)

A company owning income-producing real estate that must distribute at least 90% of taxable income. Gives property exposure with stock market liquidity. Distributions are mostly ordinary income, so REITs belong in tax-advantaged accounts when possible.

Required minimum distribution (RMD)

The amount you must withdraw annually from tax-deferred accounts starting at the applicable age (73 for many current retirees, moving to 75 later this decade). Failing to take it triggers a penalty. Roth IRAs have no RMDs for the original owner.

Return on equity (ROE)

Net income divided by shareholder equity. High ROE achieved through heavy leverage is a different animal from high ROE from operating quality.

Reversion to the mean

The tendency of extreme results to be followed by more ordinary ones. It is the reason chasing last year's top fund disappoints so reliably.

Risk capacity

How much loss your financial situation can objectively absorb, as opposed to how much you feel able to tolerate. Both need to be satisfied.

Risk-free rate

The return on short-term Treasury bills, used as the baseline against which every other investment is judged.

Risk premium

The extra expected return for bearing risk. The equity risk premium over Treasury bills has averaged roughly 4 to 6 percentage points per year in long US datasets, with enormous variation across decades.

Risk tolerance

How much volatility and loss you can withstand emotionally without abandoning the plan. Be honest: selling at the bottom is the costliest mistake in investing.

ROIC (return on invested capital)

After-tax operating profit divided by capital invested. Persistently high ROIC is the quantitative fingerprint of a moat.

Rollover

Moving retirement money between accounts. Direct trustee-to-trustee transfers avoid the 20% withholding and 60-day trap of indirect rollovers.

Roth 401(k)

The after-tax option inside a 401(k). Contribution limits match the traditional 401(k), so a Roth dollar shelters more real money. Employer matches are generally still pre-tax.

Roth IRA

A US retirement account funded with after-tax dollars where growth and qualified withdrawals are tax free. Direct contributions have income limits; contributions (not earnings) can be withdrawn anytime without tax or penalty.

Rule of 72

Divide 72 by an annual return to estimate doubling time. At 8%, money doubles in about 9 years; at 3% inflation, prices double in about 24.

Russell 2000

An index of about 2,000 small US companies, the standard small-cap benchmark.

S

S&P 500

An index of roughly 500 large US companies weighted by market cap. The default benchmark for US large-cap equity.

Safe harbor 401(k)

A plan design where the employer makes required contributions in exchange for skipping annual nondiscrimination testing. Common in small medical and professional practices.

Sale-leaseback

Selling a property and immediately leasing it back. Converts an owned building into cash plus a long-term obligation.

Sector

A broad industry grouping such as technology, healthcare, energy, or financials. Sector concentration is a common hidden risk, particularly for employees who own their industry twice.

Securities

Tradable financial instruments: stocks, bonds, fund shares, options, and more.

SEC

The Securities and Exchange Commission, the US regulator overseeing markets, brokers, funds, and corporate disclosure.

Sequence of returns risk

The risk that poor returns early in retirement, combined with withdrawals, permanently damage a portfolio. Two retirees with identical average returns can end in very different places depending on the order those returns arrive.

SEP-IRA

A simple retirement plan for self-employed people and small employers, funded entirely by the employer. Note that a SEP balance counts in the pro-rata rule, which can complicate backdoor Roth contributions.

Settlement

The date a trade officially completes and ownership transfers. US stock settlement moved to one business day (T+1) in 2024.

Sharpe ratio

Return above the risk-free rate divided by volatility. Return per unit of risk, useful only when comparing similar strategies over similar periods.

Short selling

Borrowing shares, selling them, and hoping to repurchase cheaper. Gains are capped at 100%; losses are theoretically unlimited, and borrow costs accrue daily.

Short squeeze

A rapid price rise forcing short sellers to buy back, which pushes prices higher still.

SIMPLE IRA

A small-employer retirement plan with lower limits than a 401(k) and mandatory employer contributions. Balances also count for pro-rata purposes.

SIPC

The Securities Investor Protection Corporation, which covers securities and cash at a failed US brokerage up to $500,000 ($250,000 cash). It protects against broker failure, not investment losses.

Small cap

A company with a small market value, commonly $300 million to $2 billion. Historically higher returns with larger swings, and long stretches of underperformance.

Solo 401(k)

A 401(k) for a business with no employees other than the owner and spouse. Allows both employee deferrals and employer contributions, and unlike a SEP-IRA it does not interfere with the pro-rata rule, so it is often preferred by physicians with locum tenens or moonlighting income.

