Finance glossary
Forty terms you'll actually meet in real life, explained the way a smart friend would — no textbook drone. Start typing to filter.
A
Amortization is the schedule by which a loan is paid off in equal installments, with each payment split between interest and principal.
APR stands for Annual Percentage Rate — the yearly cost of borrowing money, expressed as a percentage.
APY stands for Annual Percentage Yield — what your savings actually earn in a year once compounding is included.
B
A bear market is a long, painful drop in stock prices — officially, a fall of 20% or more from recent highs.
A bond is an IOU you buy from a government or company: you lend them money, they pay you interest on a schedule, and they return your principal at the end.
A bull market is a long stretch where stock prices keep climbing — the mirror image of a bear market.
C
A capital gain is the profit you make when you sell an investment for more than you paid for it.
Compound interest is interest earning interest.
D
Diversification means not putting all your eggs in one basket — spreading money across many investments so that no single company's disaster can sink you.
A dividend is a cash payout a company sends its shareholders, usually every quarter — your slice of the profits.
Dollar-cost averaging means investing a fixed amount on a regular schedule, no matter what the market is doing.
E
An emergency fund is cash set aside for life's surprises — job loss, car repairs, medical bills.
Equity means ownership.
An ETF (Exchange-Traded Fund) is a basket of hundreds of stocks or bonds that you buy in one click, trading on an exchange just like a single stock.
An expense ratio is the annual fee a fund charges you, skimmed silently off your returns as a percentage of your investment.
H
An HSA (Health Savings Account) is available if you have a high-deductible health plan — and it's the only triple-tax-advantaged account in existence: tax-deductible going in, tax-free growth, and tax-free withdrawals for medical costs.
I
An index fund simply copies a market index like the S&P 500 instead of trying to outsmart it.
Inflation is the slow rise in prices that quietly shrinks what your money can buy.
An IPO (Initial Public Offering) is when a private company first sells shares to the public — the moment a startup becomes a stock you can buy.
An IRA (Individual Retirement Account) is a tax-advantaged retirement account you open yourself — no employer needed.
L
A limit order tells your broker: only trade at my price or better.
Liquidity is how fast you can turn something into cash without losing value in the process.
M
Market capitalization — 'market cap' — is what the entire company is worth on the stock market: share price times number of shares.
A market order tells your broker: buy (or sell) right now at whatever the current price is.
A mutual fund pools money from thousands of investors and has a professional manager invest it, priced just once a day after markets close.
N
Net worth is everything you own minus everything you owe — the single number that best answers 'how am I doing financially?' It's more honest than income or any single account balance, because a big salary with bigger debts is still broke.
O
Options are contracts giving you the right — but not the obligation — to buy or sell a stock at a set price before a set date.
P
The P/E (price-to-earnings) ratio tells you what you're paying for each dollar of a company's yearly profit: share price divided by earnings per share.
Your portfolio is your complete collection of investments — stocks, bonds, funds, all of it, viewed as one machine.
R
A REIT (Real Estate Investment Trust) is a company that owns income-producing property — apartments, warehouses, malls — and is required to pay out most of its profits as dividends.
A Roth conversion moves money from a Traditional IRA or 401(k) into a Roth account — and you pay income tax on it now so that it, plus all future growth, comes out tax-free later.
A Roth IRA flips the traditional deal: you pay tax now, and never again.
S
Short selling is betting a stock will fall: you borrow shares, sell them at today's price, and hope to buy them back cheaper later.
A stock is a slice of ownership in a company.
T
Tax-loss harvesting means selling a losing investment to 'bank' the loss for tax purposes — then buying something similar (but not identical) so you stay invested.
V
Vesting is earning the right to keep compensation over time.
Volatility is how violently prices swing up and down.
Y
Yield is the income an investment pays you each year, expressed as a percentage of its price.