The folio’s percentage return during the month ending on the date listed above the returns.
The folio’s percentage return over the past year. The figure will not include the current month. For example, in December 2008, 1-Year would display each Ready-to-Go folio’s performance from December 1, 2007 through November 30, 2008. If a percentage return is negative, it will be red and in parentheses.
The folio’s percentage return during the three months ending on the date listed above the returns.
The folio’s percentage return over the past 3 years. The figure will not include the current month. For example, in December 2008, 3-year would display each Ready-to-Go folio’s performance from December 1, 2005 through November 30, 2008. The resulting percentage is then annualized based on three years of data and if the percentage return is negative, it will be red and in parentheses.
The folio’s percentage return over the past 5 years. The figure will not include the current month. For example, in December 2008, 5-year would display each Ready-to-Go folio’s performance from December 1, 2003 through November 30, 2008. The resulting percentage is then annualized based on five years of data and if the percentage return is negative, it will be red and in parentheses.
Many mutual funds companies promote themselves through advertising and marketing, and some manage their own distribution of funds. The fees associated with promoting and distributing their funds are generally passed along to their shareholders in the form of a 12b-1 fee. 12b-1 fees are a component of expense ratios. They usually range from 0.25% to 0.75%. 12b-1 fees will be deducted from the assets you have invested in the funds based on the dollar amount of your assets. Learn more about expense ratios.
American Depositary Receipts (ADRs)
American depositary receipts (ADRs) are negotiable certificates issued by a U.S. bank that represents a specified number of shares in a foreign security or debt that is traded on a U.S. exchange. Depositary receipts are created when a broker purchases the company’s shares on the home stock market and delivers them to the depositary’s local custodian bank, which then instructs the depositary bank to issue depositary receipts. Since the depositary receipts are denominated in U.S. currency there are referred to as American depositary receipts, with the underlying security held by an overseas U.S. financial institution. Investing in ADRs of foreign companies that pay dividends may have taxable implications based on foreign tax laws. Consult your tax advisor concerning your specific situation.
The ask price is the lowest price a market maker is willing to accept for a share of that given stock. Market makers provide investors the ability to buy and sell a particular stock on a regular and continuous basis at a publicly quoted price. For example, if the ask price for IBM is $100, then the lowest price that the market maker is willing to accept is $100.
Average volume is the average number of a security’s shares traded each day.
Backtesting is the process of looking at how securities would have performed over a past time period, when you may not have owned them.
Beta is a common measure used in the financial industry. Beta is a measure of the degree of correlation between the returns of the folio in comparison to the overall market, usually defined as the S&P 500. The S&P 500 is defined as having a Beta of 1.0. As such, folios can have a higher or lower overall Beta than the market. If a folio has a Beta of 0.5, then the volatility is roughly half those of the total market based on past performance and the folio is generally less volatile and vice versa for folios with numbers above 1.0. Beta provides a starting point in conjunction with other useful measures such as volatility that measure overall folio risk.
The bid price is the highest price a market maker is willing to pay for a share of that given stock. Market makers provide investors the ability to buy and sell a particular stock on a regular and continuous basis at a publicly quoted price. For example, if the bid for IBM is $100, then the highest price that the market maker is willing to pay is $100.
Cancel Order Limit Percentage
Cancel order limit is the ability to automatically stop trades that were placed if security values move beyond a preset threshold between the time the order was placed and the time that it is executed. If the cancel order limit threshold percentage is exceeded, the order will not be filled. Learn more about how to adjust the setting.
A class action is a lawsuit filed against a company on behalf of its shareholders. Your legal right to seek a remedy separately from the class action lawsuit will be taken away in nearly all cases, unless you take action by opting out of the class action suit. Seek legal advice if you are uncertain about whether you should be part of the class action or opt out of it.
Closed Tax Lot
Every time shares are sold, a closed tax lot is created to track the date and the price at which the transaction occurred. Learn more about tax lots.
A bond issuer might fail to make an interest or principal payment in a timely manner which is known as defaulting. Bond funds that invest in lower-rated and non-rated securities may contain higher default risk than other bond funds. Credit risk is the chance that any of the fund’s holdings will have their credit ratings downgraded or will default (fail to make scheduled interest or principal payments), potentially reducing the fund’s income level and share price.
