Term Of The Day (Investment Related)

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Credit Limit
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The amount of credit that a financial institution extends to
a client. Credit limit also refers to the maximum amount a
credit card company will allow someone to borrow on a single
card. Credit limits are usually determined based on information
contained in the application of the person seeking credit, or
that person's credit rating.

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A debt instrument that is secured by the collateral of
specified real estate property and that the borrower is obliged
to pay back with a predetermined set of payments. Mortgages
are used by individuals and businesses to make large purchases
of real estate without paying the entire value of the purchase
up front.

Mortgages are also known as "liens against property" or "claims
on property".

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1. A contractual agreement in which a borrower receives
something of value now and agrees to repay the lender at some
date in the future, generally with interest. The term also
refers to the borrowing capacity of an individual or company.

2. An accounting entry that either decreases assets or increases
liabilities and equity on the company's balance sheet. On the
company's income statement, a debit will reduce net income,
while a credit will increase net income.

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The one-year period that begins on January 1 and ends on
December 31, based on the commonly used Gregorian calendar.
For individual and corporate taxation purposes, a calendar
year will generally comprise all of the year's financial
information used to calculate income tax payable.

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An estimation of the revenue and expenses over a specified
future period of time. A budget can be made for a person, family,
group of people, business, government, country,  multinational
organization or just about anything else that makes and spends
money. A budget is a  microeconomic concept that shows the
tradeoff made when one good is exchanged for another.

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An investor who is willing to take on additional risk for an
investment that has a relatively low expected return. This
contrasts with the typical investor mentality - risk aversion.
Risk averse investors tend to take on increased risks only if
they are warranted by the potential for higher returns.

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A situation in which the supply and demand for a good or
service can vary significantly due to the price. The elasticity
of a good or service can vary according to the amount of close
substitutes, its relative cost and the amount of time that has
elapsed since the price change occurred.

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A working-class person historically defined by hourly rates
of pay and manual labor. A blue collar worker refers to the
fact that most manual laborers at the turn of the century wore
blue shirts, which could hold a little dirt around the collar
without standing out.

This working class stands in contrast to white collar workers,
which historically have had the higher-paying, salaried positions
to go with their clean and pressed white shirts.

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A phrase commonly used in personal finance and retirement
planning literature that means to automatically route your
specified savings contribution from each paycheck at the time
it is received.

Because the savings contributions are automatically routed
from each paycheck to your investment account, this process
is said to be "paying yourself first", or before you begin
paying your monthly living expenses and making discretionary
purchases.

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The income of an individual or group after taking into
consideration the effects of inflation on purchasing power.
For example, if you received a 2% salary rise over the previous
year and inflation for the year was 1%, then your real income
only rose 1%. Conversely, if you received a 2% raise in salary
and inflation stood at 3%, then your real income would have
shrunk 1%.

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1. The economic costs that a business incurs through its
operations to earn revenue. In order to maximize profits,
businesses must attempt to reduce expenses without also cutting
into revenues. Because expenses are such an important indicator
of a business's operations, there are specific accounting rules
on expense recognition.

2. Money spent or costs incurred that are tax-deductible and
reduce taxable income.

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A type of credit card issued to people with substandard credit scores or limited credit histories. These cards will typically carry much higher interest rates than credit cards granted to prime borrowers; they also come with extra fees and lower credit limits.

Subprime credit cards are issued by both major issuers and smaller financial institutions that focus only on subprime lending.

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The costs involved with a company paying increased health-care
fees and other benefit-related costs for its current employees
and retired pensioners. It is believed that escalating legacy
costs can be a very large contributing factor towards limiting
a company's competitiveness.

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An exchange-traded fund (ETF) that is constructed by using
various derivatives for the purpose of profiting from a decline
in the value of an underlying benchmark. Investing in these
ETFs is similar to holding various short positions, or using
a combination of advanced investment strategies to profit
from falling prices.

Also known as a "bear ETF".

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What Does it Mean?
A tax that governments impose on financial income generated by all entities within their jurisdiction. By law, businesses and individuals must file an income tax return every year to determine whether they owe any taxes or are eligible for a tax refund. Income tax is a key source of funds that the government uses to fund its activities and serve the public.

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A market hypothesis stating that investors and traders react
disproportionately to new information about a given security.
This will cause the security's price to change dramatically,
so that the price will not fully reflect the security's true
value immediately following the event. Typically, the price
swing from overreaction is not long lasting, as the stock
price will tend to return back to its true value over time.

The overreaction hypothesis is not consistent with the
efficient market hypothesis.

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Selling securities at a loss to offset a capital gains tax
liability. Tax gain/loss harvesting is typically used to limit
the recognition of short-term capital gains, which are normally
taxed at higher federal income tax rates than long-term capital
gains.

Also known as "tax-loss selling".

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A tax credit that can't reduce the amount of tax owed to less
than zero. If the credit were able to reduce the amount of tax
owed to less than zero, the taxpayer would be entitled to a
payment from the government.

Also referred to as a "wastable tax credit."

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A merger, a sale or an agreement in which one party in the deal presents the other party with very attractive terms and conditions. The terms of a sweetheart deal are usually so lucrative that it is difficult to justify turning the offer down.

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A type of retirement savings contribution that allows people
over 50 to make additional contributions to their 401(k)s
and/or individual retirement accounts. The Economic Growth
and Tax Relief Reconciliation Act of 2001 (EGTRRA) created
this provision so that older individuals would be able to set
aside enough savings for retirement.

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A base amount of income that is not subject to tax and that
can be used to reduce a taxpayer's adjusted gross income (AGI).
A standard deduction can only be used if the taxpayer does
not choose the itemized deduction method of calculating
taxable income. The amount of the standard deduction is based
on a taxpayer's filing status, age and whether he or she is
disabled or claimed as a dependent on someone else's tax return.

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An investment philosophy that attempts to amplify the returns of an underlying portfolio or index fund while also minimizing the effects of tracking error. This type of investing is considered a hybrid between active and passive management and is used to describe any strategy that is used in conjunction with index funds for the purpose of outperforming a specific benchmark.