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Laddering is an investment strategy that calls for establishing a pattern of rolling maturity dates for a portfolio of fixed-income investments. Your portfolio might include intermediate-term bonds or certificates of deposit (CDs). For example, instead of buying one $15,000 CD with a three-year term, you buy three $5,000 CDs maturing one year apart. As each CD comes due, you can reinvest the principal to extend the pattern.Or, you could use the money for a preplanned purchase, have it available to take advantage of a new investment opportunity, or use it to cover unexpected expenses. You can use laddering to pay for college expenses, with a series of zero coupon bonds coming due over four years, in time to pay tuition each year. And if you ladder, you can avoid having to liquidate a large bond investment if you need just some of the money or reinvest your entire principal at a time when interest rates may be low.


A lapse causes a policy, right, or privilege to end because the person or institution that would benefit fails to live up to its terms or meet its conditions. For example, if you have a subscription right to buy additional shares of a stock at a price below the public offering price, you must generally act before a certain date. If that date passes, your right is said to lapse.Similarly, if you have a life insurance policy that requires you to pay annual premiums, the policy will lapse and you’ll no longer be covered if you fail to pay.

Large-capitalization (large-cap) stock

The stock of companies with market capitalizations of $10 billion or more is known as large-cap stock. Market capitalization is figured by multiplying the number of either the outstanding or the floating shares by the current share price. Large-cap stock is generally considered less volatile than stock in smaller companies, in part because the bigger companies may have larger reserves to carry them through economic downturns.However, market capitalization is always in flux. Today's large-cap stock can drop out of that category if the share price plunges either in a general market downturn or as a result of internal problems. And the opposite is true as well. Many of the country's largest companies began life as start-ups.

Last trading day

The last trading day is the final day on which an order to buy or sell an options contract or futures contract can be executed. In the case of an options contract, for example, the last trading day is usually the Friday before the third Saturday of the month in which the option expires, though a brokerage firm may set an earlier deadline for receiving orders. If you don’t act on an option you own before the final trading day, the option may simply expire, or if it is in-the-money it may be automatically executed on your behalf by your brokerage firm or the Options Clearing Corporation (OCC) unless you request that it not be. But if a futures contract isn’t offset, the contract seller is obligated to deliver the physical commodity or cash settlement to the contract buyer.

Lead underwriter

When a company wants to raise capital by selling securities to investors, it partners with an investment bank, known as the lead underwriter. That bank has the primary responsibility for organizing and managing an initial public offering (IPO), a secondary stock offering, or a bond offering. In the case of an IPO, the lead underwriter agrees to buy all the shares from the company and helps it determine an initial offering price for the security, create a prospectus, and organize a syndicate of other investment banks to help sell the securities to investors. In return for assuming the financial risk of the IPO, the lead underwriter receives a fee, which is usually a percentage of each share price of the IPO.


A lease is a legal agreement that provides for the use of something — typically real estate or equipment — in exchange for payment. Once a lease is signed, its terms, such as the rent, cannot be changed unless both parties agree. A lease is usually legally binding, which means you are held to its terms until it expires. If you break a lease, you could be held liable in court.

Level load

Some load mutual funds impose a recurring sales charge, called a level load, each year you own the fund rather than a sales charge to buy or sell shares. The level-load rate is generally lower than the sales charge for front- or back-end loads. But the annual asset-based management fee on these funds is higher than for front-load funds. This means the total amount you pay over time with a level load can be substantially more than a one-time sales charge, especially if you own the fund for a number of years. If a fund company offers you a choice of the way you prefer to pay the load, level-load funds are generally identified as Class C shares. Front-end loads are Class A shares and back-end loads are Class B shares.

Level term insurance

With a level term life insurance policy, your annual premium remains the same for the term, which may be as long as 10 or 20 years. The death benefit also remains the same. If the policy is guaranteed renewable, you can extend coverage for an additional term without having to qualify again, though the annual premium will increase because you’re older.Although the cost of insurance in the first few years will probably be higher for a level term than an increasing term policy, the total cost of a level term with the same benefit is usually less. As with all term policies, you don’t build up a cash reserve and your coverage ends at the end of the term or at any time you stop making payments.

