Basic Financial Concepts

What is compound interest?

Compound interest is interest calculated on the initial principal, which also includes all of the accumulated interest from previous periods on a deposit or loan. It can be calculated with the formula: A = P(1 + r/n)^(nt), where A is the amount of money accumulated after n years, including interest, P is the principal amount, r is the annual interest rate (as a decimal), n is the number of times that interest is compounded per year, and t is the number of years the money is invested or borrowed for.

What is diversification?

Diversification is a risk management strategy that involves spreading your investments across a variety of assets. This ensures that if one investment performs poorly, the impact on your overall portfolio is minimized and can potentially lead to higher returns and lowers the level of risk.

What are retirement accounts?

Retirement accounts are savings accounts specifically designed to help you save for retirement, offering tax advantages to encourage long-term savings. Examples include 401(k)s, IRAs, and Roth IRAs.

What is a 401(k)?

A 401(k) is a retirement savings plan sponsored by an employer, allowing employees to save and invest a portion of their paycheck before taxes are taken out. Employers may match contributions up to a certain percentage.