Dividend – Cash
A cash dividend occurs when a corporation decides to distribute some of its earnings or profits to shareholders in the form of a cash payment. You will not receive advance notice of a dividend payment if you own stock in a corporation that declares a cash dividend.
Dividend – Optional
With an optional dividend, the corporation paying the dividend gives shareholders the option of receiving payment in cash, securities, or some combination of both.
Dividend – Stock
A stock dividend occurs when a corporation pays a dividend in stock instead of paying the dividend in cash.
Most mutual funds pay dividend payments in the form of cash. Dividend reinvestment, as the name implies, is the process of reinvesting the dividends paid to an investor. The amount of dividends paid are based on the per-share amount. Learn more about how to reinvest dividends.
Dividend yield is the annual dividends paid by a company divided by its security price. Dividend yield is also referred to as current yield.
Dollar-based orders are orders in which a purchase or sell is made for a specific dollar amount. If prices change between the time the order was placed and its actual execution, the number of shares that were bought or sold may change.
Dow Jones Industrial Average
The index is comprised of the 30 largest companies trading on U.S. exchanges. The index is price-weighted, meaning that each stocks percentage weighting in the index is based on its share price in relation to the sum of the share prices that make up the index. Therefore, the higher the share price, the more the stock contributes to the overall index. Dow Jones & Company calculates companies eligible for inclusion and deletions to the index.
Earnings-per-share is determined by dividing total earnings by the number of shares outstanding. Earnings-per-share can be stated for a specific period of time, such as quarterly or it can be projected into the future, usually one year. Companies often use an average number of shares outstanding over the period of time being reported.
Exchange Rate Risk
The risk of additional uncertainty of returns caused by changes in the exchange rates for the currency of another country. The level of volatility for the exchange rates differ between countries. Countries with substantial volatility in the exchange rate over time can mean significant differences in the domestic return of the country and the return in U.S. dollars.
The risk that a company will not have the adequate cash flow to meet financial obligations. Financial risk is the additional risk a shareholder bears when a company uses debt in addition to equity financing. Companies that issue more debt have a higher financial or business risk than companies financed mostly or entirely by equity.
A collection of stocks, ETFs, and/or mutual funds that can be bought, sold, rebalanced or customized in a single transaction.
A type of folio in which components are chosen based on fundamental criteria. Fundamental criteria are generally found in the financial statements that include cash flow statements, balance sheets and income statements. Fundamentally-weighted folios are based on fundamental metrics such as sales, dividend rates, earnings or book value.
This is the date a Ready-to-Go folio was created and made available to buy.
Interest Rate Risk
If interest rates rise, the price of a bond could significantly drop. If interest rates significantly decline, the issuer of the bond may call the bond, meaning that the issuer will redeem the bonds before they mature. That might result in the bond fund reinvesting the proceeds in bonds that have lower interest rates.
The K-1 security exclusion category is comprised of companies that provide shareholders a Schedule K-1 to be used in connection with reporting to the IRS. These companies generally pass certain gains or losses through to their shareholders. The Schedule K-1 is used to report each individual shareholders’ share of those items, and requires such individual shareholders to report such items when filing their individual taxes.
A limit order is an order to buy or sell a security at a specific price. A buy limit order can only be executed at the limit price or lower, and a sell limit order can only be executed at the limit price or higher. When you place a market order, you can’t control the price at which your order will be filled. A limit order may never be executed because the market price may quickly surpass your limit before your order can be filled. Through using a limit order you can also protect yourself from buying the stock at too high a price or selling a stock at too low a price.
The risk that can occur from the lack of marketability of an investment that cannot be bought or sold quickly enough to prevent or minimize a loss. This risk is usually reflected in a wide bid-ask spread or large price movements. Micro-cap companies and foreign companies tend to have higher liquidity risk than larger more established companies.
