The Motley Fool Glossary

Definitions S - T


S&P 500 Index
See Standard & Poor's 500 Index.
Salary Reduction Simplified Employee Pension Plan (SARSEP)
Prior to January 1, 1997, a SEP-IRA could have included a salary reduction arrangement in which an employee may elect to defer taxation on part of his or her compensation by contributing that amount to the SEP. This type of salary reduction plan is known as a SARSEP, and could have been established by an employer who had fewer than 25 employees provided at least 50% of all employees agreed to participate in the arrangement. Like a 401(k) plan, the employee's contribution to the SARSEP is limited to $10,500 per year. Effective January 1, 1997, no new SARSEP may be established; however, those in existence as of December 31, 1996, may continue to operate. The SARSEP has been replaced by the new SIMPLE arrangement discussed below. See Foolish Retirement Plan Primer.
Same-store sales
Also called comparable-store sales (or simply "comps", same-store sales measure the percentage change in revenues for all stores in the chain that have been open more than one year.
Savings Incentive Match Plan for Employees (SIMPLE)
Established by the Small Business Protection Act of 1996, a SIMPLE may be set up by employers who have no other retirement plan and who have 100 or fewer employees with at least $5,000 in compensation for the previous year. SIMPLE plans are the replacement for the SARSEP plans discussed above. They may be structured as an IRA or as a 401(k) plan. Employees may defer any percentage of compensation up to $6,000 per year to the SIMPLE, and the employer is required to make a matching contribution of up to 3% of the employee's pay based on that election. The employer may reduce the maximum matching percentage in any two years out of five. Alternatively, the employer may establish a uniform 2% of salary contribution per year for all eligible employees regardless of whether they contribute to the SIMPLE or not. Together, the employee and the employer may contribute a maximum of $12,000 annually to the SIMPLE. See Foolish Retirement Plan Primer.
See Securities and Exchange Commission.
Secondary offering
The sale of a large block of company stock anytime after the initial public offering. The stock can come from company officials, institutions with a lot of shares, or the offering company itself in the form of brand-new shares.
A group of companies that have shared characteristics, usually operating in a common industry.
Sector fund
A mutual fund that invests its shareholders' money in a relatively narrow market sector, e.g., technology, energy, the Internet, or banking.
A fancy name for shares of stock, bonds, or any kind of financial asset that can be traded.
Securities and Exchange Commission (SEC)
The federal agency charged with ensuring that the U.S. stock market is a free and open market. All companies with stock registered in the United States must comply with SEC rules and regulations, which include filing quarterly reports on how the company is doing. The SEC, headed by five appointed members, was created under the Securities Exchange Act of 1934.
See Simplified Employee Pension plan.
Settlement date
The date by which a broker must receive payment to satisfy the terms of a security transaction. The settlement date for stocks is three business days from the execution of the trade.
If you buy even one share of stock in a company, you can proudly call yourself a shareholder. As a shareholder you get an invitation to the company's annual meeting, and you have the right to vote on the members of the board of directors and other company matters.
Short sale
An investor who sells stock short borrows shares from a brokerage house and sells them to another buyer. Proceeds from the sale go into the shorter's account. He must buy those shares back (cover) at some point in time and return them to the lender. See Fool FAQ: Shorting Stocks.
Short squeeze
When many investors have sold short a stock on the hope that its price will plunge, that price may begin to rise. As it does so, more and more of these "shorters" will "cover" their investments. That is, they'll buy back the shares that they had shorted, and take a loss, since they're having now to buy the shares at a higher price. As more and more shorters do this, the price rises (since more people are buying than selling). In investment parlance, this is a short squeeze.
Short-term capital gain
A profit on the sale of a security that has been held for one year or less. Short-term capital gains are taxed as ordinary income. See Capital Gains Tax Rates.
Short-term reserves
Investments in U.S. Treasury bills, money market instruments, interest-bearing bank deposits, or short-term bonds.
See Savings Incentive Match Plan for Employees.
Simplified Employee Pension (SEP) plan
A SEP is an easy method for a small employer to establish a retirement plan for employees without the complex administration and expense found in qualified retirement plans. In fact, an employer may establish a SEP only if that employer has no qualified retirement plan in effect. Under a SEP, the employer may make a contribution of up to the lesser of 15% or $30,000 of compensation to IRAs established in each employee's name. See Foolish Retirement Plan Primer.
Small-capitalization ("small-cap") fund
A mutual fund that invests in companies whose market value is less than about $1 billion.
Small-capitalization ("small-cap") stocks
Companies with a market capitalization of $1 billion or less. See Market capitalization.
The nickname for S&P 500 Depositary Receipts, which trade on the American Stock Exchange under the ticker symbol SPY. Spiders are a convenient way for investors to buy and sell the aggregate stock of the companies represented in the S&P 500 Index.
See Stock split, or What Are Stock Splits.
Spousal IRA
An IRA funded by a married taxpayer in the name of his or her spouse who has less than $250 in annual compensation. The couple must file a joint tax return for the year of contribution. The working spouse may contribute up to $2,000 per year to the Spousal IRA and up to $2,000 per year to his or her own IRA. A couple, then, may contribute up to $4,000 per year provided neither IRA receives more than $2,000. See All About IRAs: The 10 Types.
The difference between the bid and ask price, i.e., the highest price offered and the lowest priced asked for a security.
Standard & Poor's 500 Index
An index of 500 of the biggest publicly traded companies in the United States. The S&P 500 is generally thought of as the best measurement of the overall U.S. stock market.
Standard & Poor's MidCap 400 Index
A market-capitalization-weighted index composed of exactly 400 companies (thus the name) with market values between roughly $200 million and $5 billion.
An ownership share in a corporation. Each share of stock is a proportional stake in the corporation's assets and profits, and purchasing a stock should be thought of as owning a proportional share of the successes and failures of that business.
Stock certificate
A document designating and verifying shareholder ownership in a corporation.
Stock fund
A mutual fund investing primarily in stocks.
Stock split
A stock split simply involves a company altering the number of its shares outstanding and proportionally adjusting the share price to compensate. This in NO WAY affects the intrinsic value or past performance of your investment, if you happen to own shares that are splitting. A typical example is a 2-for-1 stock split. A company will announce that it's splitting its stock 2-for-1 in one month. One month from that date, the company's shares (having traded the day before at, say, $100) will now be trading at half the price from the previous day (so they'll open at $50). The company, which had 10 million shares outstanding, now consequently has 20 million shares outstanding. The price has been halved in order to accommodate a doubling of the share total. See Fool FAQ: Stock Splits.
Stock symbol
See Ticker symbol.
An individual who has been licensed by the National Association of Securities Dealers to trade stocks and advise clients on various personal finance issues.
Street name
Registration of securities held in the name of the owner's broker to facilitate share transfers at the time of sale.

