Financial Dictionary

What is a REIT? A Real Estate Investment Trust, or REIT, is a pooled investment that invests primarily in income-producing real estate. The majority of REITs trade like stocks on the major exchanges, but there are other REITs that are available only in private markets. REIT investors earn a share of the income produced by the underlying properties – without actually having to go out and buy, manage or finance property themselves. Are REITs a Good Investment? Like all investments, REITs should be evaluated through the lens of an investor’s unique needs and tolerance for risk. REITs can be an…

What Is a Health Savings Account? A Health Savings Account, or HSA, is an account that offers individuals covered by high-deductible health plans a tax-advantaged means to save for qualified medical expenses. Within certain limits, funds contributed to the account are not subject to federal income taxes. What Is an FSA? A Flexible Spending Account, or FSA, is an account that you can put money into that you use to pay for certain out-of-pocket healthcare expenses. This money is put into the FSA account tax-free, which means you’ll save money on healthcare expenses you’d usually have to pay taxes on.…

What Is an IPO? An Initial Public Offering (IPO) is a company’s first public offering of stock. In an IPO, investment banks buy a private company’s shares and then offer them to the public at a certain offering price. This allows the company to raise capital from public investors. As the stock is traded, the market price may fluctuate from the offering price. Keep in mind that the return and principal value of stock prices will fluctuate as market conditions change. When sold, shares may be worth more or less than their original cost. IPO Process The IPO process is…

What Are Municipal Bonds? A municipal bond, sometimes called a muni bond, is a debt security issued by a state, county, city, or other political entity (such as a school district) to raise public funds for special projects. The income from municipal bonds is normally exempt from federal income taxes. It may also be exempt from state income taxes in the state in which the municipal bond is issued. Municipal bonds are generally a low-risk investment, but still are subject to a variety of risks, including default risk, market risk (adjustments in interest rates), and call risk. If you buy…

Risk Tolerance Definition Risk tolerance is a measurement of the degree of variability in investment returns that an investor is willing to withstand. In other words, it measures an investor’s willingness or ability to handle investment losses and still achieve goals. Why Is Risk Tolerance Important? Knowing your risk tolerance is important when building a financial plan so that you can grow your money comfortably and avoid the stressors of investing beyond your means. Lower-risk investments should be considered if you can’t afford or don’t want to risk losing any money (even temporarily), or if you would accept generally lower…