Level yield curve

A level yield curve results when the interest rate on short-term US Treasury issues is essentially the same as the rate on long-term Treasury bonds. You create the curve by plotting a graph with rate on the vertical axis and maturity date on the horizontal axis and connecting the dots. In most periods, the rate on long-term bonds is higher and the yield curve is positive because investors demand more for tying up their money for a longer period. There are also times, when interest rates seems to be on the upswing, that the pattern is reversed and the yield curve is negative, or inverted.


Leverage is an investment technique in which you use a small amount of your own money to make an investment of much larger value. In that way, leverage gives you significant financial power. For example, if you borrow 90% of the cost of a home, you are using the leverage to buy a much more expensive property than you could have afforded by paying cash. If you sell the property for more than you borrowed, the profit is entirely yours. The reverse is also true. If you sell at a loss, the amount you borrowed is still due and the entire loss is yours.Buying stock on margin is a type of leverage, as is buying a futures or options contract. Leveraging can be risky if the underlying instrument doesn't perform as you anticipate. At the very least, you may lose your investment principal plus any money you borrowed to make the purchase. With some leveraged investments, you could be responsible for even larger losses if the value of the underlying product drops significantly.

Leveraged buyout

A leveraged buyout occurs when a group of investors using borrowed money, often raised with high yield bonds or other kinds of debt, takes control of a company. These buyouts are usually hostile takeovers, and if they are successful, the investors will usually start to sell off assets to pay down the substantial debt they have incurred.


In personal finance, liabilities are the amounts you owe to creditors, or the people and organizations that lend you money. Typical liabilities include your mortgage, car and educational loans, and credit card debt. When you figure your net worth, you subtract your liabilities, or what you owe, from your assets. The result is your net worth, or the cash value of what you own. In business, liabilities refer to money a company owes its creditors and any claims against its assets.


A lien is a document that shows you owe money to a lender on a particular vehicle or other asset, such as real estate, that has been used as collateral on a loan. An asset on which there’s a lien can’t be sold until the lienholder has been repaid. When you own an asset on which there’s a lien, you risk having it repossessed if you default and don’t make the required payments in full and on time.


A lienholder is the bank, finance company, credit union, other financial institution, or individual with whom you signed an agreement to borrow money using a particular asset, such as a car, as collateral. As long as there is a balance due on the loan, the lienholder must be repaid before you are free to sell the asset.

Life expectancy

Your life expectancy is the age to which you can expect to live. Actuarial tables establish your official life expectancy, which insurance companies use to evaluate the risk they take in selling you life insurance or an annuity contract. The Internal Revenue Service (IRS) also uses life expectancy to determine the distribution period you must use to calculate minimum required distributions from your retirement savings plans or traditional IRAs.However, your true life expectancy, based on your lifestyle, family history, and other factors, may be longer or shorter than your official life expectancy.

Life insurance

Life insurance is a contract you sign with an insurance company, obligating it to pay a death benefit of a certain value to the beneficiaries you name. In most cases, the payment is made at the time of your death, but certain policies allow you to take a portion of the death benefit if you are terminally ill and need the money to pay for healthcare.You may select either term or permanent insurance. With a term policy, you are insured for a specific period of time. When the term ends, you must renew the policy for another term or change your coverage. Otherwise, you’re no longer insured. With a permanent policy, you can buy coverage for your lifetime. You pay an annual premium, typically billed monthly or quarterly, for the coverage. The insurer sets the cost, based on your age, health, life style, and other factors. With a permanent policy, your premium is fixed, but with a term policy it typically increases when you renew your coverage to reflect the fact that you’re older.

