July 8


Polar “Bear Market” on the way?

I’ve been getting lots of positive feedback about my educational commentaries reviewing some basic investment concepts. (Thank you!) While part of a financial advisor’s everyday lexicon, it’s important to remember that lots of industry terms get thrown around without context, and some people are uncomfortable asking questions.

Remember what your teachers told you: There are no dumb questions. Asking questions is how we learn. Just ask any parent — kids ask questions about EVERYTHING!

If you’re unfamiliar with some of the financial terms you hear on the news or read in the paper, you’re in the right place for some education. For example, you’ll hear the following three terms everyday on the news:

Dow Jones

A stock market index that measures the value of thirty large, U.S. companies from ten different sectors of the economy (industrials, technology, consumer services, oil and gas, and consumer goods are the majority).

S&P 500

An index that is based on the largest 500 companies in the U.S.


This represents 3000 U.S. companies heavily skewed toward technology.

This is how to remember it:

  • Nasdaq is kind of a futuristic sounding term
  • Dow Jones sounds a little more old fashioned.

So the Nasdaq contains more technology oriented companies, while the Dow Jones contains older, more established companies. See? Easy.

Inheritance Tax

This is a universally misunderstood concept. Florida has no inheritance tax (only six states do). And there is no such thing as a federal inheritance tax. If you get $100,000 from Aunt Gerdy, you pay no taxes.

Gift Tax

This is also universally misunderstood. The rules say that you can give $15,000 per year to someone else. What happens if you give more than $15,000? Big trouble, right? No. The only way you could run into trouble down the road is if you die with over 11.4 million dollars. So give away as much money as you’d like each year. The $15,000 limit doesn’t mean much for 99% of the population.

Estate Tax

If you are married and die with more than 11.4 million dollars, your beneficiaries could have to pay up to 40% of the excess in estate taxes. If you are single, that number is 6.2 million. In other words, with limits this high, your heirs will most likely never have to pay any sort of estate tax at your death.

Qualified Plans

A fancy way of saying “retirement plans which have not yet been taxed.” Examples would be: IRA’s, 401k’s, 403b’s, and deferred compensation plans. Since all of these plans are taxed in the same manner, you are able to rollover all these accounts together. In theory, if you possess one IRA, one 401k, and one 403b you can combine them all into a single IRA because taxation is the same for all of them.

Brokerage Account

An account that holds stocks and bonds and cash. This term is thrown around a lot and its definition is very simple. You can have an IRA brokerage account or a non-retirement brokerage account. Instead of saying, “I have a bank account which holds a CD.” You can say, “I have a brokerage account which holds my diversified portfolio of stocks and bonds.”

Bull Market

The markets are increasing in value. How to remember: Bulls charge ahead with forward momentum.

Bear Market

The markets are decreasing in value. How to remember: Bears run away when scared.

Unless it is a polar bear. I hear they can be cranky.

Capital Gain

Capital gains only apply to non-retirement accounts. Let’s say you own a share of Apple stock which you purchased for $100. You then sell your share for $110. Since you made a $10 profit you must pay capital gains tax on the $10. For most people, the capital gains rate is 15%. So in this example you would have to pay $1.50 in taxes.

There are no capital gains in retirement accounts because withdrawals are always taxed at your federal income tax bracket.

Short Term Capital Gain

If you own the stock for less than one year, taxes paid are based on your federal tax bracket.

Long Term Capital Gain

If you own the stock for more than one year, taxes paid are based on capital gains rates (15% for most).

Cost Basis

Cost basis applies to non-retirement accounts, homes, and other tangible assets. The cost basis is the price your originally paid.

Let’s say you bought Fedex stock for $10 and by the time you sell it’s worth $30. Your cost basis is $10. You must pay capital gains tax on the $20 you made. Let’s say you own a rental property for which you paid $100,000. If you sell it for $150,000, your cost basis is $100,000.


When a company makes profits it has two choices: One, it can pay out the earnings in the form of a dividend; or Two, it can keep the earnings inside the company and use it to increase the profitability of the company in the future. If a stock is paying a 5% dividend, and you own one share worth $100, you will receive $5 a year in dividends.

IPO (Initial Public Offering)

This is when a company goes “public.” Instead of the company being held privately by the original owners, you can now buy shares (a part of the company) on the stock exchange.

SEC (Securities and Exchange Commission)

A federal government agency that oversees the markets and protects investors. It supervises publicly traded companies from providing false information, and has the ability to bring civil actions against lawbreakers. I am regulated by the SEC.

Now you know.

Be Blessed

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