Market capitalization measures the size of a company. To calculate a company’s market capitalization, multiply the total number of a company’s outstanding shares by the current price-per-share. For example, a company with 20 million shares and a current price of $30 per share has a market capitalization of $600 million (20 million × $30). We have three tiers of market capitalization:
- Large-cap – over $11 billion in market capitalization
- Mid-cap – between $1.7 billion and $11 billion in market capitalization
- Small-cap – $1.7 billion or less in market capitalization
A market order is an immediate order to buy or sell shares that goes directly to the market. The investor will receive the price at the time of order execution.
The risk inherent to the entire market or entire market segment. Also known as systematic risk. Interest rates, recession and wars all represent sources of systematic risk because they affect the entire market and cannot be avoided through diversification. Whereas this type of risk affects a broad range of securities, unsystematic risk affects a very specific group of securities or an individual security. Systematic risk can be mitigated only by being hedged. Even a portfolio of well-diversified assets cannot escape all risk.
A merger occurs when two or more companies combine to form one company. A restructuring occurs when a company internally reorganizes, possibly dividing into separate companies.
MSCI EAFE Index
The MSCI’s EAFE index includes a total of 21 developed countries in Europe, Australasia and Far East that includes over 1,000 stocks from different countries. The weighting of the stocks is market capitalization weighted where the stock’s individual market capitalization is computed as a percentage relative to the overall market capitalization of the entire index. Therefore, the higher the market capitalization of the stock the more it contributes to the index. Morgan Stanley Capital International calculates companies eligible for inclusion and deletions to the index. Learn more about the methodology of the MSCI EAFE.
The index is comprised of over 3,000 domestic and international stocks that make up and are listed on the NASDAQ stock market. The weighting of the stocks is market capitalization weighted where the stock’s individual market capitalization is computed as a percentage relative to the overall market capitalization of the entire index. Therefore, the higher the market capitalization of the stock the more it contributes to the index. NASDAQ calculates companies eligible for inclusion and any deletions to the index. Learn more about the methodology of the NASDAQ Composite.
Open Tax Lot
When an investor buys a share an open tax lot occurs that records the date and price of the purchase as the cost basis. The tax lot then tracks the total current value in comparison to the cost basis to determine if there is a capital gain or loss and whether it is short- or long-term.
The risk that an investment’s returns could suffer as a result of political changes or instability in a country. Instability affecting investment returns could stem from a change in government, legislative bodies, other foreign policy makers, or military control.
Price-to-book ratio is calculated by dividing the stock’s current price-per-share by the book value per-share.
Price-to-earnings ratio is calculated by dividing the stock’s current price-per-share by the earnings-per-share (EPS).
Price-to-sales ratio is a calculated by dividing the stock’s current price-per-share by its sales.
A proxy is a written document that allows a shareholder to vote without attending a company meeting.
Realized gain/loss are the capital gain or loss that occurs after a trade has been executed. The gain or loss is determined by subtracting the total purchase price, based on your open tax lots, from the total ending value to determine the cost basis.
Rebalancing is the process of bringing a portfolio of investments that has drifted away from the investor’s target weights back into alignment. Through this process under-weighted securities are purchased with funds derived by selling over-weighted securities in the folio.
Reverse Stock Split
When a reverse stock split occurs, a corporation is decreasing the number of its shares outstanding. As a result, the price-per-share usually increases.
A rights offering occurs when a publicly traded company gives its current stockholders the right to purchase additional shares ahead of an offering of new shares to the general public in order to maintain their proportionate ownership.
An index comprised of the 500 largest U.S. companies that trade on U.S. exchanges. The weighting of the stocks is market capitalization weighted where the stock’s individual market capitalization is computed as a percentage relative to the overall market capitalization of the entire index. Therefore, the higher the market capitalization of the stock the more it contributes to the index. Standard & Poor’s calculates companies eligible for inclusion and any deletions to the index. Learn more about the methodology of the S&P 500.
Company- or industry-specific risk that is inherent in each investment that is also known as unsystematic risk. The amount of unsystematic risk can be reduced through appropriate diversification. For example, news that is specific to a small number of stocks or industry, such as a failed drug trial of a company you have shares in, is considered to be unsystematic risk.
This is the process of excluding certain securities based on investor selected social issues, sectors and securities. Learn more about security exclusions.
