The investment strategy that deals with the balance of risk and reward by apportioning a portfolio’s assets based on your goals, personal risk tolerance and age Stocks can provide growth overtime, but is the riskiest investment due to the market’s volatility. bonds and cash alternatives make up the three types of asset classes, and each of these reacts differently to market cycles and economic conditions.
Stocks, for instance, have the potential to provide growth over time, but may also be more volatile. Bonds usually grow slower, but are a safer investment than investing into an individual. are generally perceived to have less risk. Experienced investors encourage people to diversify their assets which means to simply spread out your investment and do not put all your eggs in one basket.
Is calculated as what you earn from your job, a pension or from interest on investments minus tax deductions.directly impact the deductions and credits you’re eligible for—which can wind up reducing the amount of taxable income you report on the return.
The process of paying off your debt in regular installments over a fixed period of time. A loan like a mortgage, is amortized using monthly payments that are calculated based on the amount borrowed, plus the interest that you would pay over the life of the loan.
Commonly referred to as fixed-income securities, bonds are essentially investments in debt. When you buy a bond, you’re lending money to an entity, typically the government or a corporation, for a specified period of time at a fixed interest rate (also called a coupon). You then receive periodic interest payments over time, and get back the loaned amount at the bond’s maturity date.A bond could be thought of as an I.O.U. between the lender and borrower that includes the details of the loan and its payments.
The increase in the value of an asset or investment — like real estate or stock — above its original purchase price. The gain, however, is only on paper until the asset is actually sold. Just as the government wants a cut of your income, it also expects a cut when you realize a profit on your investments. That cut is the capital gains tax.
When you’re investing or saving, this is the interest that you earn on the amount you deposit, plus any interest you’ve accumulated over time. When you’re borrowing, it’s the interest that is charged on the original amount you are loaned, as well as the interest charges that are added to your outstanding balance over time.
required to contribute anything to the plan. Because of their high costs, many companies no longer offer this type of benefit.
A person who is financially dependent on your income, typically a child or an adult relative you may support. You may be able to claim certain tax credits or deductions for these dependents on your taxes.
Is an account that manages property taxes and insurance premiums for your home. You don’t have to save for them separately because you can make one monthly payment where some goes toward your mortgage to pay your principal and interest. The other part goes into your escrow account for property taxes and insurance premiums (like homeowners insurance, mortgage insurance, or flood insurance).
The pay and benefits package provided to senior executives, which is usually different from what’s offered to the typical employee.
A number used by banks and other financial institutions to measure a borrower’s creditworthiness. FICO scores range from 300 to 850, and the higher the score, the better the terms you may receive on your next loan or credit card. People with scores below 650 may have a harder time securing credit at a favorable interest rate.
A mortgage that carries a fixed interest rate for the entire life of the loan. With a fixed-rate mortgage, you don’t have to worry about your payments going up if interest rates rise. The downside is that you could be locked into a more expensive mortgage if interest rates go down.
A qualified expense that the IRS allows you to subtract from your AGI that helps further reduces your taxable income.
The difference between your assets and liabilities. Net worth helps you analyze your overall financial health.
A type of policy that provides coverage over the lifetime of the insured and also offers a component called cash value that you can tap into while you’re still alive.
Also known as PMI, it’s a type of insurance that mortgage lenders require when homebuyers provide a down payment of typically less than 20 percent. Basically what homeowners need to pay to offset the risk to the lenders who have granted them a home loan.
The payments you make to an insurance company to maintain your coverage. You can pay premiums monthly, quarterly, semiannually or annually.
The process of buying or selling investments over time in order to maintain your desired asset allocation.
A standard amount that can be used to reduce your taxable income if you decide not to itemize your deductions. Your standard deduction is based on your tax-filing status, and it’s the government’s way of ensuring that at least some of your income is not subject to tax.
Also called equities or shares, stocks give you ownership in a company. When you buy stocks, you become a company shareholder.
A type of policy that provides coverage over a set period, generally anywhere from 10 to 30 years. If you die within the set term, your beneficiaries receive a payout. If you don’t, the policy expires with no value.

Financial Dictionary

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