DAX: the DAX (pronounced “dax”) is the German Share Index. It represents the total return of 30 German blue chip stocks traded on the Frankfurt Stock Exchange. The price of each share is weighted with the declared number of available shares listed on the exchange. The DAX is weighted by market capitalization, which means larger companies have more of an impact than smaller ones when determining overall price movement of the index.
dealer: an individual or entity that buys and sells securities for its own account. Since most brokerage firms operate both as brokers and as dealers, the term broker-dealer is commonly used.
debenture: unsecured debt backed only by the integrity of the borrower and documented by an agreement called an indenture. This differs from a secured bond, which is backed by specific collateral.
debt: a liability or obligation in the form of bonds, loan notes or mortgages owed to another person or persons and required to be paid by a specified date (maturity). Debt may or may not be secured.
debt security: another term for a bond.
defined benefit plan: a tax-deferred company retirement plan, such as a pension, in which the benefit to participants is defined in advance, based on criteria such as salary history and years of service, and in which the employer bears the investment risk.
defined contribution plan: an individual account plan, such as a 401(k), that provides a benefit based solely on the amount contributed to the participant’s account plus or minus any income, expenses, gains and losses, and forfeitures that may be allocated to the account.
deflation: a decline in prices, often caused by a reduction in the supply of money or credit. The opposite of inflation.
developing markets: also known as emerging markets, developing markets are generally defined by the July 2007 World Bank Country Classification report as having a per-capita income of $11,115 or less in 2006, and as countries in the process of developing existing or newly created market-based economies.
director: see board of directors.
diversification: an investment strategy designed to reduce exposure to risk by combining a variety of investments, such as U.S. stocks, international stocks, bonds and cash, which are unlikely to all move in the same direction. Holding mutual funds with different objectives can help investors achieve diversification through the broad range of investments held in fund portfolios.
dividend: a distribution of investment income to shareholders. Dividends are taxable in the year they are received unless they are held in a tax-deferred account such as an IRA. The amount of a mutual fund dividend is authorized by the fund’s board of directors.
dollar cost averaging: an investment strategy that involves the investment of fixed amounts over a specified time schedule, regardless of price or direction of the market. In the long run, investors buy more shares when the price is lower, so that the overall cost is lower than if a constant number of shares were bought at set intervals. Also known as averaging or cost averaging. (This method does not ensure a profit and does not protect against loss in a declining market, so investors should consider their willingness to continue purchases during a declining or fluctuating market.)
Dow Jones Industrial AverageSM (DJIA): a market indicator composed of 30 actively traded blue chip U.S. stocks. While the index attempts to be representative of the U.S. economy as a whole, it is somewhat heavily weighted toward industrials. The Dow is a price-weighted average, which means that the price movement of each stock is weighted equally regardless of its market capitalization.