Asset Allocation and Investing Fundamentals

A set of vocabulary flashcards defining fundamental investment terms and financial concepts.

Asset Allocation

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

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.

Capital Gain

Profit from the sale of an asset, such as a stock or a bond, calculated by subtracting the price you initially paid from the price you then sold it for.

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 quarterly 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 element of investing because no one is choosing the individual stocks.

Individual Retirement Account (IRA)

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

Inflation

A general increase in prices and fall in the purchasing value of money.

Investing

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

Market Capitalization

Market value of a company’s outstanding shares calculated by multiplying the current share price by the number of shares outstanding.

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.

Nasdaq

The second-largest stock exchange in the world behind the NYSE.

New York Stock Exchange (NYSE)

The world’s largest stock exchange, physically located in New York City.

Portfolio

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

Rate of Return

The ratio of money gained or lost on an investment relative to the amount of money invested; also known as ROI.

Risk

The degree of uncertainty 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.

Stock

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

Traditional 401 (k) Plan

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 This allows an individual to save for retirement and have the savings grow while deferring taxes until funds are withdrawn.

Cost of Attendance (COA)

Total expense of going to college, including tuition, room and board, fees, books, supplies, and transportation. Also known as Sticker Price.

Loan Default

Long-term failure to repay a loan according to the agreed terms, negatively impacting the borrower's credit score.

Loan Deferment

A process allowing a borrower to pause their federal student loan payments; interest does NOT accrue during this time on subsidized loans.

Direct Plus Student Loan

A federal loan available to graduate students and eligible parents of undergraduate students to help pay for education costs.

Direct Subsidized Student Loan

A federal student loan for undergraduate students where the federal government pays interest while the student is in school at least part-time.

Direct Unsubsidized Student Loan

A federal student loan available to undergraduate and graduate students; the student pays the interest while in school.

Expected Family Contribution (EFC)

An index number determining eligibility for federal student financial aid based on information from the FAFSA.

Fixed Rate Loan

A loan with an interest rate that remains unchanged for the loan's duration.

Free Application for Federal Student Aid (FAFSA)

A free online application for current or prospective college students to determine their eligibility for financial aid.

Gift Aid

Financial aid that does not have to be repaid, such as scholarships and grants.

Grants

Student aid that does not need to be repaid, sourced from federal, state, or private entities.

Pell Grant

A federal grant for undergraduates displaying exceptional financial need; this grant does not require repayment.

Principal

The original amount of money borrowed, excluding interest or fees.

Scholarship

Aid awarded based on academic merit or achievements, which does not need to be repaid.

Student Aid Report (SAR)

A report received after submitting FAFSA, containing EFC, Pell Grant eligibility, and financial aid package information.

Work-Study

A federal program providing part-time jobs for students with financial need to help pay education expenses.

Tuition

The sticker price for the academic portion of college expenses, excluding room and board or additional fees.

Tax Form 1040

The standard IRS form used for filing annual income tax returns.

Allowances

Employee-claimed exemptions on the W-4 to determine tax withholding from paychecks.

Dependent

Someone financially supported by another, who can be claimed on a tax return.

Exemption

The amount of money deducted from taxable income for each dependent.

Federal Insurance Contributions Act (FICA)

A federal law requiring employers to withhold taxes from employee wages for Social Security and Medicare.

Filing Status

Category defining the type of tax return to be used, primarily based on marital status.

Income Tax

Taxes deducted directly from employee paychecks for federal and state governments.

Medicaid

A government insurance program providing healthcare assistance to low-income individuals.

Medicare

A government insurance program offering healthcare assistance to the elderly and disabled.

Paycheck Stub

A document detailing earnings and amounts withheld for taxes and other deductions for each paycheck.

Social Security

A federal program providing monthly benefits to retirees, military families, and disabled individuals.

Standard Tax Deduction

A specific dollar amount reducing taxable income.

W-2

A form reporting an employee's annual wages and taxes withheld to the IRS.

W-4

A form completed by an employee indicating tax situation for withholding purposes.

FDIC Insurance

Protection from the Federal Deposit Insurance Corporation, safeguarding deposits up to $250,000 per account.

Budget

A plan for expected income and expenses over a period of time.

Cost of Living

The amount needed to maintain a certain living standard, including basic expenses.

Budget Deficit

A situation where expenses exceed income.

Expenses

Items or services paid for, including rent, groceries, and entertainment.

Gross Pay

Total earnings before any deductions.

Net Pay

Total earnings after all deductions; also known as take-home pay.

Pay Yourself First

A strategy focusing on saving a specified amount before spending other funds.

Annual Percentage Rate (APR)

The yearly cost to borrow money, expressed as a percentage.

Credit

An agreement where a borrower receives value now and repays the lender in the future, usually with interest.

Credit Bureau

A company that collects and sells information about individual credit management.

Credit History

A record of a person's credit use over time; affects 15% of the credit score.

Credit Report

A document detailing a person's credit activity and history.

Credit Score

A three-digit number (300-850) representing an individual's creditworthiness, based on their credit history.

FICO Score

The most commonly used credit score.

Payment History

A record of payments made on credit; accounts for 35% of the credit score.

CHIP

Children's Health Insurance Program providing low-cost health coverage to children in families above Medicaid limits.

Claim

A formal request to an insurance company for payment based on policy terms.

Collision Auto Coverage

Auto insurance covering repair costs for your vehicle after a crash.

Comprehensive Auto Coverage

Auto insurance covering repairs or replacement due to non-collision events like theft or vandalism.

Insurance Deductible

The amount paid out of pocket before insurance coverage begins.

Disability Insurance

Insurance providing payments to individuals unable to work due to injury.

Insurance

An agreement for regular payments to an insurer in exchange for financial coverage for losses or injuries.

Liability Auto Coverage

Insurance covering medical costs for injuries to others and property damage if at fault in an accident.

Personal Injury Protection

Auto insurance covering your own medical bills after an accident.

Premium Insurance Payment

The amount required periodically to maintain insurance coverage.

Renter’s Insurance

Property insurance covering personal property losses and personal liability.

Risk

Exposure to danger or loss.

Uninsured/Underinsured Automobile Coverage

Auto insurance protecting against losses when the other driver lacks sufficient insurance.