Glossary

L

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 and some prosper for a time and then disappear.

Lifetime learning credit

You may qualify to claim a lifetime learning tax credit each year for qualified higher educational expenses, including your own, depending on your income. The course work doesn't have to be part of a degree-granting program, though the tax credit can be used for undergraduate, postgraduate, or professional studies.

To qualify for this credit, your income must fall within the annual limits that Congress sets. Those amounts tend to increase slightly each year.

Even if you are paying for more than one person's education, you can take only one lifetime learning credit per year.

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.

Liquidity

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 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 also 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 stocks 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.

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.

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 ordinary 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.

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.

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 59½. 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.