Glossary of Terms

The information presented here is not intended as financial, investment, tax or legal advice and is provided for educational purposes only.
R2 (Pronounced R-Squared)
A measurement of investment risk that shows how closely the portfolio's performance correlates with the performance of a benchmark index such as the Standard and Poor's ®500 Index — and thus indicates how closely that performance is linked to the broad market. A high R2 signifies that the portfolio's fluctuations generally reflect market moves, while a low R2 indicates that other factors tend to drive fund performance.
Designations assigned by various investors services to give relative indications of quality.
Ratings Agency
A company that researches and analyzes corporate and municipal bond issues and preferred stocks in an effort to assess their creditworthiness and the likelihood that investors will receive their principal and interest, or dividend, payments. Fitch Ratings, Moody's and Standard & Poor's are the largest ratings agencies.
Real Rate of Return
The return on an investment after it is adjusted for the effects of inflation.


Amounts owed to a company, net of any provision for bad debts.


A widespread downturn in economic activity over several months. Many economists define the term as two quarters of decline in a country's gross domestic product. See Gross Domestic Product (GDP).
(1) The transfer of a current-year orprior-year regular contribution together with any accrued investment earnings or losses from a traditional IRA to a Roth IRA or from a Roth IRA to a traditional IRA. (2) The reversalof a conversion made to a Roth IRA from a traditional, SIMPLE or SEP IRA by transferring the converted amount togetherwith any accrued investment earnings or losses back to a traditional IRA.
A change in the way distributions were originally classified/reported on a shareholder’s statement. This can occur when income has been overdistributed due either to unexpected currency losses or to earnings that are less than expected. For example, a distribution that was originally reported as income could be reclassified as a distribution of long-term capital gains or to a return of capital.
Converting a recharacterized contribution from a traditional IRA to a Roth IRA that has previously been converted. The reconversion may not take place within the same tax year of the previous conversion or, if later, during the 30-day period following the recharacterization.
Record Date
The date by which an individual must own shares of a company's stock in order to qualify for a dividend. The record date is set by the company's board of directors. See Ex-Dividend Date.
(1) Mutual fund shares are redeemed at Net Asset Value when a shareholder's holdings are liquidated. (2) Repayment of a debt security or preferred stock issue, at or before maturity, at Par or at a premium price.
Redemption Fee
A fee charged by a limited number of funds for redeeming or exchanging fund shares.
Redemption Price
The price at which a mutual fund's shares are redeemed (bought back) by the fund. The redemption price is usually equal to the current net asset value per share. Also called the bid, call or sell price. Some funds do not charge a redemption fee.
Registered Investment Advisor (RIA)
A corporation or individual, registered with the U.S. Securities and Exchange Commission (SEC), who manages the investments of others. An RIA may offer direct financial advice to individuals or businesses, or may provide asset management advice to a mutual fund or hedge fund. The RIA designation does not represent an endorsement by the SEC. Their compensation may be based on a percentage of assets under management — or on an annual, hourly or "flat fee" basis.
Registered Investment Company
Most commonly, a legal term for open- or closed end mutual fund companies registered with the Securities and Exchange Commission and meeting the requirements of the Investment Company Act of 1940.
Regulated Investment Company
A reference to income pass-through provisions in the Internal Revenue Code. Apart from SEC registration, an investment company must meet IRS code diversification and income distribution requirements to avoid taxation at the fund level.
Reinstatement Privilege
A policy of many mutual fund firms that allows an investor to avoid paying additional sales charges for a specified period of time after he redeems shares. The length of time may vary from company to company. Reinstatement privilege allows a former shareholder to avoid additional sales charges by buying the same class of shares in his former fund, or another fund within the same fund family, subject to certain terms and conditions.
Reinvestment Date (Payable Date)
The date on which a share's dividend and/or capital gain will be reinvested (if requested) in additional fund shares.
Reinvestment Privilege
A service that most mutual funds offer whereby a shareholder's income dividends and capital gain distributions are automatically reinvested in additional shares.
Replicating Portfolio
A portfolio constructed to match the performance of an index or benchmark almost exactly. An exchange-traded fund with a replicating portfolio will usually track its index more closely and trade at a tighter bid-asked spread than a fund with a representative sampling portfolio. Contrast with Representative Sampling.
Representative Sampling
A subset of a statistical population that accurately reflects the members of the entire population. A representative sample should be an unbiased indication of what the population is like. In a classroom of 30 students in which half the students are male and half are female, a representative sample might include six students: three males and three females.
Repurchase Agreement (Repo)
A short-term financing mechanism for a dealer of government securities. The dealer sells its securities but simultaneously agrees to repurchase them at a higher price at a later date — usually the next day. It is, in effect, a short-term loan with the government securities serving as collateral.
Required Beginning Date (RBD)
The date by which a qualified plan participant (such as a traditional IRA owner) must begin taking required minimum distributions from his or her retirement account. This date generally occurs on April 1 of the year after the calendar year in which the participant reaches age 70½.
Required Minimum Distribution (RMD)
The minimum distribution amounts individuals must take are different based on the type of retirement plan.
  • For IRAs (excluding Roth IRAs), RMDs must begin by April 1 of the calendar year following the year in which they reach 70½ years of age.
  • For 403(b) plans, RMDs must begin by April 1 of the calendar year following the later of the calendar year in which they reach 70½ or the calendar year in which they retire from employment with the employer sponsoring the plan.
  • Qualified plan individuals owning more than 5% of the company sponsoring the retirement plan must begin taking RMDs by April 1 of the calendar year following the year they reach age 70½. Individuals who do not own more than 5% of the company must begin taking RMDs by April 1 of the calendar year following the later of the calendar year in which they reach age 70½ or the calendar year in which they retire from employment with the employer sponsoring the plan.

