Investing glossary

1099-DIV
A tax form that reports dividend or distributions you earned on stocks or mutual funds.

1099-B
A tax form that reports gains and losses you had from selling stocks or other investments in a brokerage account.

401(k) plan
A defined contribution plan in which an employer takes money directly from an employee's salary and places it in a tax-deferred retirement account, which means that the employee doesn't pay taxes on this money until they withdraw it. There are limits on when money can be withdrawn, and there are penalties for early withdrawals. The decision about how and where the money is invested is usually the employee's. Employers often match a percentage of employee contributions, sometimes as much as 50 cents on the dollar.

529 plan
A 529 plan is a state-sponsored, tax-advantaged way to invest significant assets toward the cost of education. Withdrawals from a 529 account can be used to pay for qualified educational expenses at any eligible U.S. colleges, universities, trade schools, and apprenticeship programs. Withdrawals can also be used for K-12 tuition expenses.

After-tax (dollars/contributions)
Money that has already been taxed.

Annual contribution limits
IRS rules that determine how much you can contribute to your tax-deferred retirement account for the year.

Annualized return
A measure of how much value an investment has gained or lost on average each year, over a specific number of years or other time period. It takes compound growth (compounding) into account. Also called annual return.

Asset allocation
An investment strategy that involves balancing asset classes (like stocks, bonds, and cash) in your portfolio, based on your goals, risk tolerance, timeline, and other factors. Also referred to as an asset mix.

Asset class
One of the three major types of investments: stocks, bonds, and cash equivalents.

Award agreement
A document issued by a company that details the number of shares, award price, the vesting schedule, and any other terms and conditions related to a stock grant. Also referred to as a grant agreement.

Award price
The price you pay per share when you exercise your options. The award price is set by your company. Also referred to as an exercise price, grant price, option price, or strike price.

Bear market
A market in which share prices have declined more than 20% from a recent high.

Beneficiary
A person or entity (like a charity) who is designated to receive or inherit benefits or other assets.

Blue-chip stock
The stock of a large, well-established company that has a long record of earnings, dividends, stability, and high credit quality. Blue-chip stocks are sometimes thought to offer lower-than-average risk because of their solid track records.

Bond
A bond represents a loan you make to a government, municipality, or corporation (issuer). In return, that issuer promises to pay you a specified rate of interest to be received on a predetermined schedule (generally annually, semiannually, quarterly).

Bond ladder
A bond ladder is a portfolio of individual CDs or bonds that mature on different dates. This strategy is designed to provide current income while minimizing exposure to interest rate fluctuations.

Broker
A person who acts as an intermediary between a buyer and seller of securities, sometimes charging a commission.

Brokerage account
A taxable account that you open with a brokerage firm. It allows you to invest in stocks, bonds, cash, ETFs, mutual funds, and other investments. You must open a brokerage account to manage any equity compensation.

Bull market
A market in which share prices have risen 20% or more from recent lows.

Capital gain
Capital gain occurs when you sell a stock at a higher price than when you received it. For example, if you received a stock worth $10 and sold it after the value increased to $15, you would be taxed on the $5 capital gain.

Capital gains tax
Tax on gains (profits) you make from the sale of capital assets, like stocks and other investments. If you hold an investment for more than a year before you sell it for a gain, you may qualify for a long-term capital gains tax rate. Gains from investments held for less than a year are usually considered short-term capital gains and taxed as ordinary income (which is usually a higher tax rate than long-term capital gains).

Capital loss
Capital loss occurs when you sell a stock at a lower price than when you received it.

Certificate of deposit (CD)
CDs are bank deposits that pay a stated amount of interest for a specified period of time and promise to return your money on a specific date. They are federally insured and issued by banks and savings-and-loans institutions.

CERTIFIED FINANCIAL PLANNER™ (CFP^®)
A professional planner who has met the Certified Financial Planner Board of Standards' requirements in education, experience, and ethical conduct; passed a 10-hour comprehensive examination in investment, tax, estate, retirement, and insurance planning; and agreed to follow a code of ethics.

Cliff
The moment when the restrictions end at the vesting of restricted stock or options. This can also be referred to as a lapse.

Common stock
Common stock is partial ownership of a company. An owner of a company's common stock is considered to have an equity position in the corporate structure of that company, which gives them voting rights on different issues. Additionally, common stockholders can collect dividends if the company distributes some of its earnings to stockholders. Common stock can also be referred to as shares or, simply, stocks.

Compound growth
An investment concept that involves reinvesting earnings from your original investment to increase your total investment and help your money grow faster over time. Also called compounding.

Cost basis
What was initially paid for an investment, as opposed to its current fair market value.

