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Glossary of Retirement and Financial Terms

Retirement Plans

  • 401(k): A type of employer-sponsored retirement plan that allows employees to contribute a portion of their salary to a tax-deferred account. Employers may also choose to match a percentage of employee contributions.
  • Traditional IRA: A type of individual retirement account that allows individuals to make contributions on a pre-tax basis, which can lower their taxable income for the current year. The funds grow tax-deferred, and withdrawals in retirement are taxed as income.
  • Roth IRA: A type of individual retirement account that allows individuals to make contributions on an after-tax basis. The funds grow tax-free, and withdrawals in retirement are also tax-free.
  • SEP IRA: A type of individual retirement account that is designed for self-employed individuals and small business owners.
  • Contributions are tax-deductible, and the funds grow tax-deferred.
  • SIMPLE IRA: A type of individual retirement account that is designed for small businesses and is similar to a 401(k) plan. Employers and employees can make contributions, and the funds grow tax-deferred.
  • Defined Benefit (DB) Plan: A type of retirement plan in which the employer promises a specific monthly benefit at retirement, usually based on the employee’s salary and years of service.
  • Defined Contribution (DC) Plan: A type of retirement plan, such as 401(k) and IRA, in which the employee and sometimes the employer, contribute money to the plan. The employee’s retirement benefit is based on the amount of money in the account at retirement.

Stock Market

  • Stock: A type of security that represents a share of ownership in a company. When you buy a stock, you become a part-owner of the company and are entitled to a portion of its profits and assets.
  • Dividend: A distribution of a portion of a company’s profits to its shareholders, typically paid out on a quarterly basis.
  • Bull market: A market characterized by a prolonged period of rising stock prices.
  • Bear market: A market characterized by a prolonged period of falling stock prices.
  • Volatility: A measure of the fluctuation of a stock’s price over time. A stock with high volatility experiences larger price swings than a stock with low volatility.
  • Market capitalization: The total value of a company, calculated by multiplying the number of shares outstanding by the current stock price.
  • Index fund: A type of mutual fund or exchange-traded fund (ETF) that is designed to track the performance of a specific market index, such as the S&P 500.
  • Blue-chip stock: A stock of a well-established and financially stable company with a long history of steady growth and high dividends.
  • Growth stock: A stock of a company that is expected to experience rapid growth in the future, often at the expense of current earnings.
  • Value stock: A stock that is considered to be undervalued by the market and offers a potential for capital appreciation.
  • Initial Public Offering (IPO): The first time a company issues shares of stock to the public.
  • Short selling: A trading strategy in which an investor sells borrowed shares in the hope that the price will fall, allowing the investor to buy back the shares at a lower price and profit from the difference.

Financial Wellness

  • Budgeting: The process of creating a plan to spend, save and invest your money.
  • Emergency fund: A savings account set aside for unexpected expenses or financial emergencies.
  • Debt: Money that is borrowed and must be repaid with interest.
  • Credit score: A numerical rating that represents an individual’s creditworthiness, based on their credit history.
  • Net worth: The difference between a person’s assets and liabilities, used to measure overall financial health.
  • Asset: Anything of monetary value that is owned, such as cash, investments, and property.
  • Liability: An amount of money owed to another party, such as a mortgage or credit card debt.
  • Saving: Setting aside a portion of your income for future expenses or goals.
  • Investing: Putting money into assets with the expectation of earning a return, such as stocks, real estate, or mutual funds.
  • Retirement planning: The process of planning for your financial needs during retirement, including savings and investment strategies.
  • Financial advisor: A professional who provides advice and guidance on financial matters, such as investment and retirement planning.
  • Insurance: A contract that financially protects an individual or business against specific risks, such as health, property, or liability.
  • Tax planning: The process of organizing and managing your finances in a way that minimizes tax liability.
  • Financial literacy: The knowledge and skills necessary to make informed and effective decisions about the use and management of money.

