IBEX 35
Index of the 35 most-liquid stocks on the Spanish stock markets.
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IBV
Index of the most actively traded stocks on the Rio de Janeiro Stock Exchange.
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Illiquid
An asset not readily convertible into cash. Illiquid investments include antique cars, paintings and stamp collections. An illiquid security is one without an active secondary market, making it difficult for an owner of the security to sell it. Small-capitalization stocks tend to be illiquid because they have fewer shares outstanding and lower trading volumes. That can make them more volatile to own.
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Il Sole 24 Ore
Index of leading Italian stocks.
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Import price index
The Labor Department's monthly measure of the change in prices for imported products.
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Imports
Goods and services one country purchases from another. The opposite of exports, too many imports can result in an unfavorable balance of trade.
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Incentive stock options
A compensation plan that gives executives the right to purchase stock at a specified price during a specific period of time. The options are free of tax when they are granted and when they are exercised.
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Income bond fund
A mutual fund that seeks a high level of steady income by investing in a mix of corporate and government bonds.
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Income equity fund
A mutual fund that seeks a high level of steady income by investing in stocks of companies with consistent records of paying dividends.
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Income fund
A mutual fund that seeks a high level of current income by investing in income-producing securities, including both stocks and bonds.
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Index
A composite of stocks, bonds or other securities selected to represent a specific market, industry or asset class. Examples include: the S&P 500, which represents large U.S. stocks; the Russell 2000, which represents smaller U.S. stocks; the Morgan Stanley EAFE Index, a foreign stock index that represents Europe, Australia and the Far East; and the Lehman Brothers Aggregate Bond Index, which represents the total U.S. bond market. Investors use these composites to measure the overall health of specific markets and as benchmarks of comparison. For example, if you own a large-cap mutual fund, you can compare its total return to the S&P 500 to see if it is performing well.
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Index arbitrage
Buying or selling baskets of stocks while at the same time executing offsetting trades in stock-index futures. For example, if stocks are temporarily cheaper than futures, an arbitrageur will buy stocks and sell futures to capture a profit on the difference, or spread, between the two prices. By taking advantage of momentary disparities between markets, arbitrageurs perform the economic function of making those markets trade more efficiently.
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Index fund
A mutual fund that seeks to produce the same return that investors would get if they owned all the securities in a particular index. The most common variety is an S&P 500 index fund, which tries to mirror the return of the Standard & Poor's 500-stock index. Index funds have the lowest expense ratios in the fund universe and are also very tax-efficient because of their low turnover ratios. They are good funds for novice investors. See "Index Funds."
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Indexing
A passive investment strategy that tracks the total return of a securities index, such as the S&P 500. Robotic indexing offers some unique advantages over active portfolio management. Discipline and style consistency are first and foremost. If you buy an S&P 500 index fund, it will never invest in anything but the S&P 500. That kind of consistency is necessary if you want the asset allocation in your portfolio to be precise. An active fund manager could be guilty of style drift, investing in parts of the market that don't suit your asset-allocation scheme. Other advantages of indexing are low expenses and tax-efficiency. See "Index Funds."
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Index option
An agreement that gives an investor the right, but not the obligation, to buy or sell the basket of stocks represented by a stock-market index at a specific price on or before a specific date. Index options allow investors to trade in a particular market or industry group without having to buy all the stocks individually.
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Individual retirement account (IRA)
A tax-deferred retirement plan that can help build a nest egg. Individuals whose income is less than a certain amount or who aren't active participants in an employer's retirement plan — such as a 401(k) or 403(b) — generally can deduct some or all of their annual IRA contributions when figuring their income tax. Others can make nondeductible IRA contributions. A single person can contribute up to $2,000 and a married couple up to $4,000 annually. The contributions grow tax-deferred until withdrawn. (In contrast, a Roth IRA's contributions are tax-free upon withdrawal.) Withdrawals before age 59 1/2 are subject to a 10% penalty charge. See "Which IRA Is Right for You?"
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Industrial production
Monthly report by the Federal Reserve that measures output at factories, utilities and mines. The Industrial Production Index rises during economic expansions and falls during recessions. Analysts often use the index as a proxy for gross domestic product (GDP). Financial markets pay a great deal of attention to this report. Bond prices react negatively when industrial production increases because inflation pressures eat away at their yield returns.
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Inflation
The rate at which the general level of prices for goods and services is rising. Inflation has an uncanny ability to erode the value of securities that don't grow fast enough. That's why investing only in a money market fund can be more risky than it appears on the surface. If inflation is rising at 3% a year and your money market is growing at 5% or 6%, you won't have much money left over for your retirement. Measures of inflation include the consumer price index (CPI) and the producer price index (PPI). See "Monday Nights at Denny's."
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Inflation-indexed bonds
These Treasurys are designed to keep pace with inflation. The principal is adjusted to match changes in the consumer price index (CPI), while the interest rate remains fixed. In this way, inflation can not erode the value of your principal. New in 1997, they are officially known as Treasury Inflation Protection Securities, or TIPS.
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Infrastructure
A nation's basic transportation, communications, power and sewage systems that are necessary for its economy to operate.
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Initial investment
The amount required to make your first investment in a mutual fund. The typical initial investment for a retail mutual fund ranges between $1,000 and $3,000. Initial investments for IRA accounts are usually lower.
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Initial public offering
The first time a company issues stock to the public. This process often is called "going public." Securities offered in an IPO are often, but not always, those of young, small companies seeking outside equity capital and a public market for their stock. Investors purchasing stock in IPOs generally must be prepared to accept very large risks for the possibility of large gains.
