Financial Terms Glossary
By Osborn Williams & Donohoe on June 21, 2024
A guide of important financial terms for everyone to know.
| 401(K) PLAN | An employer-sponsored retirement savings plan in which an employee contributes part of their pay toward retirement. |
| 403(B) PLAN | A type of tax-deferred retirement savings plan for employees of public schools, certain non-profits, and some members of the clergy. |
| 529 PLAN | A tax-advantaged savings plan geared to help families save for their children’s future educational costs. |
| AMORTIZATION | An accounting technique that spreads out payments over a specified period. |
| ANNUAL PERCENTAGE RATE (APR) | The total cost of borrowing money each year, formulated as a percentage rate. |
| ANNUAL RETURN | The profit or loss of an investment over one year. |
| ANNUITY CONTRACT | A written agreement between an insurance company and a customer that outlines each party’s obligation in an annuity agreement. |
| APPRAISAL FEE | A fee charged when estimating the value of a property. This is typically done for insurance, investment, or mortgage contracts. |
| APPRECIATION | The rise in the value of an asset, such as currency or real estate. |
| ASSET | An item that has economic value, such as stock or real estate. |
| ASSET ALLOCATION | An investment strategy that balances risk and reward by dividing investment among different assets. |
| ASSET CLASS | The grouping of investments that have similar financial characteristics and are subject to the same laws and regulations. |
| BENCHMARK | A standard that is used to measure changes in an asset’s value over time. |
| BENEFICIARY | A person named to receive proceeds or benefits. |
| BOND | An interest-bearing security that requires the issuers to pay a specified amount of interest over a set period. |
| BORROWER | Anyone who obtains funds or an asset under that condition that they must repay. |
| CAPITAL | Wealth in the form of money or other assets owned by an individual or institution. |
| CAPITAL GAIN (OR LOSS) | The profit or loss that comes from selling and investment. |
| CERTIFICATE OF DEPOSIT | A type of savings account offered by a bank or credit union that has a fixed maturity date and a fixed interest rate. |
| CLAIM | An insurer’s request of payment following a financial loss that has occurred and is covered under the insurance policy. |
| COLLATERAL | An asset that secures a loan or other debt that a lender is allowed to take if you do not repay the money you have borrowed. |
| COMMISSION | An amount of money someone earns for selling something. |
| COMPOUND INTEREST | When additional interest is earned on interest. |
| COPAY | A fixed amount you pay on health care services in addition to the amount your insurer pays. |
| COSIGNER | An individual who signs a loan, credit account, or promissory note of another person (primary signer) who is taking out the debt. The consigner then becomes responsible for the debt. |
| CRYPTO ASSET | A decentralized digital currency that can be exchanged. Its ownership records are available via blockchain technology. |
| DEBT | Money you owe to another person or business. |
| DEBT CONSOLIDATION | The consolidation of various debts into one monthly payment on one account. |
| DEFAULT | When a borrower fails to repay a debt owed. At this point, a borrower may be required to pay the entire loan balance in full. |
| DEFERMENT | A temporary pause or reduction of a student loan balance. Deferment may also stop interest from accruing. |
| DELINQUENCY | When a borrower is late or overdue on a debt payment. Extended delinquency can lead to default. |
| DEPRECIATION | The opposite of appreciation where the value of an asset decreases. |
| DIVERSIFICATION | A strategy used to balance risk by investing in different securities to maximize return and lower the risk of one particular asset. |
| DIVIDEND | A portion of a public or private company’s profit paid to shareholders. |
| EARNINGS | Profit a company has earned. |
| EQUITY | Ownership interest in an asset after liabilities are deducted. |
| EXCHANGE TRADED FUND (ETF) | SEC-registered investment companies that offer investors a way to pool their money in a fund that invests in stocks, bonks, or other assets. |
| FIDUCIARY | A person who legally manages the money or property of someone else. |
| FINANCIAL PLANNER | A person who creates financial plans for their clients based on the clients’ needs. |
| FIXED ANNUITY | An insurance product that promises a minimum rate of interest while your account is growing. |
| FIXED INCOME | A broad term that refers to different types of investment security that pay investors fixed interest or dividend payments until their maturity date. |
| FORBEARANCE | When borrowers are temporarily permitted to not make payments, though interest will still accrue. |
| FORECLOSURE | A process instituted by a creditor to take collateral, such as property away from the borrower to be sold again to repay debt. |
| GRACE PERIOD | A period immediately after the due date for a loan payment in which payment can still be made without penalty. |
| GROSS INCOME | The amount earned before taxes and other deductions. |
| HEALTH SAVINGS ACCOUNT (HSA) | A tax-advantaged account to help individuals save no medical expenses that are not reimbursed by health plans. |
| HEDGE FUND | When an investor’s money and investments are pooled in an effort to make a positive return. |
| INCOME DRIVEN REPAYMENT PLAN (IDR) | A plan that bases a monthly student loan payment balance on the borrower’s income or family size. |
| INDEX | A group or basket of securities, derivatives, or other financial instruments that represents and measures the performance of a specific market, asset class, market sector, or investment strategy. The S&P 500 and the Dow Jones are examples of stock market indexes. |