Self Regulatory Organization (SRO) Fee
Folio Investing, like other brokers, is required by federal law to help fund the Securities and Exchange Commission (SEC). The charge Folio Investing applies to your transactions is based on the current fee as set by the United States Congress. SRO fees only apply to sales-based transactions.
Share-based orders are orders in which a purchase or sell is made for a specific number of shares. If prices change between the time the order was placed and its actual execution, the amount of money you owe or receive may change.
The folio’s average annual percentage return since it was created. If the folio inception date was less than year ago, the figure will be the total return since inception, instead of annualized.
When a stock splits, a corporation increases the number of its shares outstanding. As a result, the price-per-share usually decreases.
A stop order is an order to buy or sell a stock once the price of the stock reaches a specified price, known as the stop price. When the specified price is reached, your stop order becomes a market order. There are two types of stop orders, known as a buy stop order and a sell stop order. Buy stop orders are generally used to buy a stock when you believe the stock will have upward momentum. The buy stop price is always above the current market price. Sell stop orders are generally used by investors to avoid further losses or protect a profit. The sell stop price is always below the current market price.
A stop-limit order is an order to buy or sell a stock that combines the features of a stop order and a limit order. Once the stop price is reached, the stop-limit order becomes a limit order to buy or to sell at a specified price. Your order executes after two things happen. First, the NBBO (National Best Bid-Offer) has to hit your specified stop price. When this happens, your order activates and becomes a regular limit order. The limit price becomes your sell order’s minimum price or your buy order’s maximum price. In short, your order does not execute until the stop price is passed, and the limit price conditions are met.
A tender offer is an offer to buy shares of one security in exchange for shares of another security, cash, or some combination of both.
Tracking error is the difference between actual investment returns and the returns of the index or benchmark that the investment seeks to track. This may occur due to a variety of reasons, including the fees and expenses of a portfolio, an imperfect correlation between a portfolio’s securities and those in its underlying index, rounding of prices, and changes to the underlying indexes.
The value of the capital gain or loss if all the shares of the security were sold based on the difference between the total purchased price and the total ending value.
Volatility is one gauge of how risky it is to own a security or folio. It provides a measure of how much the price tends to swing up and down over time. Volatility can also be referred to as standard deviation. In mathematical terms, standard deviation refers to a range that includes the percentage distribution of returns. For example, stocks with an average return of 10% that have a volatility (or standard deviation) of 15 mean that almost 70% of the returns should either be 15% above or below the average return.
The IRS created wash sale rules to prevent investors from deducting losses in certain situations. Check with your tax advisor or www.irs.gov for the most up to date information. Wash sale rules apply to trading in taxable accounts only. They do not apply to IRAs, 401ks, or other tax-deferred accounts. Investors who sell securities at a capital loss cannot deduct the loss if they:
- Purchase the same security within 30 days after the sale, or
- Purchased more of the same security within 30 days prior to the sale.
Watch Account & Folios
Watch account lets you purchase folios and conduct trades without using real dollars, so that you can test your ideas. Learn more about watch accounts.
Weights are the percentage that one security represents against the total value of the folio. For example, suppose you purchase $500 worth of IBM and $500 worth of Microsoft. The total value of your folio is $1,000. The weight of IBM is 50% and the weight of Microsoft is 50%. Note that in all cases the total value of the weights, either 50% + 50%, or 75% + 25%, adds up to 100%.
The index represents the broadest index of the U.S. equity market covering 5,000 U.S. companies that trade on U.S. exchanges. The weighting of the stocks is market capitalization weighted where the stock’s individual market capitalization is computed as a percentage relative to the overall market capitalization of the entire index. Therefore, the higher the market capitalization of the stock the more it contributes to the index. Dow Jones & Company calculates eligible stocks for inclusion and any deletions to the index. Learn more about the methodology of the Wilshire 5000.
Nearly all U.S. exchange listed securities are available for window trading—over 5,000 of them. This means they can be bought or sold in a window trade. You will receive an alert if you attempt to place a Window Trade for a security that cannot be traded through a window. See all available securities.
The folio’s percentage return from the beginning of the year to the date listed above the returns.