Glossary of Terms
Active Investing – the investor continuously monitors account activity, researches
options, and buys and sells to increase return
Annuity –buy this investment upfront and then receive an ongoing series of payments
after retirement in return; usually sold through insurance companies
Appreciation – Gain in value over time
Asset Allocation – the percentage of total capital invested in each major asset category,
such as mutual funds, savings accounts, or 401k’s
Bonds – investment offering a fixed rate of interest when cashed in after a specified
length of time, usually offered by a government or municipal entity
Broker – someone who charges a fee or commission to buy or sell an investment on
behalf of another
Capital – financial value of investments; may refer to the initial amount invested
CD Laddering – varying the redemption dates of certificates of deposit, generally by
buying several cd’s with different maturity dates
Certificates of Deposit – a savings certificate with a fixed interest rate and maturity date,
insured by the federal government
Certified Financial Analyst - a financial professional paid for advice and analysis
Certified Financial Planner – a financial professional paid for advice and planning
Certified Public Accountant – a financial professional paid for accounting and tax related
functions
Christmas Club – a short term savings plan you pay into monthly which pays out the
entire account, principal and interest, once a year just before Christmas
College savings plan – one of several options that allow you to invest money for your
college education or that of a family member
Compound Interest – interest that accumulates over time, so that future interest is
calculated on the total of principal plus earned interest from previous time periods
Controllable expenses – you can control the amount you spend on these expenses each
month
Cost of Investing – the fees, commissions, and other dollar amounts paid to invest
Coverdell – a type of college savings plan where contributions are not tax deductible but
withdrawal are tax free, account is considered to be an asset of the student
Diversification – dividing the money you invest among a variety of options so that your
overall risk of losing money is lowered
DRIP / Dividend Reinvestment Plan – plan where a corporation uses an investor’s cash
dividend to purchase additional shares of stock
Employer Match – contribution an employer makes to the employees 401k, based on a
percentage of the employee contribution
Emergency Fund – a short term savings account used to pay emergency expenses
Fees – money charged for financial transactions
Financial Foundation – when a person has their basic finances in order, including paying
off high interest debt and establishing short term savings for emergencies
Fixed Expenses – the amount of these expenses cannot be changed from month to month
IRA / Individual Retirement Account – a retirement account where contributions are tax
deductible and distributions are taxed at after-retirement rate; penalties for withdrawal
before age 59 ½
Interest Rates – a percentage of the money you save or invest which is paid as an
incentive and added to your original amount
Investing – putting money into an account which assumes some risk, for an extended
period of time, to earn higher interest rates
Investment Fraud – misrepresentation of an investment to make it more attractive to
investors
Life Cycle – events over time as an investor ages which may make some investment
options more appropriate than others
Liquidity – the ability to convert an asset to cash quickly and without loss of value
Long Term – a time range looking at a period of years as opposed to months
Money Market Account – a type of short term savings which allows limited withdrawals
and check writing
Mutual Funds – Accounts where several investors pool their money to buy a variety of
investment options, resulting in increased diversity and reduced risk
Net Worth – the amount by which the value of a person’s assets exceeds their liabilities
Passive Investing - the investor only occasionally monitors account activity and rarely
changes investment options
Pension Protection Act of 2006 – federal legislation protecting money invested in 401k’s
Prepaid Tuition – a college savings plan where you can purchase tuition at today’s rates
and use the tuition years in the future
Profit Sharing – a company divides a portion of its yearly profits among employees,
either as cash or company stock
Registered Security – a security which is approved by an overseeing agency such as the
Securities and Exchange Commission
Return – the money you receive for saving or investing, usually a percentage of the
amount you originally contributed
Risk – the chance that an investment’s actual return will be lower than expected,
including the possibility of losing the original money invested
Risk Capacity – the financial ability to assume risk and possibly lose part or all of your
investment
Risk Tolerance – the emotional ability to assume risk and take the chance of losing all or
part of your original investment
Roth IRA – a type of IRA where contributions are not tax deductible but distributions
after retirement are tax free
Roth 401k – a type of 401k where employee contributions are not tax sheltered (made
with after tax dollars) but distributions from the employee portion of the fund are tax free
after retirement
Saving –setting aside money in an easily accessible short term account after your
expenses are met
Savings Account – an account which allows you total access to your money and offers a
lower interest rate
Savings Bonds – A government issued bond offering a fixed interest rate over a specific
period of time, redeemable for principal and interest at the end of that time
Seasonal Expenses – expenses that are incurred once a year or only a few times a year
Securities – stocks, bonds, mutual funds, and other types of investments where you pay
money for use by another entity in exchange for interest, and where your investment can
be bought, sold, or traded
Short Term – a time range looking at months instead of years
Spending Plan – a budget or plan so that you do not spend more money than you bring
home each month
Stocks – shares of ownership in a company which can be bought and sold
Tax Sheltered – an investment that is free or partially free from being taxed
Transfers – changes in allocation of money between investments or retirement plans
Treasury Bill – an investment option offered by the government which is sold in $1,000
increments with due dates less than one year
Vacation Club - a short term savings plan you pay into monthly which pays out the entire
account, principal and interest, once a year in the spring
Withdrawals – deductions from a savings or investment account
401k – an employer sponsored retirement plan where contributions are tax sheltered and
which may offer an employer matching percentage contribution
529 – a college savings plan offered by state governments where contributions are tax
deductible, withdrawals are tax free, and the account is considered an asset of the donor