Solo 401(k)

  • Solo 401(k): A type of 401(k) plan that is designed for self-employed individuals or business owners with no full-time employees other than the owner(s) and their spouse.
  • Self-employed: An individual who earns income from a business or profession that they operate on their own, rather than as an employee.
  • Employee contributions: The portion of the solo 401(k) plan contributions that come from the employee, typically made through payroll deductions.
  • Employer contributions: The portion of the solo 401(k) plan contributions that come from the employer, which can include profit-sharing contributions and matching contributions.
  • Maximum contribution limit: The maximum amount of money that can be contributed to a solo 401(k) plan in a given year, as set by the IRS.
  • Catch-up contributions: Additional contributions that can be made to a solo 401(k) plan by individuals over the age of 50.
  • Tax-deferred growth: The ability of the solo 401(k) plan assets to grow without incurring taxes until they are withdrawn in retirement.
  • Withdrawals: The process of taking money out of a solo 401(k) plan, which may be subject to taxes and penalties if done before age 59 1/2.
  • Required Minimum Distribution (RMD): The minimum amount that must be withdrawn from a solo 401(k) plan starting at age 72.
  • Investment options: The variety of investment options available within a solo 401(k) plan, such as stocks, bonds, mutual funds and ETFs.

Publicly Traded Stocks

  • Stock: A type of security that represents ownership in a company.
  • Common stock: A type of stock that gives shareholders the right to vote on certain corporate matters and to receive dividends.
  • Preferred stock: A type of stock that has a higher claim on assets and earnings than common stock but does not have voting rights.
  • Dividends: A distribution of a portion of a company’s profits to its shareholders.
  • Initial Public Offering (IPO): The first sale of stock by a company to the public.
  • Market capitalization: The total value of a company’s outstanding shares of stock.
  • Stock exchange: A marketplace where stocks and other securities are traded.
  • Bull market: A market in which stock prices are rising or are expected to rise.
  • Bear market: A market in which stock prices are falling or are expected to fall.
  • Ticker symbol: A unique symbol assigned to a publicly traded stock to identify it on a stock exchange.
  • Stock price: The current market value of a single share of stock.
  • Stock chart: A graphical representation of the performance of a stock over a period of time.
  • Earnings per share (EPS): A company’s net income divided by the number of outstanding shares of stock.
  • P/E ratio: The ratio of a company’s stock price to its earnings per share, used to evaluate a stock’s valuation.
  • Analyst rating: Recommendation provided by financial analyst about a stock performance.
  • Insider trading: The buying or selling of a company’s stock by someone with access to non-public information about the company.

Financial Education

  • Budgeting: The process of creating a plan to spend money in a way that aligns with one’s financial goals.
  • Saving: The act of setting aside money for future use.
  • Investing: The act of allocating resources, usually money, with the expectation of generating an income or profit.
  • Credit: The ability to borrow money or access goods or services in advance of payment.
  • Credit score: A numerical value that represents an individual’s creditworthiness.
  • Credit report: A document that provides detailed information about an individual’s credit history.
  • Credit counseling: A service that provides education and assistance to individuals who are struggling with credit and debt.
  • Retirement planning: The process of planning for one’s financial needs in retirement.
  • Asset allocation: The process of dividing an investment portfolio among different asset categories, such as stocks, bonds, and cash.
  • Risk management: The process of identifying, assessing, and prioritizing risks in order to minimize, monitor, and control the probability and/or impact of unfortunate events.
  • Estate planning: The process of planning for the transfer of one’s assets after death.
  • Tax planning: The process of organizing one’s finances in order to minimize tax liability.
  • Insurance: A contract that provides financial protection against specific risks.
  • Financial literacy: The knowledge and skills necessary to make informed and effective decisions regarding the use and management of money.
  • Financial coach: A professional who helps individuals develop and implement financial plans and strategies.
  • Compound interest: Interest earned on both the original deposit and accumulated interest over time.

Investing

  • Asset: Anything that has value and can be owned, such as stocks, bonds, real estate, or cash.
  • Diversification: The practice of spreading money across different types of assets, industries, and geographic regions to reduce risk.
  • Risk: The likelihood that an investment will decrease in value or not perform as well as expected.
  • Return: The profit or loss generated by an investment.
  • Portfolio: A collection of investments held by an individual or institution.
  • Bull Market: A market characterized by a general upward trend in prices.
  • Bear Market: A market characterized by a general downward trend in prices.
  • Volatility: The degree to which the price of an asset fluctuates over time.
  • Equity: The value of an asset after liabilities are subtracted.
  • Yield: The amount of income generated by an investment, typically expressed as a percentage of the investment’s value.
  • Inflation: The rate at which the general level of prices for goods and services is rising, and subsequently purchasing power is falling.
  • Bond: A debt security in which an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period of time at a variable or fixed interest rate.
  • Mutual Fund: A type of investment vehicle that pools money from multiple investors to purchase securities.
  • ETF (Exchange-Traded Fund): A type of investment fund that is traded on stock exchanges, much like stocks.
  • Leverage: The use of borrowed money to increase the potential return of an investment.
  • Margin: The amount of money borrowed from a broker to purchase securities.
  • Short Selling: The practice of borrowing shares of a stock and selling them, with the intention of buying them back at a lower price to make a profit.
  • Options: A contract that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specific price on or before a certain date.
  • Futures: A contract to buy or sell a specific underlying asset at a specific price on a specific date in the future.
  • Derivatives: A financial contract whose value is derived from an underlying asset, such as a stock, bond, commodity, or currency.
  • Hedging: The practice of taking a position in one market to offset the potential loss in another market.
  • Asset Allocation: The process of dividing an investment portfolio among different asset categories, such as stocks, bonds, and cash.
  • Return on Investment (ROI): A measure of the profitability of an investment, calculated as the return (profit/loss) divided by the cost of the investment.
  • Alpha: A measure of a portfolio’s performance that is compared to a benchmark index to determine if the portfolio has outperformed the market.
  • Beta: A measure of a stock’s volatility in relation to the overall market. A beta of less than 1 means the stock is less volatile than the market, a beta of greater than 1 means the stock is more volatile.

