Glossary of Financial Terms

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Capital Gains: The profit realized from the sale of assets such as stocks or property.

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

Credit Score: A numerical representation of a person's creditworthiness based on their credit history.

Diversification: The practice of spreading investments across different assets to reduce risk.

Dividend: A portion of a company's earnings distributed to shareholders.

Debt-to-Income Ratio: A personal finance measure comparing monthly debt payments to gross income.

Deflation: A decrease in the general price level of goods and services, often associated with reduced consumer spending.

Estate Planning: Preparing for the transfer of assets after death, including wills and trusts.

Equity: The value of ownership interest in an asset or company, calculated as assets minus liabilities.

Fiduciary: An individual or organization legally obligated to act in the best interest of another party.

Financial Advisor: A professional who provides financial guidance and investment advice.

Fixed Annuity: An insurance product that provides a guaranteed rate of return and periodic payments to the investor.

Hedge Fund: A private investment fund that engages in diverse and complex strategies to earn active returns for its investors.

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

Interest Rate: The percentage charged on borrowed money or paid on savings and investments.

Investment Risk: The potential for losing money on an investment.

IRA (Individual Retirement Account): A tax-advantaged account designed to help individuals save for retirement.

Index Fund: A mutual fund or ETF designed to replicate the performance of a specific market index.

Inflation Risk: The danger that the purchasing power of investments will decline due to rising prices.

Liability: A financial obligation or debt owed by an individual or organization.

Liquidity: The ease with which an asset can be converted into cash without affecting its market price.

Leverage: The use of borrowed capital to increase potential returns on an investment.

Mutual Fund: An investment vehicle that pools money from many investors to purchase a diversified portfolio of securities.

Market Capitalization: The total market value of a company's outstanding shares of stock.

Municipal Bond: A bond issued by local government entities to finance public projects, often offering tax advantages.

Net Worth: The total value of an individual’s assets minus liabilities.

Portfolio: A collection of financial investments like stocks, bonds, and cash equivalents.

Pension Plan: A retirement plan that provides a fixed sum of money periodically to employees after retirement.

Principal: The original sum of money invested or loaned, excluding any interest or profits earned.

Recession: A significant decline in economic activity across the economy, lasting more than a few months.

Retirement Planning: The process of determining retirement income goals and the actions necessary to achieve them.

Roth IRA: A type of IRA where contributions are made with after-tax dollars, and qualified withdrawals are tax-free.

Real Estate Investment Trust (REIT): A company owning or financing income-producing real estate, allowing investors to buy shares in commercial properties.

Risk Tolerance: An investor’s ability or willingness to endure market volatility and potential losses.

Stock: A share representing ownership in a company and a claim on part of its assets and earnings.

Secured Loan: A loan backed by collateral, reducing the risk for the lender.

Speculation: Investing in assets with high risk, hoping for substantial gains.

Tax-Deferred: Investments where taxes on earnings are postponed until withdrawals are made.

Taxable Income: The portion of income subject to taxation after deductions and exemptions.

Treasury Bond: A government debt security with a fixed interest rate and maturity of more than 10 years.

Unsecured Loan: A loan not backed by collateral, relying solely on the borrower’s creditworthiness.

Volatility: The degree of variation in investment prices over time, indicating risk.

Yield: The income return on an investment, expressed as a percentage of its cost or market value.

Zero-Coupon Bond: A bond sold at a discount and paying no interest, with the full face value paid at maturity.

Zoning: Government regulations determining the use of land in different areas, affecting property values and development potential.

401(k) Plan: A retirement savings plan offered by employers that allows employees to save and invest part of their paycheck before taxes.