Cryptocurrency
Cryptocurrency is a virtual currency secured through one-way cryptography. It appears on a distributed ledger called a blockchain that's transparent and shared among all users in a permanent and verifiable way that's nearly impossible to fake or hack into. Cryptocurrency's value stems from a combination of scarcity and the perception that it is a store of value, an anonymous means of payment, or a hedge against inflation.

Diversification
An investment strategy that involves building a portfolio from a mix of asset classes (like stocks, bonds, and cash) that behave differently. A diversified portfolio also includes a broad range of investments within each asset class. For example, with stocks you might want a mix of foreign and domestic stocks; stocks from various industries; and stocks from small, midsize, and large companies.

Dividends
Portions of a company's earnings that are distributed to shareholders, usually in cash. Some companies pay stock dividends (additional shares) instead of cash. Not all companies pay dividends and the dividend amount can change.

Dollar cost averaging
Dollar cost averaging is the practice of investing a fixed dollar amount on a regular basis, regardless of the share price.

Dow Jones Industrial Average (DJIA or "the Dow")
A measure of the performance of a collection of 30 blue-chip stocks—primarily industrial stocks considered leaders in the market.

Earned income
Taxable pay from employment or self-employment, including wages, salaries, tips, union strike benefits, and certain disability payments. Does not include investment, retirement, Social Security, unemployment, alimony, or child support income.

Earnings season
Refers to the period at the beginning of each quarter when corporations report their earnings from the previous quarter.

Employee stock option exercise and equity award agreement
The document that gives Charles Schwab & Co., Inc. the authority to act as your broker as part of an equity award transaction.

Employee stock purchase plan (ESPP)
An ESPP allows you to buy shares of your employer's stock at a discounted price, typically through after-tax payroll deductions. (Learn more about this type of equity compensation in our guide to ESPPs.)

Employer-sponsored retirement account
A retirement plan provided by your employer, such as a 401(k), 403(b), 457(b), or Thrift Savings Plan (TSP). Most employer plans offer a choice of investments and have tax benefits. Many employers will also match a portion of the money you contribute to your account.

Equity award
Stock options, restricted stock awards, restricted stock units, or performance shares granted by employer.

Exchange-traded fund (ETF)
An ETF is an investment fund or portfolio of securities that holds assets like stocks, bonds, or commodities. Like stocks, ETFs trade on an exchange and experience price changes throughout the day.

Exercise
Purchasing company stock at the grant price.

Exercise and hold
The transaction in which you purchase your company's stock at the grant price and keep the shares in your brokerage account for sale at a future date. Also referred to as "cash purchase and hold the shares."

Exercise and sell
The transaction in which you buy and then immediately sell shares. There are two types of exercise-and-sell transactions.

Exercise date
The date on which investors exercise their options.

Exercise price
The price you pay per share when you exercise your options. Also referred to as an award price, grant price, option price, or strike price.

Fair market value (FMV)
The amount that a willing buyer would pay a willing seller for a share of company stock. The fair market value on the day stock options are granted typically determines the award price.

Fractional share
Fractional shares allow you to invest in stocks based on a dollar amount, so you may end up with a fraction of a share, a whole share, or more than one share. Fractional shares pay dividends proportionate to the percentage of the share you own.

Futures
Futures are a type of derivative contract agreement to buy or sell a specific commodity asset or security at a set future date for a set price.

Grant
An award of stock options or RSUs.

Grant agreement
A document issued by a company that details the number of shares, award price, the vesting schedule, and any other terms and conditions related to a stock grant. Also referred to as an award agreement.

Grant date
The date your RSU or stock option was granted to you.

Grant ID
The unique identifier for each equity award.

Grant price
The price you pay per share when you exercise your options. Also referred to as an award price, strike price, option price, or exercise price.

Holding period
For tax purposes, this refers to the period of time you hold ISO shares in order to get favorable tax treatment when the shares are ultimately sold. If you fail to meet the holding period, a "disqualifying disposition" occurs, changing the tax consequences. More generally, the holding period is the period of time a company requires that granted and/or exercised shares be held before they are sold.

Incentive stock options (ISOs)
Also called "qualified" stock options, ISOs are considered tax-advantaged stock options. When you exercise, you are not liable for ordinary income tax, provided you hold the stock for at least one year after the exercise date and two years after the grant date (and that other qualifying conditions are met). You are liable for capital gains taxes if you sell the shares at a gain (that is, if the sale price is higher than the market price on the exercise date). Additional tax consequences may apply.

Index
A group of securities designed to represent a particular market, sector, or commodity. Well-known market indexes include the S&P 500® Index, the Dow Jones Industrial Average, the NASDAQ Composite Index, and the Wilshire 5000 Index.

Individual Retirement Account (IRA)
An IRA is an account that promotes saving for retirement by providing various tax advantages.

