Blue chip: A company known nationally for the quality and wide acceptance of its products or services, and for its ability to make money and pay dividends.
Blue Sky Laws: A popular name for laws various states have enacted to protect the public against securities frauds.
Broker: An agent who handles the public's orders to buy and sell securities, commodities or other property. A commission is charged for this service. LJI Wealth Management does not employ any brokers.
CERTIFIED FINANCIAL PLANNER™/CFP®: A practicing professional who helps people deal with various personal financial issues through proper planning, which includes but is not limited to these major areas: cash flow management, education planning, retirement planning, investment planning, risk management and insurance planning, tax planning, estate planning and business succession planning.
CNBC: An entertainment financial news network pretending to offer valuable investment insight.
Custodian: An organization responsible for safeguarding a firm's or individual's financial assets. The Custodian is often referred to as the back office, or Operations, and is responsible statement printing, recording keeping, and IRS reporting, among many other functions. Note: Fidelity is the custodian utilized by LJI.
Dealer: An individual or firm in the securities business who buys and sells stocks and bonds as a principal rather than as an agent. The dealer's profit or loss is the difference between the price paid and the price received for the same security. The dealer's confirmation must disclose to the customer that the principal has been acted upon. The same individual or firm may function, at different times, either as a broker or dealer. Note:LJI Wealth Management does not employ any Dealers nor is LJI a Dealer.
Diversification: Spreading investments among different types of securities, sectors and various companies in different fields both domestically and internationally.
ETF/Exchange-Traded Fund: is an investment vehicle traded on a stock exchange. An ETF holds assets such as stocks or bonds and trades at approximately the same price as the net asset value of its underlying assets over the course of the trading day. Most ETFs track an index, such as the S&P 500 or MSCI EAFE. ETFs may be attractive as investments because of their low costs, tax efficiency, and stock-like features.
Fee-Only Advisor: An Investment Advisor who only receives a fee for advice and service. They do not collect commissions for Investment advice and thus do not face a conflict of interest created by commissions or referral fees paid by other product or service providers. Note: LJI employs solely Fee-only Advisors.
Fiduciary: A fiduciary duty is a legal or ethical relationship of confidence or trust between two or more parties. In a fiduciary relation one person, in a position of vulnerability, justifiably reposes confidence, good faith, reliance and trust in another whose aid, advice or protection is sought in some matter. In such a relation good conscience requires one to act at all times for the sole benefit and interests of another, with loyalty to those interests. A fiduciary duty is the highest standard of care at either equity or law. A fiduciary must not put his personal interests before the duty, and must not profit from his position as a fiduciary, unless the principal consents. The word itself comes originally from the Latin fides, meaning faith, and fiducia, trust.
Financial Planning: Financial planning is the process of meeting your life goals through the proper management of your finances. The Financial Planning Process consists of six steps that help you take a "big picture" look at where you are financially. Using these six steps, you can work out where you are now, what you may need in the future and what you must do to reach your goals. The process involves gathering relevant financial information, setting life goals, examining your current financial status and coming up with a strategy or plan for how you can meet your goals given your current situation and future plans.
FINRA: The Financial Industry Regulatory Authority (f/k/a NASD, or National Association of Securities Dealers), is the largest non-governmental regulator for all securities firms doing business in the United States. FINRA was created in July 2007 through the consolidation of NASD and the member regulation, enforcement and arbitration functions of the New York Stock Exchange.
Fundamental research: Analysis of industries and companies based on such factors as sales, assets, earnings, products or services, markets and management. As applied to the economy, fundamental research includes consideration of gross national product, interest rates, unemployment, inventories, savings, etc.
Government bonds: Obligations of the U.S. Government, regarded as the highest grade securities issues.
Index, or Index Fund: is usually a mutual fund or ETF that aims to replicate the movements of an index of a specific financial market, or a set of rules of ownership that are held constant, regardless of market conditions. Examples include the S&P500, Dow Jones Industrial Average, the EAFE, and the Wilshire 5000.
Institutional investor: An organization whose primary purpose is to invest its own assets or those held in trust by it for others. Includes pension funds, investment companies, insurance companies, universities and banks.
Investment: The use of money for the purpose of making more money, to gain income, increase capital, or both.
Investment company: A company or trust that uses its capital to invest in other companies. There are two principal types: the closed-end and the open-end, or mutual fund. Shares in closed-end investment companies, some of which are listed on the New York Stock Exchange, are readily transferable in the open market and are bought and sold like other individual stocks. Capitalization of these companies remains the same unless action is taken to change, which is seldom. Open-end funds sell their own shares to investors, stand ready to buy back their old shares, and are not listed. Open-end funds are so called because their capitalization is not fixed; they issue more shares as people want them.
Load: The portion of the offering price of shares of Mutual Funds in excess of the value of the underlying assets. Covers sales commissions and all other costs of distribution. The load is usually incurred only on purchase, there being, in most cases, no charge when the shares are sold.
Margin: The amount paid by the customer when using a broker's credit to buy or sell a security. Under Federal Reserve regulations, the initial margin requirement since 1945 has ranged from the current rate of 50% of the purchase price up to 100%.
Margin Loan – Taking a loan directly from a brokerage account using the portfolio as collateral.
Money market fund – A mutual fund whose investments are in high-yield money market instruments such as federal securities, CDs and commercial paper that generally mature in less than one year and are considered very safe. Its intent is to make such instruments, normally purchased in large denominations by institutions, available indirectly to individuals.
Mortgage bond – A bond secured by a mortgage on a property. The value of the property may or may not equal the value of the bonds issued against it.
