Interest: The cost of borrowing money, or the reward for lending it Principal: The original amount borrowed or invested Simple interest: Interest calculated only on the principal Compound interest: Interest calculated on principal plus past interest APR: Annual percentage rate; yearly cost of borrowing APY: Annual percentage yield; yearly return including compounding Rule of 72: Divide 72 by the interest rate to estimate years to double Inflation: A general rise in prices over time Time value of money: Money now is worth more than the same amount later Present value: What a future sum is worth today Future value: What money today will be worth later at a given rate Credit score: A number summarizing creditworthiness Credit report: Record of a person's borrowing history Credit limit: The maximum amount a lender lets you borrow on a card Credit utilization: The share of available credit being used Mortgage: A loan to buy real estate, secured by the property Down payment: The up-front part of a purchase price paid in cash Amortization: Paying off a loan through scheduled payments Collateral: An asset pledged to secure a loan Default: Failing to repay a loan as agreed Net worth: Assets minus liabilities Asset: Something owned with value Liability: A debt or obligation Budget: A plan for income and spending Emergency fund: Savings set aside for unexpected costs Checking account: Account for everyday spending Savings account: Account that earns interest on deposits Certificate of deposit: Bank deposit with a fixed term and rate FDIC insurance: US program insuring bank deposits up to a limit Gross income: Income before taxes and deductions Net income: Income after taxes and deductions Tax bracket: Income range taxed at a specific rate Marginal tax rate: The rate paid on the next dollar earned Deduction: An amount subtracted from taxable income Tax credit: An amount subtracted directly from taxes owed 401(k): US employer retirement plan IRA: Individual retirement account Roth account: Retirement account funded with after-tax money Pension: A retirement income plan from an employer Social Security: US government program providing retirement and other benefits Stock: A share of ownership in a company Bond: A loan to a company or government that pays interest Mutual fund: A pooled investment holding many securities Index fund: A fund designed to match a market index ETF: Exchange-traded fund that trades like a stock Portfolio: A collection of investments Diversification: Spreading investments to reduce risk Asset allocation: Dividing investments among categories like stocks and bonds Risk tolerance: How much loss an investor can accept Volatility: How much and how quickly a price moves Bull market: A period of rising prices Bear market: A period of falling prices, often 20 percent or more Dividend: A payment from a company to shareholders Dividend yield: Annual dividend divided by share price Capital gain: Profit from selling an asset for more than its cost Capital loss: A loss from selling an asset for less than its cost Market capitalization: Share price times number of shares P/E ratio: Price-to-earnings: share price divided by earnings per share Earnings per share: Profit divided by number of shares Blue chip: Shares of large, established, stable companies Stock exchange: A marketplace where securities are traded Stock market index: A measure of a group of stocks, like the S&P 500 Brokerage: A firm that buys and sells securities for clients Expense ratio: Annual fund fee as a percent of assets Liquidity: How quickly an asset can be turned into cash Yield: The income return on an investment Maturity: The date a bond or loan is due Coupon: A bond's stated interest payment Treasury bill: A short-term US government security Credit rating: An evaluation of a borrower's ability to repay Junk bond: A higher-risk, lower-rated bond Hedge: An investment made to reduce risk Option: A contract giving the right to buy or sell at a set price Short selling: Selling borrowed shares hoping to buy them back cheaper Margin: Borrowing from a broker to invest Dollar-cost averaging: Investing a fixed amount at regular intervals Rebalancing: Adjusting a portfolio back to target allocations Compound annual growth rate: Smoothed yearly growth rate over a period Bubble: Prices far above underlying value that later fall sharply Recession: A significant decline in economic activity Interest rate: Percent charged or paid for the use of money Central bank: The national bank that manages money and interest rates Fiduciary: Someone legally required to act in a client's best interest Annuity: A series of regular payments Insurance premium: Payment made to keep an insurance policy Deductible: Amount you pay before insurance pays Overdraft: Spending more than the account holds Wire transfer: Electronic transfer of money between banks Cryptocurrency: A digital currency secured by cryptography; prices are highly volatile Ponzi scheme: Fraud paying early investors with money from later ones Identity theft: Misuse of someone's personal information to commit fraud Free flashcards from Peabody at peabody.kids/flashcards/tp-finance-investing