Financial Glossary

An employer-sponsored retirement savings plan that allows employees to save pre-tax dollars. Many employers match contributions, making it one of the best available benefits.

The process of dividing investments among different asset categories such as stocks, bonds, and cash to balance risk and reward according to your goals, risk tolerance, and time horizon.

A period of declining stock prices, typically defined as a drop of 20% or more from recent highs, often accompanied by widespread pessimism and negative investor sentiment.

A period of rising stock prices, typically defined as a 20% increase from recent lows, characterized by optimism and investor confidence.

Interest calculated on both the initial principal and the accumulated interest from previous periods. Often called the "eighth wonder of the world" for its ability to exponentially grow wealth over time.

An investment strategy that spreads investments across various financial instruments, industries, and other categories to reduce exposure to any single asset or risk.

A portion of a company's earnings distributed to shareholders, typically paid quarterly. Dividends provide income and can be reinvested to compound returns.

An investment strategy where you invest a fixed dollar amount at regular intervals regardless of market conditions, reducing the impact of volatility over time.

A type of investment fund that tracks an index, sector, commodity, or asset, trading on a stock exchange like individual stocks. ETFs offer diversification at low cost.

A reserve of cash covering 3–6 months of living expenses, kept in a liquid account to cover unexpected costs like job loss, medical bills, or car repairs.

A credit score created by the Fair Isaac Corporation ranging from 300–850. Lenders use it to evaluate creditworthiness. Scores above 740 are considered very good.

Financial Independence, Retire Early — a lifestyle movement focused on saving and investing aggressively (50–70%+ of income) to retire decades before traditional retirement age.

A type of mutual fund or ETF designed to replicate the performance of a specific market index such as the S&P 500. Known for low fees and broad diversification.

The rate at which the general level of prices for goods and services rises, eroding purchasing power over time. Measured by the Consumer Price Index (CPI).

A tax-advantaged retirement savings account available to individuals with earned income. Traditional IRAs may offer tax deductions; Roth IRAs offer tax-free growth.

The ease with which an asset can be converted into cash without significantly affecting its price. Cash is the most liquid asset; real estate is relatively illiquid.

The total value of everything you own (assets) minus everything you owe (liabilities). Net worth is the most comprehensive measure of financial health.

A type of Individual Retirement Account where contributions are made with after-tax dollars, and qualified withdrawals in retirement are completely tax-free.

A significant decline in economic activity lasting more than a few months, typically defined as two consecutive quarters of negative GDP growth.

A stock market index tracking the 500 largest publicly traded companies in the US by market capitalization. Widely considered the best benchmark for the US stock market.