While some penny stocks may produce big returns over the long term, many turn out to be worthless. Institutional investors tend to avoid penny stocks, and brokerage firms typically warn individual investors of the risks involved before handling transactions in these stocks. However, penny stocks are sometimes marketed aggressively over the Internet to unsuspecting investors.

While you receive more income from a single life annuity than from a joint and survivor annuity, there may be potential drawbacks of pension max, as this approach is sometimes called. These include the cost of insurance, sales charges, and an increased risk of your spouse's running out of income.

According to modern portfolio theory, you can reduce your investment risk by creating a diversified portfolio that includes enough different types, or classes, of securities so that at least some of them may produce strong returns in any economic climate.

Rapid turnover may also generate higher trading costs, which can reduce the total return on a fund or brokerage account. As a result, you may want to weigh the potential gains of rapid turnover against the costs, both in your own buy and sell decisions and in your selection of mutual funds. You can find information on a fund's turnover rate in the fund's prospectus.

When the reverse is true, and interest rates on short-term investments are higher than the rates on long-term investments, the yield is negative, or inverted. That typically occurs if inflation spikes after a period of relatively stable growth.

A power of attorney must be notarized by a notary public to be legal. It's usually a good idea to consult an attorney to be sure the document you're signing will give the person you're designating the necessary authority to act for you.

Insurers can also deny you coverage entirely because of a pre-existing condition. And they can end a policy if they discover a pre-existing condition that you did not report, provided you knew it existed when you applied for your policy.

However, if you're insured through your employers plan and switch to a job that also provides health insurance, the new plan must cover you whether or not you have a pre-existing condition.

What preferred stock doesn't generally offer is the opportunity to share in the corporation's potential for increased profits, which are reflected in higher prices for the common stock and sometimes an increase in its dividend payment.

One category of preferred shares, called convertible preferred shares, can be exchanged for a specific number of common shares at an agreed-upon price, similar to the way that a convertible bond can be exchanged for common stock.

For example, if you pay $60 for a newly issued stock with an offering price of $40, you are paying a premium of $20. But if you sell a bond with a face value of $1,000 for $1,200, you collect a premium of $200.

In a more general sense, a security or group of securities that command higher prices than others are said to sell at a premium, either to comparable securities or to the market as a whole. Internet stocks, for example, sold at a premium to the market in the spring of 1999.

A premium is also the amount you pay to purchase certain financial products, such as options, annuities, or insurance policies.

The concept of present value is useful in calculating how much you need to invest now in order to meet a certain future goal, such as buying a home or paying college tuition. Many personal investment handbooks and online financial services sites provide tables and other tools to help you calculate these amounts based on different interest rates.

Inflation has the opposite effect from interest on the present value of money, accounting for loss of value rather than increase in value. For example, in an economy with 5% annual inflation, $100 is the present value of $95 next year.

Some pretax contributions, including those you put into your 401(k), are taxed when you withdraw the amount from your plan. Other contributions, such as money you put into a flexible spending plan, are never taxed.

A stock's P/E, also known as its multiple, gives you a sense of what you are paying for a stock in relation to its earning power. For example, a stock with a P/E of 30 is trading at a price 30 times higher than its earnings, while one with a P/E of 15 is trading at 15 times its earnings.

If earnings falter, there is usually a sell-off, which drives the price down. But if the company is successful, the share price and the P/E can climb even higher. Similarly, a low P/E can be the sign of an undervalued company whose price hasn't caught up with its earnings potential or a clue that the market considers the company a poor investment risk.

Stocks with higher P/Es, which are typical of companies that are expected to grow rapidly in value, such as Internet and other emerging technology stocks, are often more volatile than stocks with lower P/Es because it can be more difficult for the company's earnings to satisfy the expectations of investors.

The P/E can be calculated two ways. A trailing P/E, the figure reported in newspaper stock tables, uses earnings for the last four quarters. A forward P/E generally uses earnings for the past two quarters and an analyst's projection for the coming two.

PRICE-TO-EARNINGS RATIO
Current price per share
	= Price-to-earnings ratio
Earnings per share

According to these analysts, P/GF can be a more appropriate gauge for assessing whether to invest in technology companies than traditional measures such as price-to-earnings ratio (P/E). To calculate a company's growth flow, you add its R&D spending per share to its earnings per share, and then divide its current stock price by this sum.

Some financial analysts and money managers suggest that, since sales figures are less easy to manipulate than either earnings or book value, the price-to-sales ratio is a more reliable indicator of how the company is doing and whether you are likely to profit from buying its shares. Other analysts believe that steady growth in sales over the past several years is a more valuable indicator of a good investment than the current price-to-sales ratio.

The prime rate is often used, though, as a benchmark for interest rates on consumer loans. For example, a bank may charge you the prime rate plus two percentage points on a car loan or home equity loan.

While these rulings are not the law, and there's no guarantee that they won't be overturned by new IRS opinions, they can provide guidance in handling taxable distributions from your 401(k) or IRA.

The theory behind privatization is that privately run enterprises, such as utility companies, airlines, and telecommunications systems, are more efficient and provide better service than government-run companies. But in many cases, privatization is a way for the government to raise cash and to reduce its role as service provider.

Profit margins can vary greatly from one industry to another, so it can be difficult to make valid comparisons among companies unless they are in the same sector of the economy.

Profit-sharing plans offer employers certain flexibility. For example, in a year without profits, they don't have to contribute at all. And they can vary the amount of each year's contribution to reflect the company's profitability for that year. However, each employee in the plan must be treated equally. This means that if an employer contributes 10% of one employee's salary to the plan, the employer must also contribute 10% of the salaries of all other employees in the plan.

Such large and sudden trades can have a dramatic effect on the overall market. According to one theory, the stock market crash of 1987 was caused in part by program trading triggered by falling stock prices. Circuit breakers, which halt trading for a period of time when prices fall dramatically, have since been instituted by the major stock exchanges to help prevent another crash of that type.

The prospectus must be filed with the Securities and Exchange Commission (SEC) and is designed to help investors make informed investment decisions.

Each mutual fund provides a prospectus to potential investors, explaining its objectives, policies, investment strategy, and performance. The prospectus also summarizes the fees the fund charges and analyzes the risks you take in investing in the fund.

The Securities and Exchange Commission (SEC) requires each company to provide a proxy statement, which describes the issues being voted on and introduces the candidates for director. The proxy also reports the total compensation of the company's top five executives, as well as the company's stock performance in relation to Standard & Poor's 500-stock Index (S&P 500) and to comparable companies in the industry.

The person who buys the put option pays a premium to the seller for the right to sell those shares. If the buyer exercises the put, the seller must buy the shares.

Not surprisingly, buyers and sellers have different goals. Buyers hope that the price of the underlying stock drops so they can sell shares at the exercise price, which would presumably be higher than the market price. This way, the buyer could offset the price of the premium, and hopefully make a profit as well. Sellers, on the other hand, hope that stock stays the same, or goes up in value, so they can keep the premium they've collected and not have to lay out any money.

The customary interpretation is that when puts predominate, and the mood is bearish, stock prices are headed for a tumble. The reverse is assumed to be true when calls are more numerous. The contrarian investor, however, holds just the opposite view-that by the time investors are concentrating on puts, the worst is already over, and the market is poised to rebound.