| INDEX FUND | A type of mutual fund or unit investment trust whose investment objective is typically to achieve the same return as a particular market index. |
| INDIVIDUAL RETIREMENT ACCOUNT (IRA) | A type of retirement savings and investment account that has various tax advantages. There are two different types of IRAs: Traditional and Roth. Traditional IRA contributions are tax-deductible on both state and federal tax returns for the year. A Roth provides no tax deductions but the earnings and withdrawals are typically tax free. |
| INTEREST | The price paid for borrowing money. |
| INVESTMENT ADVISOR (IAS) | A person or firm that provides investment advice to others about the value of or about investing in securities. |
| JOINT AND LAST SURVIVOR ANNUITY | An annuity form that provides lifetime income payments for an annuity owner and their survivor It is designed primarily for retired couples. |
| LENDER | The party who lends money to a borrower. |
| LIABILITY | The amount owed to a lender. |
| LIEN | The legal right to take the property belonging to a borrower until the debt owed is paid. |
| LIQUIDITY | A measure of how easy it is to obtain and use your money. |
| MATURITY DATE | The date on which an investor’s investment must be paid back in full. |
| MEDICAID | A joint federal and state program that helps with the medical costs for certain people who have limited income and resources. |
| MEDICARE | A federal health insurance program for people age 65 or older, younger people with certain disabilities, and people with End-Stage Renal Disease. |
| MORTGAGE | A loan agreement to borrow money from a bank or other type of lender to purchase a home. |
| MUTUAL FUND | A professionally managed portfolio of stocks, bonds, and other investments divided up into shares. |
| NET INCOME | The amount of money received in your paycheck after taxes are other deductions are taken out. |
| NET WORTH | The value of a person’s assets, not including debts or liabilities. |
| OPPORTUNITY COST | The cost of the next best use of your money. |
| OUT-OF-POCKET COST | Expenses paid that are not reimbursed by insurance. |
| POLICYHOLDER | The person who owns the insurance policy. |
| PORTFOLIO | The combined holdings of stock, bond, commodity, real estate, and other investments by an individual or institutional investor. |
| PORTFOLIO MANAGER | A person or group of people responsible for making investment decisions and executing them on behalf of a vested individual or institution. |
| PREMIUM | The amount by which the price of a bond exceeds its principal amount. |
| PRINCIPAL | For lending: The amount of money that you receive from a lender. For investing: The amount of money you contribute with the expectation of receiving income. |
| PROPERTY TAX | Taxes on a property such as a house, business, or boat. |
| RATE OF RETURN | The profit or loss on an investment expressed as a percentage. |
| REFINANCE | A strategy that replaces a loan with another loan that typically has better terms and interest rates. |
| RETURN ON INVESTMENT (ROI) | An approximate measure of an investment’s profitability. |
| RISK | Exposure to loss. |
| RISK TOLERANCE | An investor’s ability and willingness to lose some or all of an investment with the presumption that greater returns will come. |
| SECURITIES | An investment instrument such as a stock or bond. |
| SECURITIES AND EXCHANGE COMMISSION (SEC) | U.S. government agency that oversees securities exchanges, securities brokers and dealers, investment advisors, and mutual funds in order to promote fair dealing and prevent fraud. |
| SHARE | A unit of ownership. |
| SHAREHOLDER | A person who owns a share(s) in a company. |
| SOCIAL SECURITY | A federal program that provides a source of income to retired workers and people with disabilities. |
| STOCK | A share that represents ownership in the company that issues it. |
| TARIFF | A tax or duty to be paid on a particular class of imports or exports. |
| TERMS | The conditions and requirements included in a loan agreement. |
| UNEARNED INCOME | Any form of income earned passively, e.g., inheritances, rental income from properties, lottery winnings. |
| U.S. TREASURY BONDS | Fixed-interest bonds issued by the U.S. government with a maturity of more than ten years. |
| VARIABLE RATE | An interest rate that may go up or down over the life of the loan. |
| FORM W-2 | A document that employers are required to send at the end of each year to every employee and the Internal Revenue Service (IRS). |
| FORM W-4 | An IRS form that is filled out by employees to indicate how much tax they want withheld from their paycheck and the number of allowances and dependents. |
| WRAP ACCOUNT | An investment account where a wrapped fee or fees cover all the management, brokerage, and administrative expenses for the account. |
| YIELD | The income an investor receives from an investment. |
SOURCES:
A-Z index of U.S. government departments and agencies | USAGov. (n.d.). https://www.usa.gov/agency-index
California, S. O. (n.d.). Glossary of Financial Terms | The Department of Financial Protection and Innovation. The Department of Financial Protection and Innovation. https://dfpi.ca.gov/glossary-of-financial-terms/
Financial terms A-Z. (2019, September 10). Investopedia. https://www.investopedia.com/financial-term-dictionary-4769738
Financial Terms Glossary | Consumer Financial Protection Bureau. (n.d.). Consumer Financial Protection Bureau. https://www.consumerfinance.gov/consumer-tools/educator-tools/youth-financial-education/glossary/
Glossary | Investor.gov. (n.d.). https://www.investor.gov/introduction-investing/investing-basics/glossary/all
