The Motley Fool Glossary
Definitions H - L
- High-yield bonds
- Bonds that are rated as below investment grade. The issuers of these bonds -- which are judged to be at a higher risk of default -- have to pay an attractive dividend to compensate investors for the additional risk.
- High-yield fund
- A mutual fund that invests in bonds with low credit ratings. Because of the risky nature of high-yield bonds, high-yield funds have greater volatility than the average bond fund.
- See Earnings.
- Income fund
- A mutual fund that invests in bonds and stocks with higher-than-average dividends.
- An unmanaged selection of securities whose collective performance is used as a standard to measure investment results. Examples include the Dow Jones Industrial Average, the Standard & Poor's 500, the Wilshire 5000, and the FOOL 50.
- Index fund
- A passively managed mutual fund that seeks to match the performance of a particular market index. Partially due to lower expenses, index funds outperform the majority of actively managed mutual funds. See The Truth About Mutual Funds.
- Individual Retirement Account (IRA)
- A tax-deferred retirement account set up with a financial institution such as a bank, broker, or mutual fund in which contributions may be invested in many types of securities such as stocks, bonds, money market funds, CDs, etc. See IRA Glossary and All About IRAs.
- A rise in the prices of goods and services.
- Initial public offering (IPO)
- A company's first offering of common stock to the public.
- Insider trading
- Trading done by a person with access to key non-public information.
- Institution investors
- Institutions investors include pension funds, insurance funds, mutual funds, and hedge funds. Although institutions hold about 40% to 50% of all stock owned, they account for as much as 90% of daily trading volume.
- International fund
- A mutual fund that invests in securities traded in foreign markets.
- Finished or near-finished products that a company has not yet sold. It's considered an asset because it can be sold or liquidated for money. But, from an investor's point of view, inventory is often more like a liability because it represents a momentary failure on the company's part to convert its business into cash. Investors ideally like to see inventory growth comparable to, or less than, sales growth.
- Investment adviser
- An entity that makes the recommendations and/or decisions regarding a portfolio's investments. Alternatively called a portfolio manager.
- Investment grade
- A bond whose credit quality is considered to be among the most secure by any independent bond-rating agency. A rating of Baa or higher by Moody's Investors Service or a rating of BBB or higher by Standard & Poor's is considered investment grade.
- See Initial public offering.
- See Individual retirement account.
- Junk bond
- See High-yield bonds.
- Keogh plan
- A qualified retirement plan that may be set up by self-employed persons, partnerships, and owners of unincorporated businesses as either a defined benefit or defined contribution plan. As defined contribution plans, they may be structured as a profit sharing, a money purchase, or a combined profit sharing/money purchase plan.
- Large-capitalization ("large-cap") stocks
- Large caps are stocks of companies whose market value is above a designated minimum, usually in the neighborhood of $10 billion. See the Rule Maker Portfolio for daily discussion of some representative large-cap stocks.
- Outstanding debts.
- Life insurance
- See Term insurance and Whole-life insurance.
- Limit order
- An order to buy or to sell a security at a specific price or better. Example: "Buy 200 shares of Microsoft at $65." This would be placed when Microsoft is trading above $65 a share, and the purchaser is interested in waiting for a better price, and accepting the possibility that his preferred price will not ever be available, in which case the order will not be filled. See Market order.
- A measure of how quickly a stock can be sold at a fair price and converted to cash. Illiquid stocks are stocks that don't trade in high volume. Thus, having too many shares of a stock that doesn't trade frequently would make for a position that cannot necessarily be sold. See The Fool FAQ: Liquidity.
- A sales commission paid when purchasing shares of a mutual fund (called a front-end load) or when redeeming shares of a mutual fund (called a back-end load). For example, if the fund has a front-end load of 5%, for every $100 you place into the fund, only $95 is invested, with $5 going to the salesperson and/or mutual fund company. Avoid mutual funds with loads. See The Truth About Mutual Funds: Loads.
- Long-term capital gain
- A profit on the sale of stock, mutual fund shares, or other securities that have been held for more than one year. Taxes owed on long-term capital gains are lower than those on short-term capital gains.
- Long-term assets
- A long-term asset is one that is consumed or used over a number of accounting cycles, from more than one year to 40 years. The long-term asset accounts include assets such as land, buildings, equipment, and intangibles such as goodwill and accrued organizational expenses. It appears on the balance sheet.
- Lump-sum distribution
- A single payment that amounts to the entirety of a retiree's interest in a qualified retirement plan. Severe tax consequences apply to receiving a lump-sum distribution without retiring (or otherwise being separated from employment). See Managing Your Retirement.