Municipal bond – A bond issued by a state or a political subdivision, such as county, city, town or village. The term also designates bonds issued by state agencies and authorities. In general, interest paid on municipal bonds is exempt from federal income taxes and state and local taxes within the state of issue. However, interest may be subject to the alternative minimum tax (AMT).
Mutual Fund: see Investment Company.
Nasdaq: An automated information network that provides brokers and dealers with price quotations on securities traded over-the-counter. Nasdaq is an acronym for National Association of Securities Dealers Automated Quotations
Net asset value: Usually used in connection with Mutual Funds to mean net asset value per share. An investment company computes its assets daily, or even twice daily, by totaling the market value of all securities owned. All liabilities are deducted, and the balance is divided by the number of shares outstanding. The resulting figure is the net asset value per share.
New York Stock Exchange (NYSE): The largest organized securities market in the United States, founded in 1792. The Exchange itself does not buy, sell, own or set the prices of securities traded there. The prices are determined by public supply and demand. The Exchange is a non-profit corporation of 1,366 individual members, governed by a board of directors consisting of 10 public representatives, 10 Exchange members or allied members and a full-time chairman, executive vice chairman and president.
No-Load Funds – Mutual Funds that, upon purchase, have no up-front Commission, or Sales Load.
Over-the-counter (OTC) – A market for securities made up of securities dealers who may or may not be members of a securities exchange. The over-the-counter market is conducted over the telephone and deals mainly with stocks of companies without sufficient shares, stockholders or earnings to warrant listing on an exchange. Over-the-counter dealers may act either as principals or as brokers for customers. The over-the-counter market is the principal market for bonds of all types. This market is often referred to as The NASDAQ.
Penny stocks – Low-priced issues, often highly speculative, selling at less than $1 a share. Frequently used as a term of disparagement, although some penny stocks have developed into investment-caliber issues.
Portfolio – Holdings of securities by an individual or institution. A portfolio may contain bonds, preferred stocks, mutual funds, common stocks and other securities.
Preferred stock – A class of stock with a claim on the company's earnings before payment may be made on the common stock and usually entitled to priority over common stock if the company liquidates. Usually entitled to dividends at a specified rate - when declared by the board of directors and before payment of a dividend on the common stock - depending upon the terms of the issue.
Prospectus – The official selling circular that must be given to purchasers of new securities registered with the Securities and Exchange Commission. It highlights the much longer Registration Statement file with the Commission.
Real Estate Investment Trust (REIT) – An organization similar to an investment company in some respects but concentrating its holdings in real estate investments. The yield is generally liberal since REITs are required to distribute as much as 90% of their income.
Registered Investment Advisor (RIA) – is an informal designation describing a person or firm in the United States who has registered with the U.S. Securities and Exchange Commission or state regulatory agency in connection with the management of the investments of others. The proper designation for a person so registered would be "An Investment Advisor registered with the SEC" (or a specific state if so registered).
By definition an investment advisor is considered to be acting in a fiduciary capacity on behalf of clients with a higher standard of disclosure and due care, a commitment to disclose, minimize and resolve conflicts of interest than would be found in a traditional securities brokerage environment. In addition, most IAs are compensated on a fee basis (usually as a percentage of assets under management) rather than a commission basis.
Firms that manage more than $25 million register directly with the SEC. Registration requires that all employees of the IA (except those limited to clerical duties) pass the FINRA Series 65 exam or have completed an approved professional designation. Note: LJI Wealth Management registered directly with the SEC.
SEC: The Securities and Exchange Commission, established by Congress to help protect investors. The SEC administers the Securities Act of 1933, the Securities Exchange Act of 1934, the Securities Act Amendments of 1975, the Trust Indenture Act, the Investment Company Act, the Investment Advisers Act and the Public Utility Holding Company Act.
Securities Investor Protection Corporation (SIPC): Provides funds for use, if necessary, to protect customers' cash and securities that may be on deposit with a SIPC member firm in the event the firm fails and is liquidated under the provisions of the SIPC Act. SIPC is not a government agency. It is a non-profit membership corporation created, however, by an act of Congress.
Speculation: The employment of funds by a speculator. Safety of principal is a secondary factor.
Standard of Care: In the financial services industry, there are two different standards of care for financial services professionals: suitability requirementand fiduciary duty. With a suitability requirement, financial services professionals, or Brokers, must offer products that are appropriate to their client's needs, goals, risk tolerance and more. However, their obligation is ultimately to their employer, not the client. With a fiduciary duty, financial services professionals must offer products that are in the best interest of the client, meaning they put the needs of the client before the needs of their employer. Fiduciary duty is the highest standard of care in the industry.
Stock Broker: A licensed individual who works for a broker/dealer. In a New York Stock Exchange-member organization, a broker must meet the requirements of the exchange as to background and knowledge of the securities business. Also known as a Registered Representative.
Stop order: An order to buy at a price above or sell at a price below the current market. Stop buy orders are generally used to limit loss or protect unrealized profits on a short sale. Stop sell orders are generally used to protect unrealized profits or limit loss on a holding. A stop order becomes a market order when the stock sells at or beyond the specified price and, thus, may not necessarily be executed at that price.
Technical Analysis: Analysis of the market and stocks based on supply and demand. The technician studies price movements, volume, trends and patterns, which are revealed by charting these factors, and attempts to assess the possible effect of current market action on future supply and demand for securities and individual issues.
Wealth Management: Financial Planning combined with Investment Advice is the Foundation of Wealth Management.