real rate of return: rate of return adjusted for inflation.
recession: a period of economic decline, generally defined as a decline in a country’s gross domestic product for two or more consecutive quarters.
research portfolio: the portion of a Capital Research and Management Company mutual fund that is managed by a group of investment analysts. The research portfolio generally accounts for about 25% of a fund’s assets.
return: the annual gain or loss made on an investment. For stock mutual funds, the rate of return is determined by the level of dividends and capital gains made each year. For fixed-income securities, the return, or current yield, represents the coupon payment divided by the purchase price of the security. See also total return.
return of capital: a return from an investment that is not considered income (dividends, interest, or capital gain) and is not taxable as income for the given tax year. The return of capital distribution occurs when some or all the money an investor has in an investment is paid back to him or her, thus decreasing the investor’s original cost basis of the investment. The return of capital information is reported in box 3 of the 1099-DIV tax form.
rights of accumulation: the right of a mutual fund shareholder to receive a reduced sales charge based on previous investments in the same family of funds. Once the value of the shareholder’s account reaches and maintains a particular breakpoint, each subsequent investment will receive the appropriate reduced sales charge.
risk: the possibility of an investment losing value. The risk level of a mutual fund generally depends on the types of securities held in the fund’s portfolio. For example, a growth fund has more risk (and also historically higher returns) than a bond fund. Risk is often measured by looking at the volatility of an investment. Many types of risk exist, including inflation risk, interest rate risk and exchange rate risk.
rollover: a tax-free reinvestment of a distribution from a retirement plan into an IRA or other qualified plan, providing the reinvestment is completed within 60 days of receiving the distribution. Also called IRA rollover. Or, more generally, the movement of funds from one investment to another.
Roth IRA: a type of Individual Retirement Account (IRA), which allows funds to grow tax-free, subject to certain restrictions (the account must be held for at least five years and withdrawals must be made after age 59-1/2). Taxes are paid on contributions to a Roth IRA, but qualified withdrawals are tax-free. Unlike a traditional IRA, there is no requirement to begin taking distributions at age 70-1/2.