Financial Terms ‘123’

Here is a glossary of financial terms 123. These financial terms begin with numbers, including 10-K report, 401k plan, 1040 form and 3 fund portfolio.

1% rule

A rule of thumb in real estate investing which states a rental property should have a monthly rent for at least 1% of the total purchase price for positive cash flow.

10-K

A 10-K is a company annual report required by the Securities and Exchange Commission. It provides an overview of the business, risk factors, financial data, and management’s analysis.

This is a useful tool for investors. A company’s 10-K can be found on the company website in the investor relations section.

10-Q

A 10-Q is a company quarterly report required by the Securities and Exchange Commission. A company’s 10-Q can be found on the company website in the investor relations section.

12b-1 fee

A 12b-1 fee is paid by mutual funds for marketing and shareholder service costs. These 12b-1 fees are usually paid as a commission to third parties to sell investments in the fund.

These 12b-1 fees are not usually transparent and are not understood by investors.

1031 exchange

A provision in the U.S. tax code that allows investors to defer capital gains taxes on any exchange of like-kind properties for business or investment purposes.

1040 form

Form 1040 is the United States tax form for individuals. This Internal Revenue Service (IRS) form is normally due on April 15 for the preceding tax year. For example, Form 1040 for the tax year 2021 is due April 15, 2022.

1099 form

A 1099 Form is an Internal Revenue Service (IRS) form for reporting income other than salaries, wages, or tips. A W-2 form is for reporting salaries, wages, and tips.

24-hour trading

24-hour trading is the ability to buy and sell securities anytime since some markets never close. This is common in foreign exchange (Forex) and cryptocurrency markets.

Traditional stock and bond markets have limited business hours and are unavailable for 24-hour trading.

3 fund portfolio

The 3 fund portfolio is a portfolio that uses 3 index funds. These funds are a U.S. stock fund, an international stock fund, and a bond fund. This approach emphasizes low-cost index funds with broad diversification.

The 3 fund portfolio is championed by the Bogleheads, a group that follows the work of John C. “Jack” Bogle. Jack Bogle was the founder of the first index fund and a lifelong champion of indexing.

The index funds in the 3 fund portfolio can be either mutual funds or exchange-traded funds (ETFs). Most 3 fund portfolio investors use either Vanguard, Fidelity, or Schwab as their brokerage.

401(k) plan

A 401(k) plan is a defined contribution retirement plan offered by employers to help employees save for retirement. Money saved by the employee is usually matched by the employer. The money is contributed pretax or before taxes are deducted.

The account can grow without annual taxes until any amount is withdrawn years later. This is an example of a tax-deferred plan.

403(b) plan

A 403(b) plan is a defined contribution retirement plan offered by public schools and 501(c)(3) tax-exempt employers. A 403(b) plan helps employees save for retirement. Money saved by the employee is usually matched by the employer. The money saved goes in pretax. The account can grow without annual taxes until any amount is withdrawn years later. This is called a tax-deferred plan. A 403(b) plan is similar to a 401(k) plan.

529 plan

A tax-advantaged savings plan designed to encourage saving for future education costs.

501(c)(3) organization

A 501(c)(3) organization is a charitable organization that is a tax-exempt entity under the U.S. tax code.

60/40 portfolio

An investment strategy where an investor allocates 60% of their portfolio to stocks and 40% to bonds.

80/20 rule

This rule is also known as the Pareto Principle. It estimates that 80% of any outcomes will typically come from 20% of activities. For example 80% of a company’s revenues may come from about 20% of customers.

The 80/20 rule is an observation and not a concrete rule. Generally, the rule is designed to estimate most results come from a small portion of efforts.

See the Financial Terms Dictionary