Personal finance and investing glossary: Terms to know that can help you manage money and reach financial goals

Personal finance and investing glossary: Terms to know that can help you manage money and reach financial goals

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When it comes to managing your money and planning to reach long-term financial goals, understanding the language is key. This glossary of terms focused on money management, saving, investing, retirement planning, loans, and other areas of personal finance can help you decipher the jargon you’re likely to encounter along the way.


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10-k form: An report filed annually with the SEC detailing a public company’s business and financial condition.

10-q form: A quarterly report filed with the SEC detailing a public company’s business and financial condition.

401(k) plan: An employer-sponsored retirement plan where employees can contribute their pre-tax income, frequently supplemented by additional funds provided by the employer, that can grow tax-free.

50/30/20 rule: A popular rule of thumb in personal budgeting that allocates income into three categories: 50% to “needs,” 30% to “wants,” and 20% to “savings or debt payment.”

529 plan: A state-run, tax-advantaged account earmarked for educational expenses, from kindergarten up through graduate school, and student loan paybacks.


Amortization: The process of paying off debt by spreading it out into regular fixed payments that include principal and interest.

Annual percentage yield (APY): The rate of return you earn over a year on deposit accounts, like CDs, savings, and checking, that takes into account the the effects of compounding interest.

Annuity: A contract issued by an insurance company designed to provide a secure income stream throughout the entirety of your retirement years.

American depositary receipt (ADR): A certificate that’s tradeable on US stock exchanges representing ownership of shares of a foreign company. 


Balance transfer credit card: A type of credit card that lets you transfer debt from other credit cards onto it in order to take advantage of lower interest rates.

Bankruptcy: A legal procedure that helps individuals and businesses resolve outstanding debts while also fairly managing the payments owed to creditors.

Beta: A measure of how an investment changes relative to a broader index that can be helpful in determining whether a stock, fund, or entire portfolio could experience large swings in the future.  

Bond: A fixed-income security that represents the ownership of debt and serves as a loan between a company or government and an investor.


Capital gains: Profits derived from selling capital assets such as financial investments, real estate, personal property, or collectibles.

Cash back: A type of credit card benefit that returns a small percentage of cash back to your account from the money you spend using the card; also called cashback.

Certificate of deposit (CD): A type of savings account that maintains a specific interest rate for a set period of time. Money taken out before the maturity date may also require paying an early withdrawal penalty.

Certified financial planner (CFP): A trade-industry designation for advisors and other professionals in the financial field who are held to a strict code of ethics and professional standards.

Claim: A request made by a policyholder for their insurance company to pay for damages or loss.

Conforming mortgage: A mortgage that meets the requirements to be purchased by Fannie Mae or Freddie Mac.

Conventional mortgage: A mortgage that isn’t backed by a government agency.

Common stock: The category of stock held by the majority shareholders, which gives them an ownership stake in the company and, in most cases, voting rights.

Compound interest: The interest on a loan or deposit that is based on the original principal amount borrowed or invested as well as the accumulated interest from previous periods.

Community development financial institution (CDFI): A mission-driven financial institution or nonprofit organization that has been certified by the US Department of Treasury to serve its local community. 

Consumer Price Index: A measure of US inflation that tracks the average change in prices that urban consumers pay for goods and services over a specified period; commonly referred to as the CPI.

Cosigner: A person who agrees to assume responsibility for repaying a loan if the borrower doesn’t pay.

Cost of attendance: The overall cost of your education, including tuition, room and board, books, travel, and other miscellaneous expenses.

Credit score: A number between 300 and 850 that represents your creditworthiness, derived by taking into account factors like payment history, credit mix, and the total amount you owe.

Cryptocurrency: Digital assets that rely on blockchain technology to allow for decentralized transactions between multiple parties.


Deductible: A fee paid out of pocket by a policyholder before an insurance company compensates for a claim. 

Direct PLUS loan: Short for “Parent Loan for Undergraduate Students,” these loans offered by the federal government can help pay for expenses not otherwise covered by a student’s financial aid.

Dividend: A periodic payment made to investors who own stock in a company, fund, or partnership, as a way to distribute earnings.

Dividend reinvestment plan (DRIP): An investment option that uses dividends earned from a stock to reinvest in the same company.


Earnest money: A good-faith deposit you put on a house to demonstrate intent to buy it and pull it off the market.

Estate tax: A one-time tax on a person’s assets after their death imposed by the federal and some state governments that generally applies to estates exceeding $12 million.

Exchange-traded fund (ETF): A fund that invests in assets such as equities, bonds, and commodities that allows investors to buy and sell shares of it in the same way they do stocks.