Speculation

Buying mainly in the hope someone pays more later, rather than for cash flows. Different from investing, and worth labeling honestly inside your own portfolio.

Spread

Any gap between two prices or yields, such as the bid-ask spread or the yield gap between corporate and government bonds.

Stablecoin

A crypto token designed to hold a fixed value, usually one dollar, backed by reserves or an algorithm. Algorithmic designs have failed catastrophically; reserve quality and audit practices are what matter.

Standard deviation

How much returns vary around their average. The most common yardstick for volatility. A portfolio with a 7% average return and 15% standard deviation will often land far from 7% in any given year.

Step-up in basis

The reset of an inherited asset's cost basis to its value at the owner's death, wiping out the capital gains tax on a lifetime of appreciation. It is why holding appreciated assets rather than selling late in life can be sensible.

Stock

A share of ownership in a company. Historically the highest-returning major asset class over long periods, with the largest interim losses.

Stock split

Dividing shares into more shares, such as 2 for 1. The pie is cut into more slices; your ownership and its value are unchanged.

Stop-loss order

An order to sell once a price is reached, intended to limit losses. In gapping markets the fill can be far below the stop, which is how flash crashes harvest retail stops.

Strike price

The price at which an option can be exercised.

Structured product

A packaged note combining a bond with derivatives to shape a payoff, often marketed as downside protection with capped upside. Fees are embedded and hard to see, and you take the issuer's credit risk.

Student loan refinancing

Replacing federal loans with a private loan at a lower rate. It permanently forfeits income-driven repayment, forbearance protections, death and disability discharge, and PSLF eligibility, so it should follow a decision about forgiveness, not precede it.

Survivorship bias

Judging results using only the funds or companies that survived. It flatters historical fund performance because losers get merged away and disappear from the record.

Swap

A contract to exchange one stream of payments for another, such as fixed for floating interest.

T

Target-date fund

An all-in-one fund that shifts from stocks toward bonds as a target year approaches. A defensible default: broadly diversified, automatically rebalanced, and hard to fiddle with.

Taxable account

An ordinary brokerage account with no special tax treatment but no contribution limits or withdrawal rules. The right home for money needed before retirement age.

Taxable-equivalent yield

The taxable yield that matches a muni's after-tax yield: muni yield divided by (1 minus your marginal rate). A 3.2% muni at a 35% rate equals 4.92% taxable.

Tax bracket

A band of income taxed at a given rate. Only income inside the band is taxed at that rate, so earning a dollar more never reduces your take-home pay.

Tax deferral

Postponing tax until withdrawal, as in a traditional 401(k). Its value comes from compounding untaxed and from withdrawing later at a lower rate, which is why deferral is most valuable in peak earning years.

Tax drag

The annual return lost to taxes on dividends, interest, and distributions in a taxable account. A fund throwing off 2% in ordinary income at a 37% rate costs about 0.74% per year, more than most expense ratios.

Tax-loss harvesting

Selling a losing position to realize a deductible loss and immediately buying a similar but not substantially identical fund to stay invested. Worked example: harvesting $20,000 of losses at a 35% marginal rate saves about $7,000 in current tax, though it lowers your basis and defers rather than erases the liability.

Technical analysis

Predicting prices from charts, patterns, and volume rather than fundamentals. Evidence supporting most chart patterns is weak once transaction costs are included.

Term life insurance

See life insurance, term. Coverage should generally last until dependents are independent and the mortgage is gone.

Theta

The daily erosion of an option's time value. Theta is the option seller's income and the option buyer's rent.

Ticker symbol

The short code identifying a security on an exchange.

Time horizon

How long until you need the money. Longer horizons support more stock exposure because there is time to recover from downturns.

Time value of money

The principle that a dollar today is worth more than a dollar later. Every valuation method is an application of it.

TIPS

Treasury Inflation-Protected Securities, whose principal adjusts with the Consumer Price Index. They quote a real yield. Annual principal adjustments are taxable in a taxable account before you receive the cash, so TIPS fit best in tax-advantaged accounts.

Total return

Full return including price change plus reinvested dividends or interest. The only fair basis for comparison.

Tracking error

How much a fund's return deviates from its index. Low tracking error is the mark of a well-run index fund.

Treasury bill

A US government security maturing in one year or less, sold at a discount to face value. Interest is exempt from state and local income tax.

Treasury bond

US government debt maturing in 20 to 30 years. Long duration makes it a powerful diversifier against growth shocks and a poor one against inflation.

Treasury note

US government debt maturing in 2 to 10 years, the workhorse of the Treasury market.