Life settlement

If you are over age 70 and no longer need your life insurance policy, you may be able to sell it to a third party in what’s called a life settlement. You’re paid a cash amount less than the death benefit but typically greater than the surrender value, and the party that buys your policy will get the death benefit when you die. Similar to viatical settlements, in which terminally ill people may sell their life insurance policies, generally to use the cash to pay for healthcare, life settlements let you forgo a death benefit and use the cash in your policy while you’re alive. However, life settlements are for people who are healthy and expect to live more than a couple of years. Specific rules for life settlements are set by the state where a specific transaction takes place.Some businesses specialize in buying life insurance policies from older or terminally ill individuals and reselling them as investments. However, because these insurance arrangements are controversial and most investors understand them poorly, both people considering selling policies and people considering investing in them are advised to proceed with caution. For example, there may be complex estate-planning and tax consequences to life settlements.

Lifecycle fund

A lifecycle fund, which is a fund of funds, invests in individual mutual funds that a fund company puts together to help investors meet their objectives without having to select individual funds.Some companies offer a set of lifecycle funds, each with a different level of risk and return, from conservative to aggressive. In that case, you may choose a lifecycle that’s appropriate for reaching your goals within the time frame you’ve allowed. The typical pattern is for younger investors to choose a more aggressive lifecycle fund and those nearing retirement to choose a more conservative fund.With target date funds, which are a type of lifecycle fund, you choose a target retirement year, and the fund manager invests and reallocates your money more and more conservatively as you near retirement.

Lifeline account

A lifeline account is a basic checking account with low or no minimum deposit and balance requirements and very low or no monthly fees. Most lifeline accounts, however, limit the number of checks that you can write and may otherwise restrict the banking services you receive.Currently, certain states require banks to offer lifeline accounts, to ensure that lower-income people have access to banking services. However, you can find no-frills checking accounts in other states as well.

Lifetime learning credit

You may qualify to claim a lifetime learning tax credit of up to $2,000 each year for qualified higher educational expenses for yourself, your spouse, or a dependent if your family’s modified adjusted gross income falls within the annual limits that Congress sets. Those amounts tend to increase slightly each year.The course work must be one or more courses but doesn't have to be part of a degree- or certificate-granting program, though the tax credit can be used for undergraduate, postgraduate, or professional studies. Even if you are paying for more than one person's education, you can take only one lifetime learning credit per year.If you claim the credit while you're taking withdrawals from tax-free college savings plans such as a Section 529 plan or an education savings account (ESA), you'll have to plan carefully. Your withdrawals will lose their qualified status and be subject to tax and penalty if you use them to pay for the same expenses for which you claim the tax credit. You can’t take the credit, though, if you claim a tuition and fees deduction in calculating your adjusted gross income or deduct the amount as a business expense.

Limit order

A limit order sets the maximum you will pay for a security or the minimum you are willing to accept on a particular transaction. For example, if you place a limit order to buy a certain stock at $25 a share when its current market price is $28, your broker will not buy the stock until its share price reaches $25. Similarly, if you give a limit order to sell at $25 when the stock is trading at $20, the order will be filled only if the price rises to $25. A limit order differs from a market order, which is executed at the current price regardless of what that price is. It also differs from a stop order, which becomes a market order when the stop price is reached and is executed at the best available price.

Limit price

A limit price is the specific price at which you tell your stockbroker to execute a buy or sell order on a particular security. If the transaction can be completed at that price, it goes through, but if that price is not available, no purchase or sale takes place. The advantage of a limit order is that you won’t pay more or sell for less than you want. Since your broker is monitoring the price, it is more likely that the trade will take place at the limit price than if you waited until the security reached that price to place your order. The potential drawback of setting a limit price, which is also known as giving a limit order, is that the transaction may not take place in a fast market if the price of the security moves up or down quickly, passing the limit price.

Limited liability company

Organizing a business enterprise as a limited liability company (LLC) under the laws of the state where it operates protects its owners or shareholders from personal responsibility for company debts that exceed the amount those owners or shareholders have invested. In addition, an LLC’s taxable income is divided proportionally among the owners, who pay tax on their share of the income at their individual rates. The LLC itself owes no income tax. The limited liability protection is similar to what limited partners in a partnership or investors in a traditional, or C, corporation enjoy. The tax treatment is similar to that of a partnership or S Corporation, another form of organization that’s available for businesses with fewer than 75 employees. However, only some states allow businesses to use LLC incorporation.