Ex-dividend date: The date by which you need to be holding a stock in order to receive dividends for that dividend period.


FHA mortgage: A mortgage offered by a private bank or lender that’s insured by the Federal Housing Administration

Fiduciary: A fiduciary is a financial professional (e.g., financial advisor or insurance agent) who is legally required to place each client’s best interests over their own. 

Fiscal policy: How a government manages spending and taxation levels in ways intended to influence the economy.

Fundamental analysis: An approach to stock analysis that examines fundamentals such as earnings, cash flow, and financial position to forecast performance.

Fungible: Refers to items or commodities that can be exchanged with other assets or commodities of the same type, such as currency, commodities, and precious stones. 


Grant: A type of financial aid that doesn’t need to be repaid.

Gross income: An individual’s total income before taxes and other deductions, or a company’s total revenue minus its cost of goods sold. 

Growth investing: A long-term, high risk and high reward investment strategy that prioritizes growth stocks.

Growth stocks: Stocks from a company that is expected to significantly outperform the market. They usually have a high price-to-book ratio and offer little to no dividends, because the company is reinvesting in themselves.


Hard inquiry: A credit check that lenders pull when reviewing an applicant for a new line of credit.

High-yield savings account: A type of bank account offered by online banks or credit unions that offers a higher interest rate than traditional savings accounts.

Home equity loan: A secured loan in which the equity the borrower has in their home serves as collateral for the lender.


Initial public offering (IPO): When a private company first sells shares of its stock to public investors.

Institutional investor: A company or organization that invests pooled assets on behalf of its clients; examples include hedge funds, mutual funds, and endowments. 

Interest: The amount you pay a lender for the privilege of using its money or that a bank pays you on your deposits that is calculated as a percentage of the balance. 

Inflation: The increase in the prices of goods and services in an economy over time, measured in the US primarily by the Consumer Price Index.


Jumbo loan: A mortgage that exceeds the borrowing limit for regular mortgages set by the Federal Housing Finance Agency. 

Junk bond: A bond that falls below the investment-grade ratings provided by credit rating agencies, meaning their issuers are more likely to default.


Keogh plan: A type of tax-deferred retirement investment account for business owners, self-employed workers, and those who work for unincorporated businesses.


LEAPS options: Long-term stock options that expire anywhere from one to three years after their creation; short for Long-Term Equity Anticipation Securities.

Leverage: A strategy that involves tapping into borrowed capital to bolster the potential return of an investment.

Liquidity: The amount of money that is promptly available to meet debts or to use for investment, whether in cash or assets that can be quickly converted to cash.


Margin call: A condition that occurs when the value of a brokerage account falls below a certain level abd the investor is required to deposit more money, sell off some of the investments, or add more marginable assets.

Minority depository institution (MDI): A bank or credit union where more than half of the board directors or voting stock are Black American, Native American, Hispanic American, or Asian American.

Momentum investing: An investing strategy that focuses on the rate of change in a stock’s price over a period of time on the belief that if a stock’s price is increasing, it will continue to increase in the intermediate term.

Monetary policy: The framework established by a nation’s central bank to achieve and maintain economic growth and stability by controlling the amount of money available to banks, businesses, and consumers.

Mortgage: A type of secured loan that is used to purchase a home.

Mutual fund: An investment portfolio that uses a pool of money from large numbers of people to purchase stocks, bonds, or other securities. 


Nasdaq: Short for National Association of Securities Dealers Automated Quotation, an electronic exchange made up of more than 3,600 stocks. 

Net income: The amount an individual or business makes after deducting costs, allowances, and taxes.

Net worth: The total value of your financial assets minus your liabilities, or debts.

Non-fungible token: NFT for short, a unique digital asset that represents ownership of real-world items like art, video clips, music, and more.


Options: Contracts that give buyers the right to buy (in the case of a call option) or sell (in the case of a put option) an underlying asset for a set price on or before a specific date in the future. 

Overdraft: An amount of money that the bank allows you to spend beyond the amount you have in your account that you must pay back, usually along with an additional fee.


Peer-to-peer lending: The process of obtaining financing from other individuals, as opposed to a bank or credit union, typically using internet platforms that connect borrowers with lenders.

Permanent life insurance: A policy that lasts your entire life, accrues cash value, and offers a guaranteed death benefit at level premiums. 

Premium: A fee paid in either monthly or yearly increments toward an insurance policy. 

Penny stocks: Securities that trade at less than $5 per share, often in unsupervised over-the-counter markets.

Personal loan: Money you borrow from a bank that can be used for a variety of purposes that you borrow from a bank, credit union, or online lender and pay back with interest over time.

