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Finance and Investing Vocabulary
Terms used in personal finance and markets. Education only, not investment advice.
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- InterestTermThe cost of borrowing money, or the reward for lending it
- PrincipalTermThe original amount borrowed or invested
- Simple interestTermInterest calculated only on the principal
- Compound interestTermInterest calculated on principal plus past interest
- APRTermAnnual percentage rate; yearly cost of borrowing
- APYTermAnnual percentage yield; yearly return including compounding
- Rule of 72TermDivide 72 by the interest rate to estimate years to double
- InflationTermA general rise in prices over time
- Time value of moneyTermMoney now is worth more than the same amount later
- Present valueTermWhat a future sum is worth today
- Future valueTermWhat money today will be worth later at a given rate
- Credit scoreTermA number summarizing creditworthiness
- Credit reportTermRecord of a person's borrowing history
- Credit limitTermThe maximum amount a lender lets you borrow on a card
- Credit utilizationTermThe share of available credit being used
- MortgageTermA loan to buy real estate, secured by the property
- Down paymentTermThe up-front part of a purchase price paid in cash
- AmortizationTermPaying off a loan through scheduled payments
- CollateralTermAn asset pledged to secure a loan
- DefaultTermFailing to repay a loan as agreed
- Net worthTermAssets minus liabilities
- AssetTermSomething owned with value
- LiabilityTermA debt or obligation
- BudgetTermA plan for income and spending
- Emergency fundTermSavings set aside for unexpected costs
- Checking accountTermAccount for everyday spending
- Savings accountTermAccount that earns interest on deposits
- Certificate of depositTermBank deposit with a fixed term and rate
- FDIC insuranceTermUS program insuring bank deposits up to a limit
- Gross incomeTermIncome before taxes and deductions
- Net incomeTermIncome after taxes and deductions
- Tax bracketTermIncome range taxed at a specific rate
- Marginal tax rateTermThe rate paid on the next dollar earned
- DeductionTermAn amount subtracted from taxable income
- Tax creditTermAn amount subtracted directly from taxes owed
- 401(k)TermUS employer retirement plan
- IRATermIndividual retirement account
- Roth accountTermRetirement account funded with after-tax money
- PensionTermA retirement income plan from an employer
- Social SecurityTermUS government program providing retirement and other benefits
- StockTermA share of ownership in a company
- BondTermA loan to a company or government that pays interest
- Mutual fundTermA pooled investment holding many securities
- Index fundTermA fund designed to match a market index
- ETFTermExchange-traded fund that trades like a stock
- PortfolioTermA collection of investments
- DiversificationTermSpreading investments to reduce risk
- Asset allocationTermDividing investments among categories like stocks and bonds
- Risk toleranceTermHow much loss an investor can accept
- VolatilityTermHow much and how quickly a price moves
- Bull marketTermA period of rising prices
- Bear marketTermA period of falling prices, often 20 percent or more
- DividendTermA payment from a company to shareholders
- Dividend yieldTermAnnual dividend divided by share price
- Capital gainTermProfit from selling an asset for more than its cost
- Capital lossTermA loss from selling an asset for less than its cost
- Market capitalizationTermShare price times number of shares
- P/E ratioTermPrice-to-earnings: share price divided by earnings per share
- Earnings per shareTermProfit divided by number of shares
- Blue chipTermShares of large, established, stable companies
- Stock exchangeTermA marketplace where securities are traded
- Stock market indexTermA measure of a group of stocks, like the S&P 500
- BrokerageTermA firm that buys and sells securities for clients
- Expense ratioTermAnnual fund fee as a percent of assets
- LiquidityTermHow quickly an asset can be turned into cash
- YieldTermThe income return on an investment
- MaturityTermThe date a bond or loan is due
- CouponTermA bond's stated interest payment
- Treasury billTermA short-term US government security
- Credit ratingTermAn evaluation of a borrower's ability to repay
- Junk bondTermA higher-risk, lower-rated bond
- HedgeTermAn investment made to reduce risk
- OptionTermA contract giving the right to buy or sell at a set price
- Short sellingTermSelling borrowed shares hoping to buy them back cheaper
- MarginTermBorrowing from a broker to invest
- Dollar-cost averagingTermInvesting a fixed amount at regular intervals
- RebalancingTermAdjusting a portfolio back to target allocations
- Compound annual growth rateTermSmoothed yearly growth rate over a period
- BubbleTermPrices far above underlying value that later fall sharply
- RecessionTermA significant decline in economic activity
- Interest rateTermPercent charged or paid for the use of money
- Central bankTermThe national bank that manages money and interest rates
- FiduciaryTermSomeone legally required to act in a client's best interest
- AnnuityTermA series of regular payments
- Insurance premiumTermPayment made to keep an insurance policy
- DeductibleTermAmount you pay before insurance pays
- OverdraftTermSpending more than the account holds
- Wire transferTermElectronic transfer of money between banks
- CryptocurrencyTermA digital currency secured by cryptography; prices are highly volatile
- Ponzi schemeTermFraud paying early investors with money from later ones
- Identity theftTermMisuse of someone's personal information to commit fraud
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