Glossary

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Deduction

An amount that can be subtracted from gross income, from a gross estate, or from a gift, thereby lowering the amount on which tax is assessed.

Defined Benefit Plan

A qualified retirement plan under which a retiring employee will receive a guaranteed retirement fund, usually payable in installments. Annual contributions may be made to the plan by the employer at the level needed to fund the benefit. The annual contributions are limited to a specified amount, indexed for inflation.

Defined Contribution Plan

A retirement plan under which the annual contributions made by the employer or employee are generally stated as a fixed percentage of the employee's compensation or company profits. The amount of retirement benefits is not guaranteed; rather, it depends upon the investment performance of the employee's account.

Diversification

Investing in different companies, industries, or asset classes. Diversification may also mean the participation of a large corporation in a wide range of business activities.

Dividend

A pro rata portion of earnings distributed in cash by a corporation to its stockholders. In preferred stock, dividends are usually fixed; with common shares, dividends may vary with the fortunes of the company.

Dollar Cost Averaging

A system of investing in which the investor buys a fixed dollar amount of securities at regular intervals. The investor thus buys more shares when the price is low and fewer shares when it rises, and the average cost per share is lower than the average price per share. This strategy does not protect against loss in declining markets and involves continuous investments, regardless of fluctuating price levels.