PITI: Short for Principal, Interest, Taxes, and Insurance — the four elements that make up your mortgage payment. 

Prospectus: A legal document that a company files with the SEC that details a potential investment offering for sale to the public.


Qualified dividends: Dividend payments that meet certain requirement and are taxed at the long-term capital gains rate, which is lower than the regular income tax rates paid in ordinary dividends.

Quantitative easing: A monetary policy in which a nation’s central bank attempts to boost the economy by purchasing a large number of long-term securities in the open market to increase the money supply and stimulate lending and investment.


Required minimum distribution (RMD): The minimum amount that has to be withdrawn each year from a retirement account, typically by retirees who are 72 and older.

Return on investment (ROI): A commonly used measure of profitability calculated by subtracting the cost of an investment from its current value and then dividing by the cost. 

Retail investor: A nonprofessional trader who buys and sells securities through a brokerage account.

Russell 2000 Index: A stock index that tracks the performance of 2,000 small-capitalization companies that is often looked at as a measure of the underlying health of the US economy.


Secured credit card: A credit card with a line of credit backed by and equivalent to a security deposit paid when the card was opened. 

Secured loan: A loan geared toward those with little to no credit history that is backed by an asset that’s used as collateral in case the borrower cannot repay it.

Second chance banking: Financial institutions will not review a person’s banking history and offer temporary banking services, so that a person still has access to financial tools.  

Social Security: A program run by the federal government and funded by payroll taxes that provides benefits to retirees, their survivors, and workers who become disabled.

Standard deviation: A statistic that measures how dispersed a dataset is relative to its mean. Within the context of investing, standard deviation is used to measure the total risk of an asset or portfolio.

Sharpe ratio: A measure of an investment asset’s average returns relative to the potential risks of holding it.

Shrinkflation: The act of downsizing the size or quality of a good while holding its sticker price constant, such as reducing the size of candy bars or the number of sheets in a roll of toilet paper.

Stock: An equity security that represents partial ownership of a company.

Stock buyback: When a company repurchases shares of its own stock from public investors, which reduces the number of shares freely trading and usually boosts their value.

Stock split: When a company makes its stock more affordable by dividing its existing shares into additional, less expensive shares.

Subsidized loan: A student loan made by the federal government in which the government will pay the interest on the loan until a grace period of six months after you graduate has expired. 

S&P 500: A widely followed stock market index that follows the performance of the 500 largest companies listed on US stock exchanges.


Technical analysis: A securities analysis methodology that uses historical price, volume, and and trading data to predict future price movements.

Term life insurance: A policy that covers you for a selected period of time. Premiums usually increase after your term is up. 

Treasury bond: A government-backed debt security that’s issued by the US Treasury to raise money to support federal spending.

Trust: A legal entity that can hold almost any asset, including real estate, bank accounts, investment accounts, business interests, and life insurance policies.


Unbanked: A person who does not use or have access to a bank account.

Underwriting: The process of taking on risk in a financial transaction, typically a loan, insurance, or investments.

Unsecured loan: Any kind of debt that doesn’t involve collateral, such as credit cards, personal loans, and student loans.

USDA mortgage: A mortgage offered by a private bank or lender that’s guaranteed by the Department of Agriculture. These mortgages are only available in rural and some suburban areas, to borrowers who meet income limits.


Value investing: A strategy based on finding and buying stocks of companies that are priced below their intrinsic worth. 

VA mortgage: A mortgage offered by a private bank or lender that’s guaranteed by the Department of Veterans Affairs, available to military members, veterans, and their spouses.

Vesting: Refers to how much ownership an employee has in employer-sponsored retirement and stock-incentive plans.


W-2 form: The form you receive from your employer reporting your income, how much tax was withheld, and other information that you use to prepare your income tax return.

Withholding allowance: An exemption that lowers the amount of income tax that must be deducted from an employee’s paycheck.

Wash sale rule: A rule that prevents investors from selling a security at a loss and rebuying it immediately for tax-loss harvesting purposes by requiring investors to wait 30 days before repurchasing.


Xenocurrency: Refers to currency that is circulated of traded outside of the country where it was issued.


Yield: A measure of income an investment generates beyond its principal, usually in the form of interest or dividends.

Yankee bond: A term used to describe a foreign entity’s bond that is issued and traded in the US and denominated in dollars. 


Zero-coupon bond: A bond that does not pay coupon payments and instead is issued at a discount to its face value and will generate a return when it matures

Zombie companies: A term used to describe companies that earn barely enough money to continue paying the interest on their debts.

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