All subsequent RMDs must be distributed by Dec. 31, regardless of any amounts that may have been withdrawn in earlier years.

Resident Alien
An immigrant to the US or a nonimmigrant who meets certain residency requirements or makes a special election to be taxed as a resident.
Retail Investor
Private investors that typically purchase and sell securities in smaller quantities than institutional investors.
Retained Earnings
The net profits reinvested in the business after dividends are paid.
Return of Capital
A distribution in excess of a fund’s current and accumulated earnings and profits. A return of capital distribution is generally a nontaxable distribution that reduces a shareholder’s cost basis in shares of a fund.
Return on Assets (ROA)
The rate of investment return a company achieves on its assets. ROA is calculated by dividing the sum of net income over the past four quarters by the average of total assets over the past four quarters. The result is shown as a percentage. Unlike ROE, ROA ignores a company's liabilities.
Return on Equity (ROE)
The rate of return a company achieves on the things it owns. ROE is calculated by dividing the sum of a company's net income over the past four quarters by the average of its common stock equity over the past four quarters. The result is shown as a percentage. Unlike ROA, ROE subtracts a company's liabilities in its denominator.
Return on Invested Capital
The rate of return a company achieves on the things it owns and the money it has borrowed. ROIC is calculated by dividing the sum of a company's net income over the past four quarters by the average of its invested capital over the past four quarters. The result is shown as a percentage. Unlike ROE ROE, ROIC adds debt to its denominator, thus exposing companies which borrow heavily to boost their returns.
Revenue Bond
A municipal bond supported by the revenue from a specific project, such as a toll bridge, highway or local stadium. Revenue bonds are municipal bonds that finance income-producing projects and are secured by a specified revenue source.
Also called sales. A companies top-line income, so-called because it appears on the top line of their income statements, before various cost deductions and accounting adjustments have been made. Net revenues include sales minus promotional discounts, such as rebates. See Sales.
Reverse Repurchase Agreement (Reverse-Repo)
A sale of the U.S. government securities by bank or broker made under the stipulation that the buyer agrees to sell the securities at a fixed price on a future date. Reverse-repos usually mature in a week or less.
Reverse Stock Split
An action taken by a corporation's board to decrease the number of outstanding shares of stock without changing total shareholder equity. Decreasing the number of shares outstanding increases the stock's share price and per-share dividend — but leaves the value of a shareholder's investment unchanged. Companies often split their stock when they believe the price of their stock is too low to attract investors to buy their stock. A company's board of directors may declare a reverse stock split without shareholder approval. See Stock Split. See Stock Split.
Rights Offering
Primarily used for closed-end funds. Fund management can raise additional capital by issuing shareholders right to buy new common shares at predetermined prices. These offerings often involve substantial discounts to net asset value to encourage participation, which dilutes common shareholder ownership in the fund.
Rights of Accumulation (ROA)
A right that allows a shareholder to receive reduced sales charges when the amount of mutual funds purchased, plus the amount already owned, equals an ROA breakpoint.
The possibility that an investment will not perform as anticipated. An acceptable degree of risk must be determined by the individual with the understanding that the higher the expected return, the greater the risk factor. There are many different kinds of risk, such as exchange, inflation, interest rate, liquidity, political, et cetera. Most investors are considered to be risk adverse. That is, they seek security over risk.
Risk - Return Tradeoff
The concept that individuals seeking high potential returns generally must be willing to accept high risk — and that individuals unwilling to assume much risk generally must settle for lower potential returns.
Risk Tolerance
The level of risk an investor is willing to accept in the pursuit of potential financial reward. Generally, an individual with a high risk tolerance is willing to invest a greater portion of his assets in high-risk assets. An individual who is risk-averse, or who has a low risk tolerance, is generally unwilling to invest a significant portion of his assets in riskier assets. Individual risk tolerance is an important concept that investors and their financial advisers should discuss before selecting investments.
A tax-free reinvestment of a distribution from a qualified retirement plan or IRA into an IRA or other qualified plan by the 60th day after receipt of the distribution. See Direct Rollover.
Roth 401(k) / Roth 403(b)
A designated Roth account within a 401(k) plan or 403(b) plan that contains after-tax monies for which earnings may be withdrawn tax-free if certain requirements are met. Employee payroll deduction contributions can be designated to this Roth account. The Roth 401(k)/Roth 403(b) follows many of the same regulations as the Roth IRA but not all.