S&P 500 and Indices

  • S&P 500: Standard & Poor’s 500 Index, also known as the S&P 500, is a stock market index that represents the performance of 500 large-cap companies listed on the New York Stock Exchange (NYSE) and the NASDAQ. The S&P 500 is considered to be one of the most widely followed stock market indicators in the world and is often used as a benchmark for the overall performance of the U.S. stock market.
  • Market capitalization: The total value of a company’s outstanding shares of stock, calculated by multiplying the number of shares by the current stock price.
  • Index fund: A type of mutual fund or exchange-traded fund (ETF) that aims to track the performance of a specific market index, such as the S&P 500.
  • Index weighting: The method used to determine the relative importance of each company in an index. The S&P 500 is market capitalization weighted, meaning that companies with a higher market capitalization carry more weight in the index.
  • Index reconstitution: The process of updating the companies included in an index to ensure that it remains representative of the market it is meant to track.
  • Index inclusion: The process of adding a new company to an index, which can be done as part of the index reconstitution process or when a company’s market capitalization or other factors make it eligible for inclusion.
  • Index exclusion: The process of removing a company from an index, which can be done as part of the index reconstitution process or when a company’s market capitalization or other factors no longer make it eligible for inclusion.
  • Beta: A measure of a stock’s volatility in relation to the overall market. A beta of 1 indicates that a stock’s price will move with the market, while a beta less than 1 means it is less volatile than the market, and a beta greater than 1 indicates higher volatility.
  • Market index: A measurement of the performance of a specific market or a specific segment of the market. Examples include the S&P 500, the Dow Jones Industrial Average, and the NASDAQ Composite.
  • Traded volume: The number of shares of a particular stock that have been traded over a specific period of time.
  • Earnings per share (EPS): A financial ratio calculated by dividing a company’s net income by the number of outstanding shares of stock. It is used to measure a company’s profitability.
  • Price-to-earnings ratio (P/E ratio): A financial ratio calculated by dividing a company’s stock price by its earnings per share (EPS). It is used to measure the valuation of a company’s stock.
  • Diversification: The process of spreading investments among different types of assets or industries to reduce risk.
  • Index tracking: The process of attempting to replicate the performance of an index, such as the S&P 500, by investing in the same securities that make up the index.

