Real estate investment trust (REIT)
A publicly traded company that manages a portfolio of real estate to earn profits for shareholders. Patterned after mutual funds, REITs hold a diverse portfolio of real estate such as apartment buildings, offices, industrial warehouses, shopping centers, hotels and nursing homes. Shareholders receive income in the form of dividends from the rents received on the property. To avoid taxation at the corporate level, 75% or more of a REIT's income must come from real property and 95% of its net earnings must be distributed to shareholders annually. Because REITs must distribute most of their earnings, REITs pay high yields of 5% to 10% or more.
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Real Estate Mortgage Investment Conduit
A type of a collateralized mortgage obligation, or a pool of thousands of residential mortgages, packaged into a variety of bonds. With a REMIC, investors buy into one or more classes of pools of mortgage loans or mortgage pass-through securities. Each class has a maturity and cash-flow pattern aimed at meeting specific investment objectives.
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Reallowance
In the securities underwriting business, the fee that the underwriting group pays to a securities firm that isn't a member of the group to sell the shares or bonds that are being offered.
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Recession
A downturn in economic activity, broadly defined by many economists as at least two consecutive quarters of decline in a nation's gross domestic product (GDP).
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Record date
The date on which a shareholder must own a company's stock to be entitled to receive a dividend. For example, a company's board of directors might declare a dividend on Oct. 1, payable on Nov. 1 to stockholders of record on Oct. 15. Investors who buy after Oct. 15 wouldn't be entitled to the dividend. After the date of record, the stock is said to be ex-dividend.
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Recovery
In a business cycle, the period after a downturn or recession when economic activity picks up and the gross domestic product (GDP) increases.
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Redemption fee
A fee charged when money is withdrawn from a mutual fund. Unlike a back-end load, this fee doesn't go back into the pockets of the fund company, but rather into the fund itself and doesn't represent a net cost to shareholders. Also, redemption fees typically operate only in short, specific time frames, commonly 30, 180 or 365 days. Charges aren't imposed after the stated time has passed. These fees are typically imposed to discourage market timers, whose quick movements into and out of funds can be disruptive. The typical redemption fee is 1% or 2% of withdrawn assets. See "Cost Control."
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Regional exchange
Securities exchanges located outside of New York City. They include the Boston, Philadelphia, Chicago, Cincinnati and Pacific stock exchanges. Stocks listed on the New York Stock Exchange or the American Stock Exchange also may trade on regional exchanges. These exchanges usually list only securities traded within their regions.
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Replacement-cost coverage
Home insurance that pays the cost to replace or repair the home or possessions, up to the policy's set maximum. Provides more protection than market-value coverage on the home or actual-cash-value coverage on contents.
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Repo rate
The rate on securities repurchase agreements used by central banks to influence domestic money markets.
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Repurchase agreement
Repurchase agreements, or repos, are short-term (usually overnight) loans. In a repurchase agreement, a security is sold with the seller agreeing to repurchase the security at a specified date and price. In effect, a repurchase agreement is a collateralized loan, the security being the collateral. The difference between the sale price and the repurchase price is the investor's return. The Federal Reserve makes extensive use of repos as a method of fine-tuning the money supply.
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Reserve requirement
The Federal Reserve's limit on the level of financial assets banks must keep on reserve and not lend out or reinvest. These reserves help determine how much money the banks can lend.
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Retail sales
A monthly survey by the Commerce Department that measures the sales of durable and nondurable goods sold to consumers. (A durable good is a product that is expected to last more than three years.) The changes in retail sales are seen as the most timely indicator of broad consumer spending patterns. Bond holders favor a decline in retail sales because such weakness signals a slowing economy. A strong economy brings fears of inflation, which hurts bond prices.
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Return on assets (ROA)
The rate of investment return a company earns on its assets. An indicator of profitability, ROA is determined by dividing net income from the past 12 months by total assets and then multiplying by 100. Within a specific industry, ROA can be used to compare how efficient a company is relative to its competitors. Unlike return on equity, ROA ignores a company's liabilities. See "Efficiency Ratios."
