Financial Jargon Debunk
Money talk can be confusing, but it doesn’t have to be. We’re here to debunk common financial jargon in a way that’s easy, relatable, and a little fun.
INVESTING BASICS
What is Investing?
Investing is putting your money to work so it can grow over time instead of just sitting in a bank account. You invest with the goal of building future wealth by earning money on your money, knowing that growth happens gradually and over the long term.
What is Interest?
Interest is the money you earn when you save or invest your money, or the money you pay when you borrow it. It’s essentially the cost of using money, either working in your favor (earning) or against you (paying).
What is a Dividend?
A dividend is a payment a company makes to its shareholders as a way of sharing profits. If you own a stock or fund that pays dividends, you can receive this income in cash or reinvest it to help your investment grow over time.
What are Returns?
Returns are the money you make (or lose) on an investment over time. They can come from price growth, dividends, interest, or a combination of all three.
What is Yield?
Yield is a way to measure how much income an investment earns, usually shown as a percentage. It tells you how much you earn from things like interest or dividends compared to the amount you invested.
What are Capital Gains?
Capital gains are the profit you make when you sell an investment for more than you paid for it. They’re only realized when you sell, and they may be taxed depending on how long you held the investment and the type of account it’s in.
What is Allocation?
Allocation is how you spread your money across different types of investments, like stocks, bonds, or cash. A smart allocation helps balance potential growth with the level of risk you’re comfortable taking.
What is Diversification?
Diversification means spreading your money across different types of investments, industries, or regions so that you’re not relying on just one thing to grow your wealth. It helps reduce risk and makes your portfolio more stable over time.
What is the Stock Market?
The stock market is a place where people buy and sell shares of companies. When you invest in the stock market, you’re buying a small piece of a company, and your investment can grow if the company does well. It’s also a way to potentially earn income through dividends or selling your shares for a profit.
What is the S&P 500?
The S&P 500 is a stock market index that tracks 500 of the largest publicly traded companies in the U.S. It’s often used as a benchmark to measure how the overall stock market is performing and is a popular way for investors to invest in a broad mix of big companies at once.
What is the NASDAQ?
The NASDAQ is a stock market where people can buy and sell shares of companies, especially in technology and growth sectors. It’s also an index that tracks the performance of many of these companies, giving investors a sense of how tech-heavy stocks are doing overall.
What is Equity?
Equity is just the finance word for “stocks” or “ownership,” meaning you own tiny pieces of different companies. Think of it like having small ownership stakes in a bunch of your favorite brands instead of just cheering them on from the sidelines.
What is a Bond?
A bond is like you lending your money to your business bestie who owns one of your favorite brands, and they promise to pay you back with a little extra interest as a “thank you.” They’re not giving you ownership, but they are paying you steady interest for helping them out.
What is Fixed Income?
Fixed income is just a fancy term for investments that pay you steady, predictable interest, like bonds.
What is an ETF?
An ETF, or exchange-traded fund, is like a grab-and-go version of a mutual fund. It bundles a bunch of stocks or bonds together, but you can buy and sell it anytime, like a regular stock. It’s like having a curated collection of your favorite brands all in one basket, but way more flexible than a traditional mutual fund.
TYPES OF SAVING AND INVESTMENT ACCOUNTS
What type of account can I invest in that is NOT used for retirement?
A non-qualified investment account is a type of investment account that is not used for retirement, and therefore does NOT have restrictions or tax benefits. You can think of these as a “regular” investment account. People often refer to these types of accounts as “brokerage accounts,” but they do not have to be held at a brokerage company.
What is a tax-advantaged Account?
A tax-advantaged account, also known as a qualified investment account, is a type of account that gets preferred treatment by the IRS, usually some type of tax benefit. (i.e., IRAs, 401(k)s, 529 plans are all qualified investments)
What is a Money Market Account?
A money market account is a type of savings account that typically offers a higher interest rate than a traditional savings account, while still providing easy access to your cash. It’s often used for short-term savings or funds you want to keep safe and accessible, like emergency or business reserves.
What is FDIC Insured?
FDIC insured means that the money you put in a bank account (like checking, savings, or a money market account) is protected by the Federal Deposit Insurance Corporation up to a certain limit, usually $250,000 per account per bank. This insurance keeps your money safe even if the bank fails.
What is SIPC (Securities Investor Protection Corporation)?
SIPC is a protection that helps investors if a brokerage firm fails. It can replace missing stocks or cash in your account (up to certain limits), but it does not protect against investment losses from the market.
What is a 529 Plan?
A 529 plan is a tax-advantaged savings account designed to help pay for education expenses, like college or K‑12 tuition. The money you contribute grows tax-free, and withdrawals for qualified education expenses aren’t taxed, making it a smart way to save for your children’s or family members’ future education.
What is a UTMA / UGMA (Uniform Transfers/Gifts to Minors Act Accounts)?
UTMA and UGMA accounts are special savings or investment accounts set up for a child. An adult (usually a parent or guardian) contributes money or assets, which grow over time, and the child gains control of the account when they reach the age of majority. These accounts are often used to save or invest for a child’s future, like education or a first car.
TYPES OF RETIREMENT ACCOUNTS
What is a Roth IRA?
A Roth IRA is a retirement account funded with money you’ve already paid taxes on. And the best part? Your investments then grow tax-free, and qualified withdrawals in retirement are also tax-free.
What is a 403(b)?
A 403(b) is similar to a 401(k), but the main difference is that these are sponsored by companies that are non-profits, such as hospitals, etc.
What is a SEP IRA?
A SEP IRA is a retirement account for self-employed individuals and business owners that allows the business to make tax-deductible contributions on behalf of its employees. It’s simple to set up and administer, making it a popular option for entrepreneurs who want an easy way to save for retirement while reducing taxable income.
What is a SIMPLE IRA?
A SIMPLE IRA is a retirement plan designed for small businesses and self-employed individuals with employees. It allows both the employee and employer to contribute, and the employer is required to make a contribution each year, making it a straightforward option for offering retirement benefits while supporting employee savings.
BUSINESS OWNERS
What is Cash Flow?
Cash flow is the movement of money in and out of your personal or business finances. Positive cash flow means more money is coming in than going out, while negative cash flow means you’re spending more than you earn. Understanding cash flow helps you plan, save, and invest with confidence.
What is a tax deduction?
A tax deduction is an expense or contribution that the IRS allows you to subtract from your taxable income. By reducing the amount of income that is taxed, deductions can lower your overall tax bill. Examples include business expenses, retirement contributions, and certain charitable donations.
What does Break Even mean?
Break-even is the point where your revenue equals your expenses. In other words, you’re not losing money, but you’re not making a profit yet either. Knowing your break-even point helps you understand how much you need to earn to cover costs and start generating profit.
What is Return on Investment (ROI)?
A measure of how much profit or benefit you get from a particular investment compared to its cost.