Glossary of Financial Terms

Terms:

• Asset: Anything of value owned, such as cash, real estate, or investments.
• Diversification: Risk management by investing in different asset types.
• Portfolio: The total collection of an individual’s or institution’s investments.
• Return on Investment (ROI): Profit or loss from an investment, expressed as a percentage.
• Risk Tolerance: Level of risk an investor is willing or able to take.
• Capital Gain: Profit made from selling an investment at a higher price than purchase.
• Liquidity: How quickly an asset can be converted to cash without affecting its price.
• Compounding: Earning returns on both the original investment and previous gains.
  

Terms:

• Stocks (Equities): Ownership shares in a company.
• Bonds: Debt securities that pay interest over time.
• Mutual Funds: Pooled investments managed by professionals.
• ETFs (Exchange-Traded Funds): Funds traded like stocks but holding diversified assets.
• Alternative Investments: Assets like real estate, hedge funds, or commodities.
• REITs (Real Estate Investment Trusts): Companies that own and manage income-producing properties.
• Options: Financial contracts giving the right to buy/sell an asset at a set price.
• Cryptocurrency: Digital or virtual currency secured by cryptography (e.g., Bitcoin).
  

Terms:

• Asset Allocation: Strategy for dividing investments across categories (e.g., stocks vs. bonds).
• Estate Planning: Organizing how assets will be handled after death.
• Emergency Fund: Cash reserves for unexpected events or expenses.
• Net Worth: Total assets minus liabilities.
• Tax-Deferred: Earnings taxed later, not in the year earned.
• Cash Flow: Inflow and outflow of money, typically monthly.
• Financial Goals: Specific objectives for saving, investing, or spending.
• Time Horizon: The period over which an investment goal is expected to be met.
  

Terms:

• 401(k): Employer-sponsored retirement account with tax advantages.
• IRA (Individual Retirement Account): Personal retirement savings plan.
• Roth IRA: Tax-free withdrawals in retirement after taxed contributions.
• RMD (Required Minimum Distribution): Mandatory withdrawals from retirement accounts after a certain age.
• Pension: Employer-provided retirement income based on tenure and salary.
• SEP IRA: Retirement plan for self-employed individuals or small business owners.
• Annuity: Insurance contract providing income in retirement.
• Social Security: U.S. government retirement and disability benefits program.
  

Terms:

• Bull Market: Market trend characterized by rising prices.
• Bear Market: Market trend characterized by falling prices.
• Inflation: Rise in prices over time, reducing purchasing power.
• Interest Rate: Cost of borrowing money, often set by central banks.
• Volatility: Degree of variation in asset prices over time.
• Market Capitalization: Total value of a company’s shares of stock.
• Dividend: A portion of a company’s earnings distributed to shareholders.
• Index: A benchmark that tracks the performance of a group of securities (e.g., S&P 500).
  

Terms:

• Fiduciary: Legally required to act in a client’s best interest.
• AUM (Assets Under Management): Total value of client assets managed by a firm or advisor.
• Fee-Based: Advisors earn income through a combination of fees and commissions.
• Fee-Only: compensated exclusively by their clients' fees, not by commissions or other sales related payments. They have a fiduciary duty to prioritize their clients' interests, meaning they must act in the best interests of their clients and are not incentivized to recommend specific products or investments based on their own or the firm's financial gain.
• Commission: Payment received for executing a transaction.
• Advisory Fee: Ongoing charge for portfolio management and financial planning.
• Robo-Advisor: Automated investment platform using algorithms and minimal human oversight.
• Suitability Standard: Requirement that recommendations suit the client’s needs but not necessarily be the best.
  

Terms:

• Trust: Legal arrangement for holding assets for someone’s benefit.
• Beneficiary: Person named to receive assets or insurance payouts.
• Power of Attorney (POA): Legal authority to act on someone else’s behalf.
• Will: Legal document specifying how assets should be distributed upon death.
• Inheritance: Assets passed down to heirs after someone’s death.
• Probate: Legal process of validating a will and distributing assets.
• Executor: Person appointed to carry out the terms of a will.
• Living Will: Document outlining healthcare preferences in case of incapacitation.