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Return on equity
The rate of investment return a company earns on shareholders' equity. An indicator of profitability, ROE is determined by dividing net income from the past 12 months by net worth (or book value). This statistic shows how effectively a company is using its investors' money. Within a specific industry, it can be used to compare how efficient a company is relative to its competitors. Contrast with Return on assets. Also, see "Efficiency Ratios."
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Return on investment
A measure of how much the company earns on the money the company itself has invested. It is calculated by dividing the company's net income by its net assets.
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Revenue
Revenue is the earnings of a company before any costs or expenses are deducted. It includes all net sales of the company plus any other revenue associated with the main operations of the business (or those labeled as operating revenues). It does not include dividends, interest income or non-operating income. Also called net sales.
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Revenue bond
A municipal bond issued to finance public works such as bridges or tunnels or sewer systems and supported directly by the revenues of the project. For instance, if a municipal revenue bond is issued to build a bridge, the tolls collected from motorists using the bridge are committed for paying off the bond. Holders of these bonds have no claims on the issuer's other resources.
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Revenue passenger mile
A measure of airline traffic, a revenue passenger mile represents one paying passenger flown one mile.
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Reverse floater
A sometimes volatile mortgage-backed bond whose yield fluctuates in the opposite direction of interest rates in general. Also called an inverse floater.
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Reverse mortgage
A loan against a home that can be paid to the homeowner as a lump sum, a cash advance or a line of credit. Used by some homeowners as a source of income in retirement.
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Revolving credit
A line of credit that may be used repeatedly up to a specified total, with periodic full or partial repayment.
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Revolving credit facility
A line of credit extended to a business for a certain period of time without a fixed repayment schedule. The borrower may use the full amount at any time, and repay it in full without penalty.
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Rider
In life insurance, a provision added to a policy to add or alter the coverage.
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Rights offering
Offering of additional shares, usually at a discount, to existing shareholders who have rights to those shares. The shares can be actively traded.
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Risk
Risk is the financial uncertainty that the actual return on an investment will be different from the expected return. Factors of risk that can affect an investment include inflation or deflation, currency exchange rates, liquidity, default by borrower and interest rate fluctuation. See "Risky Business?"
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Risk (mutual fund)
The degree of volatility you can expect from a mutual fund compared to other funds with similar objectives. We measure volatility using the standard deviation of rolling returns over the past three years.
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Roth IRA
A type of IRA established in the Taxpayer Relief Act of 1997 that allows taxpayers, subject to certain income limits, to save for retirement while allowing the savings to grow tax-free. Taxes are paid on contributions, but withdrawals, subject to certain rules, aren't taxed at all. A single person can contribute up to $3,000 and a married couple up to $6,000 annually to this type of individual retirement account. Those who will be age 50 or older at year-end can contribute an extra $500 annually. See "Which IRA Is Right for You?"
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R-squared
A measure of a fund's correlation to the market calculated by comparing monthly returns over the past three years to those of a benchmark. The benchmark for equity funds is the S&P 500. For fixed-income funds, it is the T-bill. The R-squared number ranges from zero to 100. A score of 100 means a perfect correlation with the benchmark. A score of 85 means an 85% correlation. Generally, a higher R-squared will indicate a more useful beta figure. For instance, if a fund is earning a return near its most closely related index (indicated by an R-squared near 100), yet has a beta below one, it is probably offering higher risk-adjusted returns than the benchmark. If the R-squared is lower, then the beta is less relevant to the fund's performance. Also, see Alpha.
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Russell 2000 Index
A market-capitalization weighted index that is the best known benchmark of small-cap stocks. It measures the 2,000 smallest companies in the U.S. market. These stocks represent only about 8% of the total market's capitalization (as represented by the broader Russell 3000 Index). As of the latest reconstitution, the average market capitalization of the Russell 2000 was approximately $526.4 million. The largest company in the index had an approximate market capitalization of $1.3 million. There are a number of index funds that track the Russell 2000.
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