Trust

A legal arrangement where a trustee holds assets for beneficiaries under written terms. Used to avoid probate, control timing of inheritance, and in some cases protect assets from creditors.

Turnover

The percentage of a fund's holdings traded per year. High turnover raises trading costs and, in taxable accounts, distributions.

Twelve b-1 fee (12b-1)

An annual marketing and distribution fee embedded in some mutual funds, often 0.25% or more. You pay for the fund's advertising.

U

Umbrella insurance

Liability coverage sitting above your auto and homeowners limits, typically sold in million-dollar increments for a few hundred dollars a year. Cheap protection for anyone with assets or a high income to garnish, and separate from malpractice coverage.

Underwater

Owing more on an asset than it is worth, most commonly a mortgage exceeding the home's value.

Underweight

Holding less of an asset than its benchmark weight, expressing a cautious view.

Unrealized gain

A paper profit on an investment you still own. It becomes taxable only when you sell.

Unsystematic risk

Risk specific to one company or industry, which diversification can remove. Systematic (market) risk is the part that cannot be diversified away and therefore the part you get paid for.

V

Valuation

Estimating what an asset is worth using multiples, discounted cash flows, or comparisons to peers.

Value at risk (VaR)

An estimate of the loss that will not be exceeded with a given probability over a given period. It says nothing about how bad things get in the tail it excludes, which is precisely where crises live.

Value investing

Buying assets for less than a conservative estimate of their worth, with a margin of safety.

Value stock

A stock priced low relative to earnings, book value, or cash flow. Often mature, slower growing, or temporarily disliked.

Variable annuity

An annuity whose value tracks underlying subaccounts. Layered fees (mortality and expense charges, subaccount fees, riders) commonly total 2% or more per year, and surrender periods lock you in.

Vesting

The schedule on which employer contributions or equity grants become fully yours. Leaving before vesting forfeits the unvested portion, which is a real cost to include in any job change math.

Volatility

How much and how fast prices move. It is the price of admission for higher long-term stock returns, not a defect to be engineered away.

Volatility drag

The gap between average and compound returns caused by swings. Gaining 50% then losing 50% averages 0% but leaves you down 25%.

VIX

An index of expected 30-day S&P 500 volatility implied by option prices. Popularly called the fear gauge; it spikes during selloffs and cannot be held directly.

W

Wash sale

Selling at a loss and buying the same or a substantially identical security within 30 days before or after. The loss is disallowed and added to the new position's basis. It applies across your accounts, including an IRA, where the loss is lost permanently.

Wealth transfer

Moving assets to heirs or charity during life or at death, shaped by gift limits, the step-up in basis, and account beneficiary rules.

Whole life insurance

Permanent coverage with a cash value. Commissions are typically a large share of the first year's premium, early cash value is far below premiums paid, and the internal return over decades tends to resemble a bond rather than an equity portfolio.

Withdrawal rate

The percentage of a portfolio spent each year in retirement. The 4% guideline came from historical US 30-year windows using a stock-bond mix and is a starting point for planning, not a guarantee, especially at high valuations or with longer retirements.

Wrap fee

A single annual percentage covering advice, trading, and custody. Convenient billing that can hide a total cost well above 1.5% once underlying fund fees are added.

X

XIRR

An internal rate of return calculation that handles irregular cash flow dates. The right way to measure your personal return when you contribute and withdraw at odd intervals.

Ex-rights

Trading without the right to participate in a rights offering, so the price adjusts for the value of the rights.

Y

Yield

Income as a percentage of price, such as a bond's interest or a stock's dividend yield.

Yield curve

Treasury yields plotted across maturities. Normally upward sloping; an inverted curve, where short rates exceed long rates, has preceded most US recessions of recent decades, though the timing is unreliable.

Yield to maturity (YTM)

The annualized return of holding a bond to maturity, counting coupons plus the pull to par. A $1,000 face bond with a 3% coupon bought at $858 with 9 years left yields roughly 5% to maturity.

Yield to worst

The lowest yield you could receive across all the issuer's call and redemption options. The honest number for callable bonds.

Yield trap

A high dividend or distribution yield that exists because the price fell and the payout is about to be cut. High yield is a question, not an answer.

Z

Zero-coupon bond

A bond paying no interest along the way, bought at a deep discount and redeemed at face value. It has the longest duration for its maturity, and in taxable accounts it generates phantom income taxed annually with no cash received.

Zero-sum game

A situation where one participant's gain is another's loss. Trading is close to zero sum before costs and negative sum after them, which is why the average active trader trails a buy-and-hold index investor.