Major Market Index
This stock index encompasses 20 blue-chip stocks, including 17 that are also in the Dow Jones Industrial Average. Options and futures are based on this index.
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Managed care
Medical plans in which access to health-care services is managed to hold down unnecessary costs. The most common form of managed care is the health maintenance organization, or HMO, which restricts patients to the HMO's own stable of doctors. Premiums are lower than for traditional fee-for-service health care plans, and the charge for each doctor visit is modest. Some newer arrangements are the point-of-service and preferred-provider plans, which may charge the low per-visit price of an HMO for treatment by doctors in the plan's network and allow out-of-network treatment with reimbursement at about 70% of eligible costs.
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Margin
To buy on margin means to borrow money from a broker to buy securities. The margin is the amount you must deposit with the broker in order to borrow. The minimum is 50% of the purchase, or short sale price, in cash. So if you want to buy $10,000 in stock on margin, you have to put up at least $5,000 to make the purchase. Buying on margin poses the threat of not only losing your own money but the money you borrowed as well.
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Margin account
A brokerage account allowing customers to buy securities with money borrowed from the brokerage. See margin.
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Marginal tax rate
Your marginal tax rate — including federal, state, and local income taxes and federal payroll and self-employment taxes — is the percentage that will come off the top of your next dollar of incremental taxable income. Put another way, the percentage of that next dollar of income that you'll actually be allowed to keep is 100% minus your marginal tax rate.
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Margin call
A demand from a broker for additional cash or securities to bring a margin account back within minimum maintenance limits. The NASD requires that a margin be maintained equal to 25% of the market value of securities in established margin accounts. Brokerage firm requirements are typically a more conservative 30%. If an investor fails to meet the minimum, securities in the account may be liquidated.
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Margin rate
A constant value added to the index rate of an adjustable-rate mortgage to compute the current interest rate.
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Marital-deduction trust
A trust set up to receive money left to a spouse under the unlimited marital deduction and to impose some restrictions on those funds. The terms of the trust may require use of certain financial advisers, for example, or may protect assets from possible claims should the surviving spouse remarry.
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Market capitalization
The total market value of a company or stock. Market capitalization is calculated by multiplying the number of outstanding shares by their current market price. Investors generally divide the U.S. market into three basic market caps: large cap, midcap and small cap. Large-cap stocks typically have market capitalizations upwards of $5 billion. Because they are more liquid, large caps tend to be less volatile than small caps, which have capitalizations less than $1 billion. See "The Large Caps."
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Market maker
In the over-the-counter market, a trader responsible for maintaining an orderly market in an individual stock by standing ready to buy or sell shares. The market maker's job is to maintain a firm bid and ask price for his assigned security. If a broker wants to buy a stock but there are no offers to sell it, the market maker fills the order himself by selling shares from his own account. And vice versa — if a broker wants to sell but no one wants to buy, the market maker buys the shares. On a stock exchange like AMEX or NYSE, a market maker is known as a specialist.
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Market order
Market orders execute buy or sell orders for securities at whatever price is available when the order reaches the exchange floor. Unlike a limit order, a market order gives you no control over the price at which you buy the security. But it does guarantee you will get the security if it's available.
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Market timing
Shifting money in and out of investment markets in an effort to take advantage of rising prices and avoid being stung by downturns. For example, investors in mutual funds will shift from an equity fund to a money market fund if the stock market outlook turns ugly. Unfortunately, few, if any, investors manage to be consistently successful in timing markets.
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Market-value coverage
Home insurance that pays only the current value of a home, not the possibly higher replacement cost.
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Match trading
Stock transactions made outside of an auction or negotiation process. Buy and sell orders for the same security, at the same price, are paired and executed, often by computer.
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Maturity date
When a bond expires and the principal must be paid back in full. The later the bond's maturity date, the greater the risk of it defaulting or being negatively impacted by a rise in inflation or interest rates. See "Types of Bonds."
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Medicaid
The government program that provides health-care assistance to the poor.
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Medicare
A U.S. government program that provides medical expense coverage to people aged 65 and older. Medicare is comprised of two major programs: Hospital Insurance (Part A) and Supplementary Medical Insurance (Part B). The Medicare coverage for Part A has no premium and will pay 100% of your hospital costs for the first 60 days after you have paid a deducible of about $720. Medicare Part B pays up to 80% of your doctor's bills for a monthly premium of about $50.
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Merchant banking
A form of banking where the bank arranges credit financing, but doesn't hold loans until maturity. A merchant bank invests its own capital in leveraged buyouts, corporate acquisitions and other structured financial transactions. It is a fee-based business, in which the bank assumes market risk but no long-term credit risk.
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Merger
The formation of one company from two or more previously existing companies through pooling of common stock, cash payment or a combination of both. Mergers where common stock is exchanged for common stock are nontaxable and are called tax-free mergers.
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Mezzanine financing
A leveraged buyout or restructuring financed through subordinated debt, such as preferred stock or convertible debentures. It is popular in mergers and acquisitions, because the transaction is financed by expanding equity, as opposed to debt. Holders of the securities created by this method often have a greater role in managing the resulting company. May also refer to second- or third-level financing for companies that have been funded with venture capital.
