The allocation of a client's portfolio between cash, bonds and
stocks. The asset allocation mix should match the client's
investment goals and tolerance for bearing market value
A debt security which a government or a company issues as an
"I.O.U." In return for the loan, the entity issuing the bond agrees
to pay interest at a fixed rate during the life of the bond, and
also to return the principle when the bond reaches maturity
When a stock increases in value, the unrealized capital gains is
the difference between the purchase price and the stock's current
value. Unrealized capital gains are not taxable events until the
stock is sold.
When a stock increases in value and is sold for a higher price than
the original purchase price. The difference between the original
purchased price and the sold price is a realized capital gain and
is taxable if the stock was held in a taxable account.
Short- and Long-Term
Capital gains which are realized 12 months or less from the date
the investment was purchased are considered short-term gains and
are taxed as ordinary income. Capital gains that occur more than 12
months from the time the investment is purchased are considered
long-term gains, and are taxed at a more favorable rate.
The interest rate stated on the bond. A $100,000 bond with a Coupon
of 5% will pay $5,000 per year as long as the bond is outstanding.
Most bonds pay interest every six months.
Bond Fund and "Income
A mutual fund that invests primarily in bonds or other types of
debt securities. Depending on its investment objectives and
policies, a bond fund may concentrate its investments in a
particular type of bond-such as government bonds, municipal bonds,
corporate bonds, convertible bonds, mortgage-backed securities,
zero-coupon bonds-or a mixture of types.
A security that represents ownership in a corporation usually
entitles the owner the right to vote at shareholder meetings and to
receive dividends that the company has declared.
A debt security issued by a private or public company. Companies
issue bonds for a variety of reasons including to purchase new
equipment and to grow operations.
The difference in the price of a bond when it is bought or sold at
a price lower than its par value. This can happen if interest rates
have risen and an old bond paying a lower interest rate loses its
Exchange Traded Funds
Blocks of specific, unmanaged stocks that can be bought and sold in
the market place just like an individual stock. Exchange traded
funds can be used to obtain broad market exposure in specific
investment sectors, such as real estate, biotech or high tech,
without having to buy individual stocks.
The mutual fund industry's term for a sales charge that you pay
when you buy shares of a fund. This fee usually compensates an
investment professional for his or her services, especially for the
advice he or she provides in selecting a fund to meet your
A type of mutual fund whose investment objective is to achieve the
same return as a particular market index, such as the S&P 500
Composite Stock Price Index, the Russell 2000 Index, or the
Wilshire 5000 Total Market Index.
A clearly defined statement, signed by the client, outlining the
goals and needs that are to be achieved from the managed portfolio.
The statement may include such items as income needs, time
horizons, tax issues and special circumstances. A statement helps
ensure that there is a clear understanding between the client and
the portfolio manager as to how the client's goals are going to be
Fees that are paid out of fund assets to the fund's investment
advisor for investment portfolio management.
The date a bond will mature and the principal borrowed will be
repaid to the current owner of the bond.
A short-term investment that pays interest and can be liquidated at
any time. Money Market funds seek to preserve the value of your
investment at $1.00 per share.
A variation on a separately managed account (SMA), that uses the
investment strategies of multiple managers to run an investor's
A debt security issued by states or political subdivisions such as
city governments, state governments, and counties. Bonds are issued
to raise money for a variety of public works projects. An important
feature of a municipal bond is that the earnings are exempt from
federal income taxes.
A type of investment that pools money from many investors and
invests the money in stocks, bonds, short-term moneymarket
instruments, or other securities. Legally known as an "open-end
You should consider a mutual fund's investment objectives,
risks, and charges and expenses carefully before investing. Contact
your Financial Advisor to request a prospectus, which contains this
and other information about a specific mutual fund. Read it
carefully before you invest. Past performance is no guarantee of
future results. Investment return and principal value of a mutual
fund will fluctuate, causing shares, when redeemed, to be worth
more or less than their original cost.
A mutual fund that does not have upfront sales charges. Although a
no-load fund does not charge a fee to buy, sell, or exchange
shares, no-load funds may have a distribution or service fee of up
to 0.25 percent of average net assets each year to compensate sales
professionals for providing ongoing services.
The original value of a bond. This amount will be repaid when the
A stock that generally does not have voting rights, but has a
higher claim on assets and earnings than the common shares.
If a bond is sold or bought in the bond market for a price higher
than its par value, then a Premium has been paid.
The management of a client's assets by full-time, non-commissioned
money managers, where an annual asset-based fee is paid for the
The rebalancing of a client's portfolio over time, to maintain
their desired asset allocation mix. Reallocation prevents one asset
class from becoming over weighted in a portfolio as investments
change in value.
An individually-managed portfolio that is entirely owned by the
individual investor - that is, assets are not commingled with those
of other investors as they are in mutual funds.
A type of security also sometimes known as "equity" that signifies
ownership in a corporation and represents a claim on part of the
corporation's assets and earnings.
The coordination of a client's investment, tax and estate plans
into a comprehensive financial plan to achieve their personal
An investment account in which an investment representative helps
an investor find a money manager in exchange for a quarterly or
annual fee, which covers all administrative and management
The information provided here is not intended to be a
comprehensive treatment of the subject matter. The answers are for
general information only and are not intended to provide specific
legal, financial or accounting advice or recommendations. Please
consult with qualified professionals to discuss your
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products are offered through LPL Financial, a Registered Investment
Advisor, member FINRA / SIPC. Sandy Spring Bank and Sandy Spring Wealth
Management are not registered broker/dealers and not affiliated
with LPL Financial.
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