Personal Finance - Investing

Asset Allocation

Dividing an investment portfolio among different asset categories, such as stocks, bonds, and cash

Asset Class

A group of financial instruments which have similar financial characteristics and behave similarly in the marketplace (like stocks, bonds, and cash)

Bear Market

A market in which prices are falling, encouraging selling

Bond

A security in which the investor loans money to a company or government, which then pays regular interest to the bondholder and returns the principal on the bond's maturity date

Bond Rating

A measurement of the likelihood that a bond holder will be paid back

Brokerage Account

An account that lets individual investors trade stocks, bonds, mutual funds, and other investments

Bull Market

A market in which there is increased stock trading and rising stock prices

Compound Interest

Reinvesting earned interest back into the principal to allow money to grow exponentially over time

Diversification

The practice of investing in a large variety of stocks, bonds, and/or funds as a way to reduce your overall risk

Dividend

Money from the profits of a company that is paid out to its shareholders, typically on a quartet basis

Dollar Cost Averaging

The practice of putting a fixed amount into an investment over a period of time, regardless of the price of that investment

Index Fund

A low fee portfolio of stocks chosen to track or mimic a stock market index, thereby removing the human element of investing because no one is choosing the individual stocks

IRA

An investing tool for individuals to earmark funds specifically for their retirement

Inflation

The rate which the price of goods increases and consumer purchasing power decreases over time

Investing

The process of setting money aside to increase wealth over time for long term financial goals such as retirement

Municipal Bond

A bond, often having tax advantages for individual investors, issued by a state or local government which typically uses the loan to pay for public works to benefit its citizens

Mutual Fund

A collection of stocks and or bonds combined into one fund which will be traded as a unit, typically chosen and actively managed by an expert in exchange for a fee from each investor

Pension

A retirement account, offered in some job sectors or companies, that an employer maintains to give an employee a fixed payout retirement

Portfolio

A collection of financial investments like stocks, bonds, commodities, cash, and cash equivalents, including mutual funds and ETFs

Rate of Return

The ratio on money gained or lost on an investment relative to the amount of money invested, also known as a return on investment ROI

Risk

Degree of uncertainties on how likely the investor is to make money on an investment

Roth IRA

An individual retirement account that allows a person to set aside after tax income up to a specified amount each year

Security

A financial asset, such as a stock or a bond, that can be bought and sold in a financial market

S&P 500

An index of 500 large cap companies chosen based on their size, industry, and other factors, used to represent the entire market

Social Security

A federal program that provides monthly benefits to millions of Americans, including retirees, military families, surviving families of deceased workers, and disabled individuals

Stock

A share of the value of a company, which can be bought, sold, or traded as an investment and which gives the investor small partial ownership of the company

Stock Exchange

A market where shares in corporations are bought and sold through an organized system

Target Date Fund (TDF)

A type of investment fund that rebalances its asset mix over time based on a projected retirement year

Treasury Bond

A bond, generally considered to be a risk free investment, issued by the US Treasury with a maturity of more than 10 years

Traditional IRA

An individual retirement account that allows a person to set aside pre tax income up to a specified amount each year

Traditional 401(K) Plan

A retirement savings plan, sponsored through your employer who will often match your contributions, that allows an individual to save for retirement and have the savings grow while deferring taxes until funds are withdrawn