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Definitions of select investment terms

Annuity A contract with an insurance company that provides regular payments, usually throughout retirement. Investments grow tax-deferred, so investors pay no tax on the earnings until they make a withdrawal. If they withdraw earnings before a specified age, they are subject to a penalty.
Asset-based long-term care insurance A single premium life insurance policy that allows the policyholder to use the death benefit while alive to pay for long-term care. If the policyholder doesn't use it, beneficiaries receive the death benefit income-tax-free.
Certificate of deposit(CD) A short- or medium-term FDIC-insured investment that provides a fixed rate of return for the period of the CD. Money withdrawn from the CD before the maturity date is subject to a penalty.
Commodity A physical product, such as food, oil and metals, that trades on a commodity exchange, usually through futures contracts.
Coverdell Education Savings Account A tax-deferred savings vehicle that helps investors set aside money specifically for college tuition and other education expenses. Formerly known as an Education IRA.
Exchange-traded fund (ETF) A fund that invests in the securities found within certain market indices and that trades on a stock exchange. Performance tracks the underlying index.
Fixed annuity A type of annuity that guarantees a fixed rate of return.
Long-term care insurance An insurance policy that covers the cost of nursing facility or in-home care for a person who is ill or disabled for a long period of time.
Market linked certificates of deposit A type of CD that provides interest tied to the performance of equity indices or stocks. The issuer guarantees the principal amount and repays it at maturity. There is no guarantee of any return linked to the equity market.
Mutual fund A fund that invests in assets based on a stated investment objective. Investors buy and sell shares directly from the investment management company, not on an exchange.
Permanent insurance A type of life insurance that combines a death benefit for beneficiaries with tax-sheltered savings features. Also known as cash value insurance.
Real estate investment trust ( REIT) A corporation or trust that pools the capital of many investors to buy income-producing property (an equity REIT) or mortgages (a mortgage REIT). REITs tend to provide a relatively high yield and trade on exchanges, like stocks.
Required minimum distribution (RMD) The amount an IRA investor is required to take from a Traditional IRA each year once the investor reaches age 70½.
Rollover IRA A type of Individual Retirement Account (IRA) established when an investor transfers assets from a qualified retirement plan (such as an employer 401(k) plan) into an IRA. The transfer is tax and penalty free if the investor rolls over the money directly into the new account.
Roth IRA A type of Individual Retirement Account (IRA) that allows investors to make tax-free withdrawals in retirement. There are income limitations to contribute to a Roth IRA.
Separately managed account An individual portfolio that a professional money manager manages on behalf of an investor. The asset manager focused on a specific investment discipline, purchases securities in the investor's name, and can customize the portfolio based on the investor's needs.
Term insurance A type of life insurance that provides a death benefit over a specific period of time, such as 10, 15 or 30 years.
Traditional IRA A type of Individual Retirement Account (IRA) that offers tax-deductible contributions for eligible investors, and provides tax-deferred investment growth.
Universal life insurance A lower-cost, flexible type of permanent life insurance that includes tax-deferred savings, which the insured may borrow against.
Variable annuity A type of annuity that offers the investor a choice of investment options. There is no guaranteed payout and payments depend on the performance of the investments.
Variable universal life insurance A type of universal life insurance where the policyholder can choose among investments for the savings portion of the account.
Wealth transfer/single premium insurance A type of permanent life insurance that allows you to re-position a lump sum amount of money that you don't need for income and leave it income-tax-free to your heirs.
Whole life insurance A type of permanent life insurance that provides coverage for the policyholder's entire life and pays an annual fixed rate of return to accumulate a cash value.

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