Limited partner

A limited partner is a member of a partnership whose only financial risk is the amount he or she has invested. In contrast, all of the assets of the general partner or partners, including those held outside the partnership, could be vulnerable to claims brought by the partnership’s creditors.

Limited partnership

A limited partnership is a financial affiliation that includes at least one general partner and a number of limited partners. The partnership invests in a venture, such as real estate development or oil exploration, for financial gain. The arrangement can be public, which means you can buy into the partnership through a brokerage firm, or private. What makes it a limited partnership is that everyone but the general partners has limited liability. The most the limited partners can lose is the amount they invest.

Line of credit

A line of credit, sometimes called a bank line, is the most you can borrow under a revolving credit arrangement with a credit card issuer, bank, or mortgage lender.When you borrow against a line of credit, you pay interest on the amount of money you actually borrow, not on the available balance, or full amount you are able to borrow.For example, if you have a $10,000 line of credit on a credit card, you may borrow as much or as little as you want up to that amount, and you pay interest only on the amount you have borrowed. If you carry a balance of $3,000, you only pay interest on that amount, but there is still $7,000 available for you to borrow. Once you repay the amount you borrow, you can use it again.A line of credit may be secured with collateral, or unsecured. A line of credit on a credit card is usually unsecured, for example. But if you have a home equity line of credit, your home serves as collateral against the amount you borrow.

Lipper, Inc

Lipper provides financial data and performance analysis for more than 30,000 open- and closed-end mutual funds and variable annuities worldwide. The company evaluates funds on the strength of their success in meeting their investment objectives and identifies the strongest funds in specific categories as Lipper Leaders. The research company’s mutual fund indexes are considered benchmarks for the various categories of funds.

Liquid asset

Liquid assets are accounts or securities that can be easily converted to cash at little or no loss of value. These include cash, money in bank accounts, money market mutual funds, and US Treasury bills. Actively traded stocks, bonds, and mutual funds are liquid in the sense that they are easy to sell, but the price is not guaranteed and could be less than the amount you paid to buy the asset. In contrast, selling fixed assets, such as real estate, usually requires time and negotiation.


If you can convert an asset to cash easily and quickly, with little or no loss of value, the asset has liquidity. For example, you can typically redeem shares in a money market mutual fund at $1 a share. Similarly, you can cash in a certificate of deposit (CD) for at least the amount you put into it, although you may forfeit some or all of the interest you had expected to earn if you liquidate before the end of the CD's term.The term liquidity is sometimes used to describe investments you can buy or sell easily. For example, you could sell several hundred shares of a blue chip stock by simply calling your broker, something that might not be possible if you wanted to sell real estate or collectibles.The difference between liquidating cash-equivalent investments and securities like stock and bonds, however, is that securities constantly fluctuate in value. So while you may be able to sell them readily, you might sell for less than you paid to buy them if you sold when the price was down.

Listed security

A listed security is a stock, bond, options contract, or similar product that is traded on an organized exchange. Being listed has advantages, including being part of an orderly, regulated, and widely reported trading process that helps insure fairness and liquidity. To be listed, the company issuing the security must meet the requirements of the exchange where it wishes to be traded. For example, to list a stock the company typically must have a minimum market capitalization, a minimum number of existing shares, and a minimum per share price.

Listing requirement

Listing requirements are the standards a corporation must meet to have its stock or bonds traded on a particular exchange.Exchanges set their own initial and continuing listing requirements. Among the listing criteria are a corporation's pretax earnings, a minimum market value, and a minimum number of existing shares.