Other Financial Terms

  • Annuity: A financial product that provides a stream of income for a fixed period or for life, in exchange for a lump sum or periodic payments.
  • Asset: Anything of value that is owned by an individual or entity, such as cash, stocks, real estate, or art.
  • Balance Sheet: A financial statement that summarizes an individual’s or entity’s assets, liabilities, and equity at a specific point in time.
  • Bond: A debt security that represents a loan made by an investor to a borrower, typically a corporation or government, with a fixed interest rate and a maturity date.
  • Broker: An individual or firm that facilitates the buying and selling of securities, typically for a commission or fee.
  • Capital: Money or assets that are invested in a business or enterprise to generate income or growth.
  • Capital Gains Tax: A tax on the profit earned from selling an asset, such as a stock or real estate, at a price higher than its purchase price.
  • Cash Flow: The net amount of cash that flows in and out of an individual’s or entity’s accounts, typically measured over a specific period.
  • Certificate of Deposit (CD): A time deposit that pays a fixed interest rate for a fixed term, typically ranging from a few months to several years.
  • Commodities: Raw materials or primary products, such as oil, gold, or wheat, that are traded on commodity exchanges.
  • Credit Score: A numerical rating that represents an individual’s creditworthiness, based on their credit history, outstanding debts, and other financial factors.
  • Debt: Money that is owed to a creditor, typically with interest, for a loan or other financial obligation.
  • Derivative: A financial product that derives its value from an underlying asset, such as a stock, bond, or commodity.
  • Dividend: A portion of a company’s profits that is paid to its shareholders, typically in cash or additional shares.
  • Dividend Yield: The annual dividend payment per share, divided by the current stock price, expressed as a percentage.
  • Equity: The value of an individual’s or entity’s assets, after deducting liabilities and other obligations.
  • Exchange-Traded Fund (ETF): An investment fund that trades on an exchange, similar to a stock, and is designed to track the performance of a specific index or sector.
  • Financial Advisor: A professional who provides financial advice and guidance to individuals and entities, typically for a fee.
  • Fixed Income: Investments, such as bonds or CDs, that provide a fixed return, typically in the form of interest payments.
  • Hedge Fund: A private investment fund that employs advanced investment strategies, such as leverage and short selling, to generate high returns.
  • Index Fund: A mutual fund or exchange-traded fund that tracks the performance of a specific index, such as the S&P 500, with low fees and passive management.
  • Inflation: The rate at which the general level of prices for goods and services is increasing, typically measured by the Consumer Price Index (CPI).
  • Initial Public Offering (IPO): The first sale of a company’s stock to the public, typically to raise capital for expansion or other purposes.
  • Interest: The cost of borrowing money, typically expressed as a percentage of the loan amount.
  • Inverse ETF: An exchange-traded fund that is designed to move in the opposite direction of a particular market or index, typically used for hedging or speculation.
  • Investment: The purchase of an asset with the expectation of earning a return, typically in the form of capital gains, dividends, or interest.
  • Liquidity: The ease with which an asset can be converted to cash without a significant loss of value.
  • Market Capitalization: The total value of a company’s outstanding shares, calculated by multiplying the stock price by the number of shares.
  • Money Market: A financial market in which short-term debt securities, such as Treasury bills or commercial paper, are traded.
  • Mortgage: A loan secured by real estate, typically used to purchase a home or other property.
  • Net Worth: The value of an individual’s or entity’s assets, after deducting liabilities and other obligations.
  • Option: A financial product that gives the holder the right, but not the obligation, to buy or sell an underlying asset at a specific price and time.
  • Portfolio: A collection of investments and holdings like stocks, bonds, mutual funds, commodities, crypto, cash, and cash equivalents.
  • Price-to-Earnings (P/E) Ratio: A valuation ratio that compares a company’s stock price to its earnings per share (EPS), indicating how much investors are willing to pay for each dollar of earnings.
  • Real Estate Investment Trust (REIT): A company that owns and operates income-generating real estate properties, and distributes a portion of its profits to shareholders as dividends.
  • Retirement Account: A type of investment account, such as an IRA or 401(k), designed to help individuals save for retirement.
  • Risk: The potential for loss or uncertainty associated with an investment, typically measured by standard deviation or beta.
  • Sector: A grouping of companies that operate in the same industry or business, such as technology, healthcare, or energy.
  • Securities: Financial instruments, such as stocks, bonds, or options, that can be bought and sold on financial markets.
  • Socially Responsible Investing (SRI): An investment strategy that seeks to achieve both financial return and social or environmental impact, by investing in companies that align with certain ethical or social values.
  • Stock: A share of ownership in a company, typically representing a portion of the company’s profits and voting rights.
  • Taxation: The system of collecting taxes from individuals and entities, based on their income, assets, or other financial factors.
  • Technical Analysis: A method of evaluating securities based on historical price and volume data, with the goal of predicting future price movements.
  • Time Horizon: The length of time an individual or entity plans to hold an investment, typically ranging from short-term to long-term.
  • Treasury Bond: A long-term debt security issued by the US government, typically with a maturity of 10 years or more.
  • Trust: A legal arrangement in which an individual or entity transfers assets to a third party, who manages the assets for the benefit of one or more beneficiaries.
  • Volatility: The degree of variation in the price of an asset, typically measured by standard deviation or beta.
  • Wealth Management: A type of financial advisory service that provides comprehensive advice and management of an individual’s or entity’s financial assets, typically for a fee.
  • Yield: The income earned from an investment, typically expressed as a percentage of the investment amount.
  • Zero-Coupon Bond: A bond that pays no interest during its term, but is sold at a discount to its face value, with the full face value paid at maturity.