General Agreement on Tariffs and Trade (GATT)
A trade pact ratified in 1994 that cut tariffs world-wide, reduced agricultural subsidies, standardized copyright and patent protection and set up arbitration panels. GATT was also an institution that oversaw international trade issues. The institution changed its name to the World Trade Organization after the trade pact was ratified.
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General index
Index of leading stocks on the Madrid Stock Exchange.
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Generally accepted accounting principles (GAAP)
Guidelines that explain what should be done in specific accounting situations as determined by the Financial Accounting Standards Board. U.S. companies that adhere to GAAP are said to be more transparent and easier to analyze financially than companies in many foreign countries. In fact, the differences in accounting standards make it difficult to compare the earnings of companies in different countries.
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General-obligation bond
A government bond that is approved either by the voters or their legislature. The government's promise to repay the principal and pay the interest is constitutionally guaranteed, based on its ability to tax the population. Also called a full-faith-and-credit bond.
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Generation-skipping trust
A trust used to help the very wealthy leave money to members of their grandchildren's generation without paying the 55% generation-skipping tax.
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Gift tax
Federal tax owed on gifts that exceed both the annual limit of $11,000 per recipient and the $1 million lifetime gift tax exemption. Keep in mind, it is only those gifts that exceed the $11,000 limit that reduce the $1 million lifetime limit. So you could give away $55,000 annually to your five grandchildren ($11,000 to each), without reducing your $1 million gift tax exemption.
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Global funds
A fund that invests in stocks located throughout the world while maintaining a percentage of assets (normally 25% to 50%) in the United States. Global funds tend to be the safest foreign-stock investments, but that's because they typically lean on better-known U.S. stocks. See "Foreign-Stock Funds."
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Gold standard
A monetary system based on gold. The basic currency unit of a country is pegged to a specified amount of gold.
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Goods
Physical, tangible products.
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Goodwill
In accounting, goodwill is any advantage, such as a well-regarded brand name or symbol, that enables a business to earn better profits than its competitors. During an acquisition, goodwill value in excess of the acquired company's liquidation value is treated as an intangible asset. Because this intangible asset has no independent market or liquidation value (unlike, say, a factory, which can be sold for cash), accepted accounting principles require that goodwill be written off by the acquiring company over a period of time — up to 40 years. The process of writing off goodwill is called amortization. Both depreciation and amortization expenses are subtracted from a company's operating revenues to calculate net income. See "Margins."
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Governmental receipts
Revenues from taxes or other payments that the government has the power to collect.
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Government National Mortgage Association
Nicknamed Ginnie Mae, the Government National Mortgage Association is a government-sponsored enterprise that acts as a middleman in residential mortgages, particularly those for low-income housing. It is owned by the Department of Housing and Urban Development and has a two-part role: It helps to provide lenders with money for home loans by buying the mortgages they issue, and it guarantees interest and principal payments on certain mortgage-backed securities. Shares of Ginnie Mae stock are traded on the New York Stock Exchange. Bonds issued by Ginnie Mae are called agency bonds, which are almost as safe as Treasurys, but pay better yields. See "Smoothing Out The Ride."
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Government-sponsored enterprise
A government-sponsored agency such as the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corp. (Freddie Mac), the Student Loan Marketing Corp. (Sallie Mae) and the Tennessee Valley Authority (TVA). Bonds issued by these organizations are called agency bonds. Agency bonds are almost as safe and liquid as Treasurys but have slightly higher yields. See "Smoothing Out the Ride."
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Grantor trust
A nontaxable entity often used by corporations to issue asset-backed securities.
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Great Depression
The world-wide economic hard times, which began after the stock market collapse on October 28, 1929, and continued through most of the 1930s.
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Greenmail
Greenmail occurs when a company agrees to repurchase stock from an investor at a premium price in order to prevent a hostile takeover. By accepting the payment, the corporate raider agrees not to buy any more shares or pursue the takeover any further for a specified number of years.
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Greenwich Mean Time (GMT)
The time at the meridian at Greenwich, England, used as the basis for standard time throughout most of the world. It is four hours ahead of Eastern Daylight Time (EDT) and five hours ahead of Eastern Standard Time (EST).
