ABCs of Investing

Asset Allocation: Dividing your investments among different asset classes (stocks, bonds, cash) to balance risk and reward.

Annual Percentage Yield (APY): The total interest earned on an investment or savings over a year, including compounding.

Budget: A plan for managing income and expenses to save for financial goals.

Bond: A fixed-income investment where you lend money to an entity (government or corporation) in exchange for regular interest payments.

Compound Interest: Interest calculated on the initial principal and on accumulated interest from previous periods.

Certificate of Deposit (CD): A savings product with a fixed interest rate and maturity date.

Emergency Fund: Savings set aside to cover unexpected expenses, typically 3–6 months of living costs.

Exchange-Traded Fund (ETF): A type of investment fund traded on stock exchanges, combining the diversification of mutual funds with stock-like liquidity.

Expense Ratio: A fee charged by mutual funds or ETFs for managing the fund.

Financial Goal: A specific target for saving or investing, such as buying a house or retiring comfortably.

Fixed Income: Investments that provide regular interest payments, like bonds.

Growth Stock: Shares in a company expected to grow faster than average, often reinvesting profits rather than paying dividends.

Gross Income: Total earnings before taxes and deductions.

High-Yield Savings Account (HYSA): A savings account offering a higher interest rate than traditional savings accounts.

Hedge Fund: An alternative investment using various strategies to achieve high returns, often accessible only to accredited investors.

Index Fund: A fund designed to track the performance of a specific market index, such as the S&P 500.

Inflation: The rate at which the general level of prices for goods and services rises, eroding purchasing power.

Joint Account: A bank or investment account shared by two or more individuals.

Junk Bond: A high-risk, high-yield bond issued by companies with lower credit ratings.

K-1 Form: A tax document for reporting income from partnerships, trusts, or estates.

Keogh Plan: A retirement savings plan for self-employed individuals or small business owners.

Liquidity: The ease with which an asset can be converted into cash without losing value.

Load: A sales charge or commission for purchasing or selling a mutual fund.

 

Mutual Fund: A pooled investment managed by professionals, investing in a mix of assets like stocks and bonds.

 

Market Risk: The risk of losses due to changes in market conditions.

 

Net Worth: The difference between your total assets and liabilities.

 

Nest Egg: Savings accumulated for future financial security, such as retirement.

 

Option: A financial contract giving the buyer the right, but not the obligation, to buy or sell an asset at a set price within a specific timeframe.

 

Overdraft: Spending more than your account balance, often resulting in fees.

 

Portfolio: A collection of investments owned by an individual or institution.

 

Principal: The original sum of money invested or borrowed.

 

Qualified Retirement Plan: A retirement savings plan meeting IRS requirements, such as a 401(k) or IRA.

 

Quarterly Earnings: A company’s financial results reported every three months.

 

Risk Tolerance: An investor’s ability and willingness to endure losses in pursuit of potential gains.

 

Roth IRA: A retirement account where contributions are made with after-tax dollars, and withdrawals in retirement are tax-free.

 

Stock: A share of ownership in a company.

 

Sinking Fund: Savings set aside for specific, future expenses.

 

Tax-Advantaged Account: Accounts like IRAs or 529 plans that offer tax benefits for saving or investing.

 

Target-Date Fund: A mutual fund that automatically adjusts its asset mix as a specific target date, such as retirement, approaches.

 

Undervalued Stock: A stock believed to be priced below its true value.

 

Volatility: The degree of variation in an investment’s price over time.

 

Value Stock: Shares of a company considered undervalued compared to its fundamentals.

 

Withholding: Taxes taken out of your paycheck by your employer and sent to the government.

 

Yield: The earnings generated from an investment, expressed as a percentage of its cost or current market value.

 

Year-to-Date (YTD): The period starting from the beginning of the current calendar year to the current date.

 

Zero-Coupon Bond: A bond sold at a discount that doesn’t pay periodic interest but matures at its face value.