Business: Investments and passive income

asset allocation

the distribution of investments across different asset types

compounding effect

growth generated when returns produce additional returns

capital appreciation

an increase in the value of an asset over time

risk-adjusted return

profit evaluated in relation to the risk taken

income-generating asset

an asset that regularly produces cash flow

portfolio diversification

reducing risk by spreading investments

opportunity cost

the value of the alternative choice not taken

financial leverage

using borrowed funds to increase potential returns

inflation erosion

the reduction of purchasing power over time

cash flow stream

a regular movement of money into an investment

wealth preservation

protecting assets from loss or decline

market volatility

frequent and unpredictable price changes

long-term capital growth

increasing wealth gradually over many years

financial autonomy

independence achieved through sufficient resources

investment horizon

the length of time an investment is expected to be held