Glossary Terms

The 401K is the primary type of retirement savings for Americans. 401K plans are sponsored by your employer and allow you to automatically contribute a fixed dollar or percentage amount of your income into a retirement account. Many employers, in an effort to offer benefits to employees, will also contribute to this retirement account on your behalf as well.

Used for the transfer of money, an ACH or Automated Clearing House is the primary system banks use for electronic funds transfers.

The process and/or structure of paying off a loan in gradual calculated payments. Amortization spreads the associated cost of the principal and interest over a predetermined time frame so that the loan is paid of by an expected date.

An item someone has ownership of that they expect to increase in value, an asset can be anything from ones home to a stock portfolio to their rare coin collection. Assets may be either tangible (like factories, produced goods or physical items) or intangible (like good reputation, brand name/logo, or extraordinary talent).

A person who receives the monetary benefit from something upon the death of its owner. Financial beneficiaries are most often entitled to cash, stock, real estate or business ownership.

A linked network of computers that process financial or other transactions, blockchain is a new and exciting technology that allows a system to operate without a central authority simply by being run by many computers in a decentralized manner.

The process by which bondholders are paid back in full, bond redemption is the act of going back to whoever issued they bonds when they are due, and receiving your initial principal or face value investment back.

A process by which founders of new companies self fund. Bootstrapping involves business owners taking out personal credit cards or loans to fund business endeavors when their business is too new to get a traditional business loan.

A platform or company who performs trading, a brokerage assists clients in the purchase and sale of assets.

The best type of investment strategy, buy and hold is simply that, buying an asset or investment and holding it for as long as possible, often for life.

Stands for compound annual growth rate or CAGR, this details the average annualized return of an investment over a certain number of years. If the investment has doubled in 10 years, the CAGR would find the rate at which the investment needs to grow annually to make the doubling happen.

Levied on investments that increase in market value, capital gains taxes are what an investor must give to the taxman on their winning stocks, bonds or other securities.

Tasked with the final step in securities transactions, a clearing firm works with the regulated exchanges to process the settlement and completion of trades.

A collateralized loan grants the lender access to the collateral in the event the borrower can no longer pay. The most common form of this is the mortgage, which is collateralized by the house itself. If the borrowers cannot pay their mortgage, the bank will take back their house and sell it to recoup the losses.

This is where debts go when they haven't been paid in an extended period of time. Collections generally occur after the 6 month mark, when the original lender hands the debt over to a specialized debt collection agency who tracks the borrower down to receive payment.

Most easily thought of as an economic resource, commodities are raw materials or primary agricultural goods utilized by a variety of end users to create more advanced goods. Commodities are different from other assets in that each individual unit is not differentiated from others; a bushel of wheat is a bushel of wheat, a barrel of oil is a barrel of oil, regardless of where or when these items originated.

This is the process by which an investment or loan grows its balance. Compound interest is interest or return on the aforementioned calculated based on both the initial principal and the so far accrued interest or return.

Bonds issued by big companies, corporate bonds are the preferred method for large enterprises to raise money, as selling stock can often be expensive and time consuming.

Measuring the extent to which two securities price movements are related, correlation is an important tool in portfolio construction as it shows an investor where their risk and returns may be concentrated.

The annual interest rate payment on a bond expressed as a percentage of its face value, the coupon is the amount a bondholder can expect to receive each year they hold the bond.

Another term for borrowed money, credit refers to money a lender (normally a bank or credit card company) has extended a person. This could be a mortgage, student or auto loan, business loan or regular credit card.

The different types of credit one has, credit mix is the combined picture of all mortgage, student, auto and credit card debts and their respective balances as a percentage of the whole.

Currencies born of the internet and on blockchains, crypto or cryptocurrency is a new type of digital money not backed by any government or overseen by any bank.

Agencies tasked with collecting on bad debts, debt collectors often buy bad debt from hospitals, credit card companies and auto dealerships and track down those the debt belongs to in order to collect payment.

Also known as credit utilization, the Debt-to-Credit Ratio measures how much outstanding debt you have as a percentage of your total credit limits.

An amount of money an insured party must pay before the insurance benefit will kick in. Anything past the deductible amount the insurance must pay.

The instance in which a bond issuer can no longer make coupon payments to its creditors. When bonds go are marked as in default, it is often a very bad sign for the company or entity issuing them.

Bonds that trade below face value, discount bonds have been sold aggressively in the market and may come with higher yields.

The process of putting your eggs into different baskets, diversification makes sure an investor has his assets spread between different asset classes, securities or investment types.

DTI stands for Debt-to-Income Ratio, which compares how much you owe with how much you make each given month.

Something everyone should have before beginning to invest, the Emergency Fund is recommended to be 3-6 months of active living expenses.

Stands for Environmental, Social, Governance. ESG is an acronym for the investment strategies that focus on company practices in these three categories.

Stands for "Exchange Traded Fund", an ETF is a investment vehicle that trades on the major stock exchanges and aims to track a certain index or investment strategy. In comparison with mutual funds, ETFs are often cheaper, more tax efficient and have greater liquidity.

The fees charged by a fund company for running its mutual fund or ETF. The expense ratio is quoted as a percentage of the funds share price and is subtracted annually.

Your expenses are the items you spend money on over a given period of time, most commonly monthly or annually. Expenses include discretionary items such as meals out or new toys and non-discretionary items like rent, food, gas and utilities.

Insurance meant to stabilize deposits in the financial system, FDIC Insurance is issued by the Federal Deposit Insurance Corporation.