Initial public offering (IPO)
An IPO refers to the process of offering shares of a private corporation to the public in a new stock issuance. Public share issuance allows a company to raise capital from public investors.

In-the-money stock options
Stock options that have a market price higher than the grant price. If you have in-the-money stock options, they are already profitable. For example, if you have stock options with a grant price of $10 per share and the market value is $12 per share, you are "in the money" by
$2 per share.

Invest
Putting your money into something (like stocks, bonds, or a mutual fund) with the goal of a financial gain. All investments carry a risk of loss.

Lapse
The moment when the restrictions end at the vesting of restricted stock or options. This can also be referred to as a cliff.

Market price
The current price stock is trading at in the stock market.

Modified adjusted gross income (MAGI)
Your MAGI is your adjusted gross income (AGI) with certain tax deductions and income added back in.

Mutual funds
Mutual funds pool money from many investors to purchase a broad range of investments, such as stocks, bonds, cash, or other types of securities. When you purchase a mutual fund, you get exposure to all the investments in that fund. Mutual funds charge fees to manage your investment that can vary by fund and share class. Mutual funds are purchased or sold once a day at market close.

Non-fungible tokens (NFTs)
NFTs are an emerging asset class. Like cryptocurrencies, NFTs are stored on a blockchain. Each NFT is unique (i.e., non-fungible). In that sense, NFTs are more like the Hope Diamond or Picasso's Guernica—a one-of-a-kind work for which there is no substitute. Indeed, an NFT's perceived scarcity, whether because it's a unique piece of art or a limited-issue collectible, makes it potentially lucrative—but also substantially less liquid than, say, your average stock or bond. As a result, you may need to drop the price or hold on to your NFT if the demand isn't there when you want or need to sell it.

Non-qualified stock options (NQSOs)
Stock options that do not meet the requirements of a qualified stock option under the Internal Revenue Code. Upon exercise of a nonqualified stock option, you realize compensation equal to the spread between the fair market value of the stock on the exercise date and the price paid to purchase the shares. Compensation is taxable income, for which the company is obligated to withhold taxes. Ordinary income and tax withholding will be reported through payroll. When shares acquired through the exercise of a non-qualified stock option are subsequently sold, any gain is subject to capital gains tax. If the price of the stock goes down after exercise, you would be eligible to take a capital loss (as you would with any other security you may own).

Option price
The price you pay per share when you exercise your options. Also referred to as an award price, strike price, exercise price, or grant price.

Penny stock
A stock that trades for less than $5 per share and is not traded on a U.S. stock exchange is commonly referred to as a penny stock.

Portfolio
The combined holding of stocks, bonds, cash, and other investments held by an individual investor, a mutual fund, exchange-traded fund (ETF), or a financial institution.

Preferred stock
A class of stock that has a claim on the company's earnings before payment is made on the common stock if the company declares a dividend.

Pre-tax (dollars/contributions)
Money that has not yet been taxed.

Qualified stock options
See incentive stock options (ISOs).

Rebalancing
Adjusting your portfolio periodically to keep it in line with your chosen asset allocation and risk level—in other words, maintaining the relative percentages of stocks, bonds, cash, and other investments that you originally selected.

Required minimum distributions (RMDs)
RMDs are IRS-mandated withdrawals from your tax-deferred accounts (such as a 401(k) or traditional IRA) that you must take each year, starting at a certain age to avoid a 50% tax penalty. If you turned 70½ before 2020, it's likely you've already started taking RMDs. If you turn 70½ in 2020 or later, your RMDs will start the year you turn 72.

Restricted stock awards (RSAs) and restricted stock units (RSUs)
A form of equity compensation in which the company awards units that convert to shares at a future date when certain conditions are met, such as time of employment. When conditions are met, vesting occurs and units are converted to shares. The shares then become the employee's assets. (Learn more about this type of equity compensation in our guide to restricted stock.)

Risk tolerance
How an investor feels about risk. Your risk tolerance helps you decide whether to invest more conservatively or more aggressively.

Robo-advisor
Robo-advisors are online services that provide automated portfolios based on your preferences. The robo-advisor will automatically build a diversified portfolio of funds based on those preferences, and the portfolio will be automatically rebalanced by an algorithm. Because they're automated, robo-advisors tend to be more affordable and easy to use, making them an attractive option for all kinds of investors, from young people just starting out to more established investors like retirees looking for help generating income.

Rollover IRA
A Rollover IRA is an account that allows you to move funds from your prior employer-sponsored retirement plan (like a 401(k) plan) into an IRA. With an IRA rollover, you can preserve the tax-deferred status of your retirement assets, without paying current taxes or early withdrawal penalties at the time of transfer.

