James Hallett

Every profession has its unique jargon and acronyms. As a baseball fan, I speak the language of ERA and RBI (earned run average and runs batted in). My multilingual skills also include the words of finance.

Consider AGI. This stands for adjusted gross income. Now that tax season is upon us (isn't it always upon us?), you'll see and hear this term quite often.



AGI and IRS

AGI is the amount of income used on IRS (Internal Revenue Service) Form 1040 (your tax return) to calculate your income tax liability. The adjusted gross income (AGI) is a person's income (wages, interest, dividends, capital gains/losses, etc.) less various adjustments such as IRA (individual retirement account) contributions, alimony paid, etc.

Adjusted gross income is calculated before the itemized or standard deductions, exemptions and credits are taken into account. AGI is recorded at the bottom of the 1040 form.

Adjusted gross income also is used to determine an individual's eligibility for various tax benefits and exemptions. AGI is used on many non-IRS forms as a true measure of an individual's income.



Meanwhile in Europe

What about PIIGS? These letters stand for certain countries in Europe; specifically Portugal, Italy, Ireland, Greece and Spain. Each of these countries is a member of what often is referred to as the EEC or the European Economic Community.

You may recall that about 10 years ago many of the western European countries came together for multiple purposes including the formation of an economic coalition to strengthen Europe's role in world affairs.



Whither the euro?

The governments of member nations agreed on various objectives. One of the outcomes was the adoption of a common currency (the "euro") and the commitment to support the economic health of member countries that make up the "euro zone."

Recently Greece has been feeling quite ill. Although a very small part (2 percent) of the euro zone, were Greece to default on its financial obligations (primarily failure to honor its "sovereign debt") the rest of the euro nations would find themselves in uncharted territory.

This economic headache easily could spread to the U.S. and other nations; just at the time when worldwide economic recovery seems at hand. With the world getter flatter every day, it behooves us to pay attention to PIIGS.



Take these TIPS

As for TIPS, these are Treasury Inflation Protected Securities. Simply put, the U.S. government issues debt, which U.S. citizens (and in recent years other countries, especially China) can purchase.

Backed by the full faith and credit of the U.S. government (you and I as citizen taxpayers), the Treasury promises to pay interest to the borrowers on the amount of debt issued and to repay the full amount of principal at maturity.

TIPS offer a potential added benefit. In addition to a nominal interest rate, this type of security also provides an adjustment to the principal amount based on the rate of inflation.

If inflation increases (a growing possibility), the maturity value of a TIPS issue could be greater than the amount originally issued, thus boosting the yield on the security. The past 10 years saw relatively low inflation and low interest rates. We'll see if this tip on TIPS makes sense.

In the meantime, mind your P's and Q's.



James D. Hallett, Hallett & Associates, P.S., is registered as an investment adviser with the SEC and only transacts business in states where it is properly registered or excluded from registration requirements.



This column is for informational purposes only and should not be used as the primary basis for an investment decision. Consult an advisor for your personal situation.