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Taxable equivalent yield
The return from a higher-paying but taxable investment that would be equivalent to the return from a tax-free investment. To determine this, you need to know the tax bracket of the individual paying the taxes on the income.
Taxable year
The 12 months used by an individual to report income for income tax purposes. For most, but not all, this will simply be the calendar year.
Accounts in which taxes are not paid on investment growth or earnings until funds are withdrawn from the account, such as an Individual Retirement Account or a 401(k) plan.
Tax-deferred retirement plan
Any retirement plan such as a 401(k) in which earnings are not currently taxable. See Retirement Plan Primer.
Tax-exempt bond
A bond -- typically issued by state, county, or municipal governments -- whose interest payments are not taxed by the federal government. These bonds may or may not be subject to state and local income taxes.
An investment exempt from federal and, in some cases, state or local income taxes.
See Treasury bill.
See Treasury bond.
Technical analysis
Technical analysis dwells on charts of stock price movements and trading volume, as opposed to a company's business, earnings, and competition. Investors who use technical analysis focus on the psychology of the market, scrutinizing investor behavior. They try to determine where the big, institutional money is going so they can put their cash in the same places. Fools aren't believers in technical analysis.
Term insurance
A no-nonsense life insurance plan that calls for low annual payments ("premiums") that will increase as you get older. See also Whole life insurance.
Ticker symbol
An abbreviation for a company's name that is used as shorthand by stock-quote reporting services and brokerages.
See Treasury note.
Top line
The top line on a business' income statement shows its sales, otherwise known as revenues.
The purchase or sale of a stock, bond, or other security.
Trading range
The upper and lower selling price of a security over a given time period, such as the last 52 weeks.
Traditional IRA
An Individual Retirement Account in which contributions may be deductible, non-deductible, or both. See Individual Retirement Account, or All About IRAs: Traditional vs. Roth.
Transaction fee
A charge assessed by a broker for assisting in the trade of a stock or other security.
Treasury bill (T-bill)
A short-term discounted security issued by the U.S. government, with a maturity of one year or less.
Treasury bond (T-bond)
A long-term security issued by the U.S. government, with a maturity of 10 years or more.
Treasury note (T-note)
An intermediate-term security issued by the U.S. government, having a maturity of 1 to 10 years.
Turnover rate
A measurement of trading activity during the past year. Mutual funds with lower turnover rates will leave their shareholders with lower tax bills at the end of the year. See Mutual Fund Costs: Turnover and Cash Reserves.
12b-1 fee
Mutual fund promotional expenses such as advertising and public relations that are paid by shareholders. See Mutual Fund Costs: Expense Ratios.

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