Roth IRA
A Roth IRA is an Individual Retirement Account to which you contribute after-tax dollars. While there are no current-year tax benefits, your contributions and earnings can grow tax-free, and you can withdraw them tax- and penalty-free after age 59½ and once the account has been open for five years.

Sale price
The specific market price at which a security is sold.

Securities and Exchange Commission (SEC)
The U.S. government agency that regulates the securities industry and protects investors.

Share
Stock is partial ownership of a company. An owner of a company's stock is considered to have an equity position in the corporate structure of that company, which gives them voting rights on different issues. Additionally, stockholders can collect dividends if the company distributes some of its earnings to stockholders. Shares can also be referred to as common stock or stock.

Short selling
Short selling involves borrowing a security and selling it on the open market. You then purchase it later at a lower price, pocketing the difference after repaying the initial loan. For example, let's say a stock is trading at $50 a share. You borrow 100 shares and sell them for $5,000. If the price suddenly declines to $25 a share, at which point you purchase 100 shares to replace those you borrowed, you net $2,500 in the bargain.

Spread
The difference between an equity award price and the fair market price of stock on a specific date.

Standard and Poor's S&P 500 Index
This is a widely tracked stock market index composed of 500 large-cap stocks representing the leading industries of the U.S. economy.

Stock
Stock is partial ownership of a company. An owner of a company's stock is considered to have an equity position in the corporate structure of that company, which gives them voting rights on different issues. Additionally, stockholders can collect dividends if the company distributes some of its earnings to stockholders. Stock can also be referred to as common stock or shares.

Stock option
A stock option gives you the right but not the obligation to buy stock at a specific price in the future for a set period of time. (Learn more about this type of equity compensation in our guide to stock options.)

Stock slices
See fractional shares.

Stock symbol
See ticker symbol.

Stock ticker
The continuously updated price of a security.

Strike price
The price you pay per share when you exercise your options. Also referred to as an option price, exercise price, or grant price.

Tax-deferred
Tax-deferred contributions and earnings are not usually subject to federal, state, or local taxes until you withdraw them from your retirement account.

Tax-loss harvesting
Tax-loss harvesting is the process of selling a security at a loss and using the proceeds to purchase a similar but not substantially identical security. This allows investors to retain a similar market exposure while generating tax deductions for federal income tax purposes that can be used to offset recognized capital gains and up to $3,000 of ordinary income a year. Additional captured losses can be carried forward into future years if not used in the year in which they occurred.

Thematic investing
Thematic investing is an investment approach that uses research to identify trends, opportunities, and relevant companies and group them into overarching themes to invest in.

Ticker symbol
An arrangement of letters or characters that represent securities (stocks, mutual funds, etc.) that are publicly traded. For example: AMZN for Amazon.com Inc., AAPL for Apple Inc., and IBM for International Business Machines Corporation (IBM). A ticker symbol is also referred to as a stock symbol.

Time horizon
The time when you plan to withdraw the money you've invested. Goals like saving for college or retirement tend to have longer time horizons than saving for a vacation or a down payment on a house. In general, the longer your time horizon, the more risk you can assume because you have more time to recover from a loss.

Traditional IRA
A Traditional IRA is a type of Individual Retirement Account, in which you can make pre-tax contributions that can grow tax-deferred. With a traditional IRA, you'll pay ordinary income tax on your withdrawals, and you must start taking distributions after age 72. Unlike with a Roth IRA, there are no income limitations to open a traditional IRA. It may be a good option for those who expect to be in the same or lower tax bracket in the future.

Underwater
The award price of a stock option is greater than the current market price of the underlying stock.

Unvested grant
The portion of a grant that has not yet met the vesting criteria as set forth in the grant agreement.

Vest/vesting
When granted equity compensation ownership shifts from the employer to the employee.

Vested grant
A grant that has met the vesting criteria as set forth in the grant agreement. When an RSU vests, in most countries it is a taxable event and tax withholding is due. The most common method of funding this tax liability is to sell a portion of the now-vested shares.

Vesting period
The length of time or waiting period before restricted stock awards or stock options vest.

Vesting schedule
A schedule that establishes the time frame in which stock options come under your control. This is usually based on the length of time you work at your company and occasionally can be accelerated for meeting performance targets.

Volatility
Volatility refers to the fluctuation of a company's stock price, or to fluctuation of stock prices throughout the market.

W-8BEN
The W-8BEN is an IRS form used by non-U.S. citizens to certify their foreign status. Non-U.S. citizens are typically taxed less than U.S. citizens, and having a valid W-8BEN on file ensures non-U.S. citizens will be taxed at the correct rate.

W-9
The form used by U.S. persons, including resident aliens, to certify their Taxpayer Identification Number or Social Security number. A W-9 also certifies that the person is not subject to backup withholding (unless you are a U.S. exempt payee).