Financial Glossary
Clear definitions of financial terms — no jargon.
4
A
The process of repaying a loan through scheduled, fixed installments that cover both accrued interest and a portion of the outstanding principal balance.
The yearly cost of borrowing money, expressed as a percentage, that includes both the interest rate and all mandatory lender fees.
The strategy of dividing an investment portfolio among different asset categories — stocks, bonds, real estate, and cash — to balance risk and return based on goals and time horizon.
B
C
The annualized rate at which an investment grows from its beginning value to its ending value, assuming profits are reinvested each year.
Interest calculated on both the initial principal and all accumulated interest from prior periods, causing exponential rather than linear growth.
D
A measure of monthly debt payments as a percentage of gross monthly income, used by lenders to assess a borrower's ability to manage additional debt.
An investment strategy that spreads capital across different assets, sectors, or geographies to reduce the risk that any single investment's poor performance will significantly harm the overall portfolio.
An investment strategy of buying a fixed dollar amount of an asset at regular intervals, regardless of price — reducing the impact of volatility and eliminating the need to time the market.
E
A cash reserve of 3–6 months of living expenses kept in a liquid account to cover unexpected costs like job loss, medical bills, or urgent repairs without going into debt.
Ownership value in an asset after subtracting any liabilities against it. In real estate, it is the difference between market value and outstanding mortgage balance. In business, it is the company's assets minus its liabilities.
The annual fee charged by a mutual fund or ETF, expressed as a percentage of assets under management, which is automatically deducted from fund returns.
G
The percentage of revenue remaining after deducting the cost of goods sold — a key measure of how efficiently a company produces or sources its products.
The percentage of revenue remaining after subtracting the cost of goods sold, before accounting for operating expenses, taxes, or interest.
I
A type of investment fund that tracks a market index (like the S&P 500) by holding all or a representative sample of its constituent securities, offering broad diversification at very low cost.
The rate at which the general price level of goods and services rises over time, causing purchasing power to decline — typically measured by the Consumer Price Index (CPI).
The percentage charged by a lender for borrowing money, or paid by a bank for depositing money — expressed as an annual percentage of the principal.
M
N
O
P
The original sum of money borrowed in a loan or invested in an account, before interest, fees, or returns are added.
The quantity of goods and services that a unit of currency can buy at a given time. As prices rise with inflation, purchasing power falls — the same money buys less.
R
T
The range of income taxed at a specific marginal rate in a progressive tax system. Moving into a higher bracket only affects income within that bracket, not all income.
The principle that a dollar received today is worth more than a dollar received in the future, because money today can be invested to earn returns.