Living will

A living will is a legal document that describes the type of medical treatment you want—or don’t want—if you are terminally ill or unable to communicate your wishes. Like wills that provide instructions about your assets, living wills must be signed and have two or more witnesses to be valid.You can use a healthcare proxy or durable power of attorney for healthcare to authorize someone to act as your agent to ensure your wishes are followed. Because there are still unresolved questions about the extent of your agent’s authority, it may be wise to get legal advice in preparing the documents.


If you buy a mutual fund through a broker or other financial professional, you pay a sales charge or commission, also called a load. If the charge is levied when you purchase the shares, it's called a front-end load. If you pay when you sell shares, it's called a back-end load or contingent deferred sales charge. And with a level load, you pay a percentage of your investment amount each year you own the fund.

Load fund

Some mutual funds charge a load, or sales commission, when you buy or sell shares or, in some cases, each year you own the fund. The charge is generally figured as a percentage of your investment amount. Most load funds are sold by brokers or other investment professionals. The sales charge compensates them for their time.In contrast, no-load funds, which don't have sales charges but may levy other fees, are usually sold directly to the public by the investment company that offers the fund. Some companies offer both load and no-load versions of the same fund.

Loan note

A loan note is a promissory agreement describing the terms of a loan and committing the person or institution borrowing the money to live up to those terms. For example, a mortgage loan note states the principal balance, the interest rate, the discount points, a payment schedule and due date, and any potential penalties for violating the repayment terms. When the required repayment has been made, the agreement between the parties ends.

Lock-up period

A lock-up period is the time during which you cannot sell an investment that you own. You are most likely to encounter a lock-up period if you acquire shares in an initial public offering (IPO) because you had a private equity investment in the company before it went public and receive shares in the IPO proportionate to your private equity ownership interest. You may also have a lock-up period if you are an owner or an employee of the company and are granted shares.The lock-up period may last as long as 180 days. In some cases, though, the lock-up period is graduated, meaning that after the initial 180 days you can sell an increasingly larger portion of your shares over the next two years. After the lock-up period ends, you are free to sell all your shares if you wish.

Logarithmic scale

On a logarithmic scale or graph, comparable percentage changes in the value of an investment, index, or average appear to be similar. However, the actual underlying change in value may be significantly different. For example, a stock whose price increases during the year from $25 to $50 a share has the same percentage change as a stock whose price increases from $100 to $200 a share.On a logarithmic scale, it's irrelevant that the dollar value of the second stock is four times the value of the first. Similarly, the percentage change in the Dow Jones Industrial Average (DJIA) as it rose from 1,000 to 2,000 is comparable to the percentage change when it moved from 4,000 to 8,000.

Long bond

Thirty-year bonds issued by the US Treasury are referred to as long bonds. The interest rate on the long bond is typically but not always higher than the rate on the Treasury's shorter-term notes and bills.The rate on the most recently issued bond is the basis for pricing other long-term bonds and setting other financial benchmarks.

Long position

Having a long position in a stock means you own the security. You have the right to collect the dividends or interest the security pays, the right to sell it or give it away when you wish, and the right to keep any profits if you do sell. Similarly, you have a long position in an option when you hold the option, and you have the right to exercise it before expiration or sell it. The term is also used to describe a position that’s maintained by your brokerage firm or bank on your behalf. For example, if your firm holds stocks for you in street name, you are said to be long on their books.Having a long position is the opposite of having a short position in a security. A short position means you have borrowed shares through your broker, sold them, and must return them, plus interest, at some point in the future. Similarly, a short position in an option means that you have sold the option, giving the holder the right to exercise and committing yourself to fulfilling the terms should exercise occur and you're assigned to meet them.

Long-term capital gain (or loss)

When you sell a capital asset that you have owned for more than a year at a higher price than you paid to buy it, any profit on the sale is considered a long-term capital gain. If you sell for less than you paid to purchase the asset, you have a long-term capital loss.Unlike short-term gains, which are taxed at your income tax rate, most long-term gains on most investments, including real estate and securities, are taxed at rates lower than the rates on ordinary income. Currently, those rates are 15% if you’re in the 25% tax bracket or higher, and 5% if you are in the 10% or 15% bracket.You can deduct your long-term losses from your long-term gains, and your short-term losses from your short-term gains, to reduce the amount on which potential tax may be due. You may also be able to deduct up to $3,000 in accumulated long-term losses from your ordinary income and carry forward losses you can’t use in one tax year to deduct in the next tax year.