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Gross domestic product (GDP)
The total value of goods and services produced by a nation. The GDP is made up of consumer and government purchases, private domestic investments and net exports of goods and services. In the U.S. it is calculated by the Commerce Department every quarter, and it is the main measure of economic output. Because GDP measures national output, and strong output is indicative of a healthy economy, bond prices react negatively to strong GDP data. A strong economy ignites inflationary fears, which is a negative for bond prices. Equities, on the other hand, tend to perform well when GDP is rising since earnings-growth prospects are better during economic expansions.
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Gross margin
A company's profitability after the costs of production have been paid. Gross margin is calculated by dividing gross income (revenue after production costs are subtracted) by revenue and then multiplying by 100. The result is expressed as a percentage. Gross margin shows you how profitable the basic business of a company is before administrative costs, taxes and depreciation have been taken out. Operating margins may paint a truer picture of a company's profitability. See "Margins."
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Gross national product (GNP)
The dollar value of all goods and services produced in a nation's economy. Unlike gross domestic product, it includes goods and services produced abroad.
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Gross spread
The difference between the price that investors are charged for a security and the amount of proceeds that are paid to the issuer. In the securities-underwriting business, those proceeds are the total amount of fees that a company pays to an underwriting group in connection with a public offering of its stock or bonds. This includes the selling concession paid to members of the underwriting group and the underwriting and management fees that are paid to the securities firms in charge of the offering.
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Group of Seven (G-7)
An organization of the seven major industrialized nations. The countries' leaders meet annually to discuss their approaches to monetary and fiscal issues in an effort to foster a stable world economy. The countries are the U.S., Canada, Britain, France, Italy, Germany and Japan.
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Growth
An investment style that looks for companies with above-average current and projected-earnings growth. Growth investors believe in buying stocks with superior earnings growth no matter what the price. Thus, growth stocks tend to have very high earnings-growth rates but very low dividend yields. These firms all trade at high valuation levels, meaning they usually have high price-to-book (P/B) and price-to-earnings (P/E) and price-to-sales (P/S) ratios. Because of their high prices and low yields, growth stocks tend to have less downside protection and more volatility than cheaper companies. They are particularly sensitive to rising interest rates, which can put a damper on their rapid earnings growth. Contrast with value investing. Also, see "Value vs. Growth."
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Growth and income fund
A mutual fund that seeks long-term growth of capital as its primary objective. Current income is a secondary objective. Growth-and-income funds typically buy shares of large companies that have good prospects for future-earnings growth and solid dividend payment histories. They are generally more value-oriented than growth-oriented in style, since value stocks produce more dividend income than growth stocks. From a risk perspective, growth and income funds tend to move in tandem with the broad-market averages, such as the S&P 500. The upside is that growth-and-income funds tend to be less volatile than the overall market. The downside is that such funds aren't generally the leaders on a total-return basis.
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Growth fund
As its name implies, this type of fund tends to look for the fastest-growing companies on the market. Growth managers are willing to take more risk and pay a premium for their stocks in an effort to build a portfolio of companies with above-average earnings momentum or price appreciation. Growth stock funds usually have higher return volatility than most funds. This means that if the market declines, a growth fund's return will tend to decline more than the overall market. On the upside, if the market rallies, growth funds typically outperform most market measures such as the S&P 500. A growth fund invests in stocks of all market capitalization ranges — small, medium and large. See "Investment Strategy."
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Guaranteed investment contract
An investment offered by an insurance company that promises preservation of principal and a fixed rate of return. Many defined contribution plans, such as 401(k) and 403(b) plans, offer GICs as retirement options to employees. Although the insurance company takes all market, credit and interest rate risks on the investment portfolio, it can profit if its returns exceed the guaranteed amount. Only the insurance company backs the guarantee, not any government agency, so if the insurer fails, it is possible there could be a default on the contract. But overall GICs offer a stable way to achieve a fixed rate of return.
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Guaranteed-replacement-cost coverage
Home-insurance coverage that may pay some rebuilding or replacement expenses in excess of the policy's stated amount.
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Guardian
The person designated responsible for minor children or others in need of special care.
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