Payout Phase or Payout Period: The period during which the money accumulated in an annuity is paid out as regular income payments.

Passive fund management style: Fund manager seeks to emulate the performance of a particular market index. Generally more passive than the active fund management style.

Pension fund: Fund established by a corporation, labor union or other public or private sector organization to invest employer and, in many cases, employee contributions and administer retirement benefits.

Pension plan: A form of investment in which regular contributions over a period of time are invested, with the earnings reinvested, and are paid out as an allowance or other series of regular payments after retirement. The term "pension plan" usually refers to a company plan offered by an employer to employees, in which both make periodic contributions.

Portfolio: Holding of diverse securities and financial assets by an individual or institution. A portfolio could contain, for example, stocks, bonds or stock and bond funds.

Portfolio Manager: One of the individuals who control the assets of a mutual fund or variable account. The portfolio manager chooses and monitors investments and allocates funds.

Portfolio optimization: A computer-based process of combining assets of dissimilar behavior to improve the risk/return trade-off of a portfolio. The process seeks to create a portfolio with either the highest potential return at a specific historical risk, or the lowest historical risk for a specific potential return.

Positive correlations: Investments whose performance emulates each other at various stages of the investment cycle are said to have positive correlations. For example, CD investments at two separate banks will react similarly when interest rates fall.

Preferred stock: A security, such as common stock, that represents ownership in a corporation, but has a claim ahead of common stock on the payment of dividends and on the corporation's assets in the event it is dissolved. The dividend paid on preferred stock usually is at a set rate, similar to the coupon rate of bonds, so preferred are classed as a fixed-income security. Unlike bond interest, however, preferred dividends may be decreased or even omitted at the discretion of the company's directors.

Premium (insurance): Amount paid for the purchase of an insurance policy.

Pretax Contributions: Money that is taken from a participant’s pay and directed into his or her plan account before any federal taxes are withheld. Making pretax contributions can reduce current taxable income so that a participant might pay less in current taxes.

Price-earnings (P/E) ratio: Price of a stock divided by its earnings per share. The P/E ratio may either use the reported earnings from the latest year or employ an analyst's forecast of next year's earnings. The price-earnings ratio, also known as the multiple, gives investors an idea of how much they are paying for a company's earning power.

Prime rate: Interest rate banks charge to their most creditworthy customers. The rate is determined by the market forces affecting the bank's cost of funds and the rates that borrowers will accept.

Principal: A capital sum placed in an investment to earn interest or used as some type of fund.

Principal Payment: An amount paid in addition to the regularly scheduled loan payment to reduce an outstanding plan loan if the plan accepts partial prepayments.

Principal risk: The risk that an investment will be worth less at the time it is sold than it was worth when it was bought.

Probate: Judicial process whereby the will of a deceased person is presented to a court and an executor or administrator is appointed to carry out the will's instructions.

Profit-sharing: Agreement between a corporation and its employees that allows the employees to share in company profits. Annual contributions are made by the company, when it has profits, to a profit-sharing account for each employee, either in cash or in a deferred plan, which may be invested in stocks, bonds or cash equivalents. The funds in a profit-sharing account generally accumulate tax-deferred until the employee retires or leaves the company.

Prospectus: In the case of mutual funds, a prospectus describes the fund's objectives, history, manager background and financial satements, and is a document that makes investors aware of the risks of an investment.

Purchasing power risk: The risk that the principal and income from investments will lose their purchasing power because inflation occurs faster than investment growth.

Pure Life Annuity: A form of annuity that ends payments when the annuitant dies. Payments may be fixed or variable.

Qualified Annuity: A form of annuity purchased with pretax dollars as part of a retirement plan that benefits from special tax treatment, such as a 401(k) plan.

Qualified retirement plan: Plan that meets the qualification requirements set out in detail in Internal Revenue Code sections 401 and 403(a), and as such, are plans established, operated and supported by employers, which have been submitted to and formally approved and "qualified" by the Internal Revenue Service.

Rate of return: For a stock, the annual dividend divided by the purchase price; for a bond, the coupon rate divided by the purchase price; for a mutual fund, total return is capital appreciation (increase in the price of an asset) plus income return (dividend paid to the shareholder).

Real Estate Investment Trust (REIT): An organization similar to an investment company, but concentrating its holdings in property or real estate investments. REITs are required to distribute as much as 90% of their income so the yield is generally very attractive.

Rebalancing: Adjusting a portfolio, through fund transfers or sales or purchases, to re-establish the initial allocation of assets.

Refund Annuity: A form of annuity that provides for a cash or installment refund to the beneficiary if the annuitant dies before having drawn benefits equal to the total consideration that he paid on the policy.

Refund Life Annuity: An annuity paying installments as long as the insured lives and installments after death to the beneficiary until the amount paid equals the principal sum of insurance.

Required rate of return: The minimum expected return on an asset that an investor requires before investing.

Retirement Annuity: A form of annuity contract that is entered into before a selected retirement age with the consideration paid in installments until that age is reached. It is a form of deferred annuity.

Retirement income gap: The difference between the funds likely to be available at retirement from Social Security, employer-sponsored retirement plans, and/or personal savings, and the amount of living expenses needed or wanted during retirement.

Return: The pre-tax profit of an investment, expressed as an annual percentage of the investor's original capital. The sum of the net change in the investment's market value and any dividends or interest paid is divided by the purchase price.

Reversionary Annuity (or Insurance): A contract providing annuity benefits only if the annuitant is living upon the death of the insured, such as the wife upon the death of her husband. Although labeled an annuity, this contract is actually a form of life insurance on the life of the person whose death will initiate the benefit.

Revocable trust: A trust in which the grantor reserves the right to revoke the trust. The provisions of such a trust may be altered as many times as the grantor pleases, or the entire trust agreement can be canceled, unlike irrevocable trusts. The grantor may receive income from the assets, but the property passes directly to the beneficiaries at the grantor's death, without having to go through probate court proceedings. Since the grantor retains the right to change or revoke the trust, these assets are considered part of the grantor's estate at time of death and will not escape estate taxes. This kind of trust differs from an irrevocable trust, which permanently transfers assets from the estate during the grantor's lifetime and, therefore, escapes estate tax.

Reward: See "Return."

Rider: An addition to a life insurance policy that modifies the policy by adding special provisions.

Risk: Statistically, the measurable possibility of loss or no gain on an investment; expressed as the standard deviation calculated from historical returns.

Risk aversion: An unwillingness to expose financial assets to loss conditions.

Rollover: The nontaxable transfer of assets from one eligible retirement plan to another, such as from a defined contribution plan to an IRA.