Long-term care insurance

Long-term care insurance is a policy designed to cover at least some of your expenses if you have a chronic but not life-threatening illness, long-term disability, or you are unable to live independently because you can’t perform a number of the activities of daily living. Those activities typically include bathing, dressing, feeding yourself, taking medication, using the bathroom, and being able to move from a sitting to a standing position. Most contracts also cover cognitive impairments, such as Alzheimer’s disease.Under the terms of most long-term care contracts, you can be cared for in a nursing home or at home. The insurance pays for custodial rather than skilled care, which must be provided by licensed professionals. That care is covered in part by Medicare and Medigap policies. Every policy provides a specific daily or monthly benefit for up to a predetermined benefit period. Each policy also has an elimination period, which lasts from the day you become eligible until the day the insurer begins to pay. You generally can choose the benefit, benefit period, and elimination period that makes the most sense to you and that you can afford.

Long-term equity anticipation securities (LEAPS)

These long-term options on stocks have expiration dates of up to three years rather than the shorter terms of most stock options, which are never longer than nine months. The benefit of LEAPS, from an investor’s perspective, is that there’s more time for the price movement you anticipate to occur. However, LEAPS are available on fewer underlying stocks than standard options, and they are generally more expensive than the shorter-term options on the same security.

Loose credit

In order to combat a sluggish economy, the Open Market Committee of the Federal Reserve (the Fed) may institute a loose credit policy. In that case, the Federal Reserve Bank of New York buys large quantities of Treasury securities in the open market, which gives banks additional money to lend at lower interest rates. This abundance, or looseness, of credit is intended to stimulate borrowing and invigorate the economy.Tight money is the opposite of loose credit. It's the result of the Fed's decision to sell securities in the open market, which reduces bank reserves and makes borrowing more expensive. A tight money policy is designed to slow down a rapidly accelerating economy.


Stocks whose market prices drop the most during the trading day are described, rather bluntly, as losers. The stocks that lose the most value relative to their opening price are called percentage losers, and the stocks that lose the greatest number of points are called net losers or dollar losers.Each trading day, the number of losers is compared to the number of gainers, or stocks that have risen in value, to gauge the mood of the market. If there are more losers than gainers over a period of days, the market as a whole is in a slump.

Lump sum

A lump sum is an amount of money you pay or receive all at once rather than in increments over a period of time. For example, you buy an immediate annuity with a single lump-sum payment. Or, if you receive the face value of a life insurance policy when the insured person dies, or receive the full value of your retirement account, those payments are also lump sums.

Lump-sum distribution

When you retire, you may have the option of taking the value of your pension, salary reduction, or profit-sharing plan in different ways. For example, you might be able to take your money in a series of regular lifetime payments, generally described as an annuity, or all at once, in what is known as a lump-sum distribution.If you take the lump sum from a defined benefit pension plan, the employer follows specific regulatory rules to calculate how much you would have received over your estimated lifespan if you'd taken the pension as an annuity and then subtracts the amount the fund estimates it would have earned in interest on that amount during the payout period.In contrast, when you take a lump-sum distribution from a defined contribution plan, such as a salary reduction or profit-sharing plan, you receive the amount that has accumulated in the plan. You may or may not have the option to take a lump-sum distribution from these plans when you change jobs.You can take a lump-sum distribution as cash, or you can roll over the distribution into an individual retirement account (IRA). If you take the cash, you owe income tax on the full amount of the distribution, and you may owe an additional 10% penalty if you're younger than 59 1/2. If you roll over the lump sum into an IRA, the full amount continues to be tax deferred, and you can postpone paying income tax until you withdraw from the account.

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