The central banking system of the United States, the Federal Reserve System regulates and supervises large systemically important financial institutions.

The action a bank or lender takes when a person or family fails to make mortgage payments. Foreclosure is the act of taking possession of the house and kicking its current inhabitants out.

Something everyone should have, health insurance aids with the high costs of going to the doctor and is often provided by employers.

The amount of your house you own as opposed to owe on your mortgage, home equity represents your vested interest in a residential real estate property.

Your income is how much money you take in over a certain period of time, most commonly monthly or annually. Income can come from many sources such as wages, salary, investment/rental income, social security or insurance/retirement benefits.

A special type of fund meant to track the results of a specified index, an S&P 500 index fund will on average, after expenses and fees, return the same as the S&P 500. There are many index funds tracking many different indices.

The process by which a currencies buying power erodes, inflation can also be interpreted as goods costing more over time.

This marks an important credit event where a possible lender pulls credit on an applicant. An inquiry means a person is actively seeking some sort of loan or a business entity is looking into the credit characteristics of a given individual. Credit reports often accompany inquiries.

The amount an entity or person charges another for extending them credit, interest is most often quoted as a rate and can be easily understood as the cost of borrowing.

Initial Public Offering or IPO, is the first time a companies shares are available on the public markets for purchase.

Standing for "Individual Retirement Account", an IRA provides either a tax break up front (Traditional) or when withdrawn (Roth).

A running list of transactions, a ledger is meant to serve as a history for future analysis.

A financial tool whereby someone borrows money to make an investment they could otherwise not afford, leverage is most commonly seen on households balance sheets in the form of a mortgage but could also look like companies buying other companies or borrowing money to put on a certain expensive stock trade.

An important policy anyone with dependents should have, life insurance pays out benefits to loved ones and close family members in the event of the insured parties death.

The ease at which an asset switches hands, liquidity is considered good or high in markets like stocks, bonds and commodities and bad or low in markets like real estate, private equity, and alternative investments.

A possible fee charged by a mutual fund to get into the fund, also known as a sales load. The load fee is quoted as a percentage of the initial investment amount and therefore will set the investor back the fee percentage upon inception.

The least you can pay on a given debt balance without incurring fees, the minimum payment is charged monthly as a dollar amount based on your total outstanding balance.

A term used to describe a loan that is for the purchase and maintenance of land and real estate, the mortgage is quite possibly the most important consumer financial tool.

Bonds issued by state and local governments, municipalities or "muni's" for short often come with higher yields and better tax benefits then regular federal government issues.

Also known as the Net Interest Spread or Net Interest Margin, The Net Interest Rate Spread is the difference between the rate a bank gives those who deposit money and the rate at which they lend it out. Example: Chase has an average deposit APY of 2% and earns an average 5% on loans, setting their Net Interest Rate Spread at 3%.

A guaranteed retirement benefit employers offer employees by contributing to investments on their behalf, so that they grow enough to make the future payments. Think of a pension as a 401K but the company has full control.

An amount paid regularly to keep an insurance policy active, the premium is essentially the cost of your insurance.

Bonds that trade above face value, premium bonds have been bought aggressively in the market and may come with lower yields.

The initial amount of any investment or loan, principal is the original amount used in calculations before investment returns begin or interest income accrues.

A portfolio action used to help realize returns and control risk. Rebalancing is the simple act of selling winning investments and adding to losing ones. This is done to keep each allocation in the portfolio to a set in stone percentage and is generally done twice a year, on two memorable dates such as July 4th and New Year's Eve.

Overseen by a government or other industry body, a regulated exchange controls who may enter and participate in the market, along with ensuring its safety and honesty.

The same as Debt-to-Credit, but only for revolving credit. Revolving utilization is the balance on your revolving credit accounts (most often credit cards) as compared to your total allowed limit on them.

A word used by portfolio and asset managers to describe how much volatility someone is willing to stand in their investments. Risk tolerance, just like risk overall does not adhere to a specific measurement or definition per se, rather, there are many ways of quantifying it.

The largest and most actively followed gauge of the U.S. stock market, the Standard & Poor's 500 index tracks the 500 largest publicly traded American companies.

Out of your disposable or discretionary income you may choose to save some and/or spend some. Your savings rate is the percentage of your left over money after all your non-discretionary bills have been paid that you are able to save.

Assets that are publicly traded, securities represent investment interest in a common enterprise, ran by others, with the expectation of profit.

A non-profit, government adjacent organization, the SIPC provides the securities industry what the FDIC provides to banking.

An investing tool used to generate capital losses write-offs, tax loss harvesting is the process of selling a losing investment, realizing the capital losses and then replacing it with a very similar or identical position in the portfolio.

Something you probably can't do, timing the market is an incredibly daunting task. Investors who try to do this often lag the major market indexes in performance and subject themselves to lots of trading.

Bonds issued by the United States Treasury, treasuries are considered the safest form of investment as they are backed by the full faith and credit of the United States Government. Treasuries come in 3 types based on maturity: bills (1-52 weeks), notes (2-10 years), and bonds (20 or 30 years).

Referring to capital gains and/or losses, unrealized means a position that has yet to be sold, but will trigger a taxable event upon doing so. Stock that one holds at a price greater than what was paid for it has an unrealized gain. Stock held at a lower price than what was paid for it has unrealized losses. The gain or losses become realized when the investor sells the given security or investment.

The measured price oscillations of an investment, volatility is how much, on average, the asset fluctuates in price. Can also be interpreted as standard deviation.