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Insider
A person, such as an executive or director, who has information about a company before the information is available to the public. An insider also is someone who owns more than 10% of the voting shares of a company. All insider trades must be disclosed to the Securities and Exchange Commission. However, it is illegal for insiders to trade on corporate information that hasn't been released to the public yet. Many professional investors watch insider activity closely for clues to a company's future.
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Insider trading
In one respect, it refers to the legal trading of securities by corporate officers based on information available to the public. In another respect, it refers to the illegal trading of securities by any investor based on information not available to the public. Many professional investors watch insider activity closely for clues to a company's future.
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Intangible assets
Assets having no physical substance, such as patents, goodwill, copyrights and trademarks. Because an intangible asset has no independent market or liquidation value (unlike, say, a factory, which can be sold for cash), it is subject to a lot of accounting manipulation. Generally, accepted accounting principles require intangibles to be written off over a period of time — up to 40 years. The process of writing off an intangible asset 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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Interest rate
The rate of interest charged for the use of money, usually expressed as an annual rate. The rate is derived by dividing the amount of interest by the amount of principal borrowed. For example, if a bank charged $50 a year to borrow $1,000, the interest rate would be 5%. Interest rates are quoted on bills, notes, bonds, credit cards and many kinds of consumer and business loans. Rates in general tend to rise with inflation and in response to the Federal Reserve raising key short-term rates. A rise in interest rates has a negative effect on the stock market because investors can get more competitive returns from buying newly issued bonds instead of stocks. It also hurts the secondary market for bonds because rates look less attractive compared to newer issues. See "How Bonds Behave."
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Interest rate risk
This is the danger that prevailing interest rates will rise significantly higher than the rate paid on bonds you are holding. This drives down the price of your bonds, so if you sell you'll lose money. This is a serious risk for anyone investing in long-term bonds, including Treasurys, because the longer the maturity, the higher the interest rate risk.
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Interest rate swap
A derivative in which one party agrees to pay a fixed interest rate in return for receiving a floating interest rate from another party.
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Intermediate-term bonds
Treasury notes that mature in two to 10 years. Or, corporate bonds that mature in five to 15 years. See "Smoothing Out the Ride."
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Internal rate of return
An accounting term for the rate of return on an asset. It is the discount rate on an investment that equates the present value of its cash outflows to the present value of its cash inflows.
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International funds
Funds that primarily invest in stocks located outside the U.S. While having international exposure adds diversification to your portfolio, there are some risk factors to note: currency risk, political risk and economic risk. In particular, currency risk can cause investment returns to vary considerably. Also, because of the high cost of investing abroad, most international funds have higher expense ratios than their domestic peers. Also called foreign-stock funds. See "Foreign-Stock Funds."
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International Monetary Fund
An organization that makes loans and provides other services intended to stabilize world currencies and promote orderly and balanced trade. Member nations may obtain foreign currency when needed, making it possible to make adjustments in their balance of payments without currency depreciation. Abbreviated as IMF.
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Internet
The global computer network that connects independent networks.
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In-the-money
A term used to describe an option that is worth something if exercised immediately. In the case of a call option, it means the current price is higher than the strike price. In the case of a put option, it means the current price is below the strike price.
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Intrinsic value
The underlying value of a business separate from its market value or stock price. In fundamental analysis, the analyst will take into account both the quantitative and qualitative aspects of a company's performance. The quantitative aspect is the use of financial ratios such as earnings, revenue, etc., while the qualitative perspective involves consideration of the company's management strength. Based on such analysis, the fundamental analyst will make a forecast of future earnings and prospects for the company to arrive at an intrinsic value of its shares. The intrinsic value of a share can be at odds with its stock market price, indicating that the company is either overvalued or undervalued by the market.
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Inventory
The monetary value of a company's raw materials, work in progress, supplies used in operations and finished goods. Excess inventory on a company's balance sheet could indicate a slowdown in sales and a lack of pricing power. See "Inventories."
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Inventory turnover
For a company, the ratio of annual sales to inventory; or equivalently, the fraction of a year that an average item remains in inventory. Low turnover is a sign of inefficiency, since inventory usually has a rate of return of zero. For example, if a company had $20 million in sales last year but $60 million in inventory, then inventory turnover would be 0.3, an unusually low number. That means it would take three years to sell all the inventory. See "Inventories."
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Investment bank
A securities firm, financial company or brokerage house that helps companies take new issues to market. An investment bank purchases new securities from the issuer, then distributes them to dealers and investors, profiting on the spread between the purchase price and the offering price. Additionally, an investment bank handles the sales of large blocks of previously issued securities and private placements. Most investment banks also maintain brokerage operations and other financial services.
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Investment grade
An assessment of a bond by a credit-rating firm that indicates whether investors are expected to receive principal and interest payments in full and on time. A grade of BBB or higher from Standard & Poor's or Baa or higher from Moody's Investors Service is considered investment grade. Lower grades (BB, Ba, B, etc.) are considered speculative. Investment grade bonds have less risk of default but lower yields than speculative bonds. Speculative bonds are also called high-yield or junk bonds. See "Types of Bonds."
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I.P.C.
A leading index of Mexican stocks.
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IPGA
Stock index that includes most of the shares traded on the Santiago Stock Exchange in Chile.
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Itemized deductions
When you figure your income tax, these are the items that may be subtracted from your adjusted gross income if you do not take the standard deduction. Examples of itemized deductions include state and local tax payments, gifts to charity, mortgage interest and IRA contributions. However, above certain income levels itemized deductions are phased out.
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