First Investments

41 terms

401(k)

A US retirement account offered through an employer. Contributions can be pre-tax (traditional) or after-tax (Roth), and employers often match part of them.

APR

Annual percentage rate. The yearly cost of borrowing, not including the effect of compounding.

APY

Annual percentage yield. The yearly rate including compounding, so it reflects what you actually earn or pay.

Asset

Something you own that has value, such as cash, investments or property.

Asset allocation

How your money is split between types of investments, such as stocks, bonds and cash.

Bear market

A decline of roughly 20% or more from a recent high in a market's prices.

Bond

A loan to a government or company that pays interest and returns your money at a set date.

Brokerage account

An account at a licensed firm that lets you buy and sell investments such as stocks, bonds and funds.

Budget

A plan for how you'll use your income across spending, saving and debt payments.

Bull market

A long period of rising prices in a market.

Capital gain

The profit when you sell an investment for more than you paid. It's taxable in regular accounts once you sell.

Compound interest

Interest earned on both the original amount and on interest already earned.

Credit utilization

How much of your available credit you're using. Lower is generally better for credit scores.

Custodial account

A US account (UTMA/UGMA) an adult manages for a minor. The money belongs to the minor and passes to them at 18–21, depending on the state.

Diversification

Spreading money across many investments so no single one can do too much damage.

Dividend

A share of a company's profits paid to its shareholders, often every quarter. Not all companies pay them.

Dollar-cost averaging

Investing a fixed amount on a regular schedule, so you buy more shares when prices are low and fewer when they're high.

Emergency fund

Cash set aside for unexpected costs or lost income, kept somewhere easy to reach.

Employer match

Money an employer adds to your retirement account when you contribute, such as 50 cents per dollar up to a limit.

ETF

Exchange-traded fund. A fund holding many investments that trades on a stock exchange like a single stock.

Expense ratio

The yearly fee a fund charges, shown as a percentage of the money you have invested in it.

Index fund

A fund that tracks a market index, such as the S&P 500, instead of trying to pick winners.

Inflation

The general rise in prices over time, which reduces what a given amount of money can buy.

Liability

Money you owe, such as a loan or a credit card balance.

Limit order

An order to buy or sell only at a price you set or better. It may not fill if the price never gets there.

Market order

An order to buy or sell right away at the best available price.

Mutual fund

A fund that pools investors' money to buy many investments. Orders are filled once a day at the closing price.

Net worth

Everything you own minus everything you owe.

Portfolio

All of your investments taken together.

Principal

The original amount of money borrowed or invested, before interest.

Rebalancing

Buying or selling to bring your investments back to your target mix after markets have moved it.

Risk tolerance

How much ups and downs in your investments you can handle, financially and emotionally, without abandoning your plan.

Roth IRA

A US retirement account funded with after-tax money. Qualified withdrawals in retirement, including growth, are tax-free.

Rule of 72

A shortcut for doubling time: divide 72 by the yearly return. At 6%, money roughly doubles in 12 years.

SIPC

A US organization that protects brokerage customers up to $500,000 (including $250,000 cash) if a member firm fails. It doesn't cover market losses.

Speculation

Betting on short-term price moves, often in assets that are hard to value. Outcomes are uncertain and losses can be total.

Stock

A share of ownership in a company. Also called a share or equity.

Target-date fund

A single fund holding a mix of stocks and bonds that becomes more conservative as its target year approaches.

Time horizon

How long until you'll need the money for a goal. Longer horizons can usually handle more risk.

Volatility

How much and how quickly an investment's price moves up and down.

Yield

The income an investment pays, such as interest or dividends, shown as a percentage of its price.