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MI Btel Index
Index of all Italian stocks traded on the Italian stock exchange's computerized trading system. Also called the MIB Tel.
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Microcap fund
Fund that invests primarily in equity securities issued by companies with very small market capitalizations; they typically have median market caps of approximately $250 million or less. With stocks this small, the volatility is always extremely high, but the growth potential is exceptional. See "Company size."
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Midcapitalization stock
Shares of medium-sized publicly traded corporations, typically with a total market capitalization between $1 billion and $5 billion. (Also called midcap stocks or midcaps.) Midcaps are established companies that haven't quite become household names yet. They make excellent diversifiers, having both the growth characteristics of small-cap stocks but the stability of larger companies. One of the most watched midcap indexes is the S&P MidCap 400, which has an average market capitalization of $2.30 billion.
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Monetary aggregates
Measures of a country's money supply. M1 consists of funds that are readily available for spending, including cash and checking accounts, and currency. M2 consists of M1 and all savings or short-term deposits. It also includes certain short-term assets such as the amounts held in money-market mutual funds. M3 is the total of M1 and M2 as well as the assets and liabilities of banks. Also called money-supply measures.
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Monetary base
The sum of reserve accounts of financial institutions at Federal Reserve banks and currency in circulation. It is the ultimate source of the nation's money supply and is controllable, to some degree, by Federal Reserve monetary policy. The adjusted monetary base data is compiled weekly by the Federal Reserve Board and the Federal Reserve Bank of St. Louis, and is adjusted seasonally.
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Monetary policy
The regulation of the money supply and interest rates by a central bank, such as the U.S. Federal Reserve, in order to control inflation and stabilize currency. If the economy is heating up, the Fed can withdraw money from the banking system, raise the reserve requirement or raise the discount rate to make it cool down. If growth is slowing, the Fed can reverse the process — increase the money supply, lower the reserve requirement and decrease the discount rate.
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Money-market account
A federally insured account available at many banks, credit unions and savings and loan associations. Money market accounts are liquid — because you can usually write three checks against the account per month — and are very stable — because they only invest in short-term debt instruments with maturities of less than a year. Accounts are also insured by the Federal Deposit Insurance Corporation (FDIC), unlike money market funds. But since the interest rates on money-market accounts are so low, if you're not careful, the value of your investment can be eroded by inflation. See "Monday Nights at Denny's."
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Money-market fund
A type of mutual fund that invests in stable, short-term securities. Money-market funds are easily convertible into cash and usually maintain an unchanged value of $1 a share, but aren't insured by the federal government. There are various types of money-market funds based on the type of securities they buy, but the most important distinction is whether your dividends are taxable or tax-free. See "Money-market funds."
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Money supply
Total stock of money in the economy, consisting primarily of currency in circulation and deposits in savings and checking accounts. Too much money in relation to the output of goods tends to push interest rates down and push inflation up; too little money tends to push rates up and prices down, causing unemployment and idle plant capacity. The Federal Reserve manages the money supply by raising and lowering the reserves banks are required to hold and the discount rate at which they can borrow money from the Fed. The Fed also trades government securities (called repurchase agreements) to take money out of the system or put it in. There are various measures of money supply, including M1, M2, M3 and L; these are referred to as monetary aggregates. See Monetary policy.
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Mortgage-backed securities
Debt issues backed by a pool of mortgage loans. Investors receive payments from the interest and principal payments made on the underlying mortgages. These bonds are extremely interest-rate sensitive because home owners have a tendency to prepay and refinance their mortgages when interest rates decline.
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Mortgage banker
A company or individual who creates mortgage loans, sells them to other investors and handles mortgage-related services.
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Mortgage bond
Debt issues secured by a mortgage on the issuer's property, such as buildings or equipment.
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MSCI EAFE index
The MSCI EAFE index is a widely accepted benchmark of foreign stocks. EAFE refers to Europe, Australasia and the Far East. The index, which is compiled by Morgan Stanley, is an aggregate of 21 individual country indexes that collectively represent many of the major markets of the world. Most international mutual funds measure their performance against this index. It is market-capitalization weighted.
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Municipal bond
Bond issued by local-government authorities, including states, cities and their agencies.
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Municipal bond fund
Mutual fund that invests in municipal bonds. There are two main types of municipal bond fund: national tax-free funds and state tax-free funds. National tax-free funds invest in municipalities across the U.S. and are exempt from federal income taxes. State tax-free funds invest in a specific state and are exempt from federal and state taxes if you live in the state of issue. National funds offer more diversification and less risk but also less tax benefits. See "Bond funds."
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Mutual fund
An investment company that pools the money of many individual investors to purchase stocks, bonds or other financial instruments. Professional management and diversification are the two primary benefits of mutual fund investing. A management fee is charged for these services, typically 1% or 2% a year. Funds also levy other fees and charge a sales commission (or load) if purchased from a financial adviser. Funds are either open-end or closed-end. An open-end fund will issue new shares when investors put in money and redeem shares when investors withdraw money. The price of a share is determined by dividing the total net assets of the fund by the number of shares outstanding. Closed-end funds issue a fixed number of shares in an initial public offering, trading thereafter in the open market. Open-end funds are the most common type of mutual fund. See "What Exactly Is a Mutual Fund?"
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