Glossary

Asset allocation

Refers to the types of investments you own as a whole. Your asset allocation can be made up of several different types of investments (cash, U.S. bonds, U.S. stock, international stock, international bonds, emerging market stock, real estate, etc.). It is essentially the mix of things that you’re invested in.

Blackout period

Is a company-designated time in which employees with insider information are unable to sell or purchase company stock. This period typically falls before earnings calls and while it’s considered temporary, some employees are subject to it so frequently that their companies require the use of a 10b5-1 plan.

Bonds

Bonds are a type of investment where you own the debt of a company and are entitled to the interest payments and principal. Differs from owning stock where you take partial ownership interest of a company. Some bonds allow for conversion to stock, but typically bond ownership means entitlement to interest and principal.

Brokerage

A company where stock can be held or purchased. Common brokerage examples are Vanguard, Fidelity, Charles Schwab, E*TRADE, and Morgan Stanley.

Compensation income

Is the money you receive from an employer in the form of cash, stock, or other benefit, that is taxed at ordinary income rates. This typically will include your regular salary, commissions, and restricted stock units as they vest.

Concentrated stock

When you own a large portion of a single company stock. For example, if you have $10,000 worth of investment assets, but $9,500 of that amount is in Adobe (ADBE) stock. Typically this term is used when values are large or are equal to the majority of your net worth.

Disqualifying Disposition

When you sell ESPP shares or ISOs before you’ve met one of the two requirements for a Qualifying Disposition. Requirement #1: For ISOs, this means selling before you’ve reached two years since the date of grant. For ESPP holdings, this varies, but typically means selling before you’ve reached two years since the beginning of the offering period in which you purchased the ESPP shares. Requirement #2: You must wait one year after exercising ISOs or purchasing ESPP shares to qualifying for a Qualifying Disposition.

Dollar cost averaging

When you take the same amount of money and invest it over time (e.g. investing a portion of your paycheck into your 401(k) every month is dollar cost averaging).

Employee Stock Purchase Plan (ESPP)

Is an investment program that companies provide to give employees the chance to purchase company stock at a discount.

Equity

Another word for ownership. It can also mean stock, since stock represents partial ownership of a company.

Exercise

The act of purchasing company stock through a company option that contractually sets the price you must pay to acquire the stock.

Exercise price

The price set within the grant agreement of a company option. It is the price that must be paid per exercised option to acquire company stock as part of the option.

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Grant date

Is the day in which a company grants you an employee stock option, restricted stock unit, or is the first day of an employee stock purchase plan’s offering period.

Holding period

The amount of time that you hold a stock. If you’ve held for longer than 365 days, it’s considered a long-term holding. If you’ve held for 365 days or less, it’s considered short-term.

Incentive stock options (ISOs)

ISOs are a form of employee option that gives the employee the right to purchase company stock for an agreed upon price. We’ve written an article covering ISO Basics here.

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K

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Lookback Provision

A lookback provision is an element of an employee stock purchase plan (ESPP). It enables ESPP participants to apply a discount to either (1) the company price per share at the end of the current purchase period or (2) to the price per share at the beginning of the current offering period - whichever is cheaper. After the discount is applied, shares can be purchased.

Market value

Market value refers to the current market price of a company. If the company is publicly-traded, the price is whatever its currently trading for. If a company is private, the market value is whatever the latest 409a valuation is.

Nonqualified stock options (NSOs)

NSOs are a form of employee stock option that gives the option holder the right to purchase company stock for an agreed upon price. They are similar to ISOs in that regard, but their tax consequences can vary. Read our NSO basics article here and learn about NSO taxes here.

Offering period

In the length of time in which employees can participate in an employee stock purchase plan (ESPP). Typically this time period is between 6 months to 24 months, but can be as long as 27 months. Companies that offer a Lookback provision as part of the ESPP may also let employees purchase company stock at whichever price is cheaper between the beginning of the offering period or end of the purchase period.

Purchase begin date

Is the start of a purchase period within an ESPP. It marks the date in which you begin setting aside cash for an eventual purchase of company stock at the end of the purchase period.

Purchase date

Is the day in which employee purchase employer stock through their ESPP. Cash accumulated during the purchase period is used on this day to make the employer stock purchase. If there is leftover cash, this cash may rolled into the next purchase period or be refunded (it will vary by company).

Purchase period

Is the time in which employees participating in an employer stock purchase plan (ESPP) set cash aside from their paychecks to eventually purchase company stock on the designated ESPP purchase date.

Qualified Disposition

Refers to selling ESPP shares or shares acquired from exercising ISOs in a way that leads to preferential tax treatment. To qualify as a qualifying disposition, shareholders must hold onto shares for 2 years from the grant date/beginning of the offering period and sell 1 year after exercise/acquisition.

Rebalance

Realigns the investments within a portfolio to hold proper weightings of different asset classes. Broad speaking, if your goal is to be 90% stock and 10% bonds, but your portfolio is currently sitting at 75% stock and 25% bonds, you would want to complete a rebalance to bring those percentages back in line with what your original target was.

Stock

Stock represents ownership in a company. Owning stock gives you the right to vote on company matters, participate in the growth of the company, and receive dividends that the company issues.

Ticker

Refers to the symbol your company goes by in the stock market. Apple = AAPL, Adobe = ADBE, Google = GOOG, Nike = NKE, Facebook = FB, Workday = WDAY, etc.

Vesting Schedule

The specific time frame in which your equity will become yours. Vesting schedules are typically 3-5 years long, which some percentage of equity transferring to the owner after each year.