106 Financial Terms, Plain English

A 401(k) is an employer-sponsored retirement savings plan with tax advantages. Learn contribution limits, employer matching, and how to maximize your 401(k).

After-hours trading lets you buy and sell stocks outside regular market hours (9:30 AM - 4 PM ET). Learn how it works, the risks, and who should use it.

Amortization is the process of paying off a loan through regular installments of principal and interest. Learn how amortization schedules work for mortgages and loans.

An annuity is an insurance contract that provides regular payments, often used for retirement income. Learn about fixed, variable, and indexed annuities.

APR is the annual interest rate without compounding. APY includes compound interest. Learn the difference and why it matters for loans and savings accounts.

Asset allocation is how you divide your portfolio among stocks, bonds, and cash. Learn strategies by age, risk tolerance, and why allocation matters more than stock picking.

A backdoor Roth IRA lets high earners contribute to a Roth IRA indirectly by converting a Traditional IRA contribution. Learn the steps and tax implications.

A balance transfer moves high-interest credit card debt to a card with a lower rate, often 0% APR for 12-21 months. Learn how to use it to eliminate debt faster.

A bear market is a prolonged decline of 20% or more in stock prices. Learn what causes bear markets, how long they last, and what smart investors do during one.

The bid-ask spread is the difference between the highest price a buyer will pay and the lowest price a seller will accept. Learn how spreads affect your trades.

Blue-chip stocks are shares of large, well-established, financially sound companies with a history of reliable performance. Learn examples and how to invest in them.

A bond is a loan you make to a government or corporation in exchange for regular interest payments. Learn how bonds work, types of bonds, and their role in a portfolio.

Book value is a company's net asset value: total assets minus total liabilities. Learn how book value works and why it matters for value investors.

A bull market is a sustained period of rising stock prices, typically 20% or more from a recent low. Learn what drives bull markets and how to invest during one.

Capital gains are profits from selling an investment for more than you paid. Learn short-term vs long-term capital gains tax rates and strategies to minimize taxes.

Catch-up contributions let workers age 50+ contribute extra money to retirement accounts beyond the standard limits. Learn the rules and how much more you can save.

A certificate of deposit (CD) is a savings product that pays a fixed interest rate for a set term. Learn how CDs work, CD laddering, and when they make sense.

Closing costs are the fees and expenses paid when finalizing a real estate transaction, typically 2-5% of the home price. Learn what's included and how to prepare.

Compound interest is interest earned on both your original principal and previously accumulated interest. Learn how it works, the formula, and real-world examples.

The Consumer Price Index measures the average change in prices paid by urban consumers for a basket of goods and services. Learn how CPI measures inflation.

A market correction is a decline of 10-20% from a recent peak. Learn what causes corrections, how long they last, and what to do during one.

A credit score is a three-digit number that represents your creditworthiness. Learn how credit scores work, what's a good score, and how to improve yours.

Credit utilization is the percentage of your available credit that you're using. Learn why it's the second biggest factor in your credit score and how to optimize it.

Day trading means buying and selling stocks within the same trading day. Learn how it works, why most day traders lose money, and the pattern day trader rule.

A dead cat bounce is a brief recovery in a falling stock's price followed by a continued decline. Learn how to identify dead cat bounces and avoid false recoveries.

The debt-to-equity ratio measures how much debt a company uses compared to shareholder equity. Learn how D/E reveals financial risk and leverage.

Debt-to-income ratio compares your monthly debt payments to your gross monthly income. Learn what DTI lenders require and how to improve yours.

Deflation is a sustained decrease in the general price level. Learn what causes deflation, why it can be worse than inflation, and historical examples.

Diversification means spreading investments across different assets to reduce risk. Learn how diversification works, why it matters, and how to diversify your portfolio.

A dividend is a payment a company makes to shareholders from its profits. Learn how dividends work, types of dividends, dividend yield, and how to build dividend income.

Dividend yield is the annual dividend per share divided by the stock price. Learn how to calculate it, what's a good yield, and why high yields can be a warning sign.

Dollar-cost averaging means investing a fixed amount at regular intervals regardless of price. Learn how DCA reduces risk and why it works for most investors.

A down payment is the upfront cash you pay when buying a home or car. Learn how much you need, how it affects your loan, and strategies for saving.

Earnings per share (EPS) is a company's net profit divided by its outstanding shares. Learn how EPS works, the formula, and how investors use it.

An emergency fund is cash set aside for unexpected expenses or income loss. Learn how much to save, where to keep it, and why it's your most important financial buffer.

An employer match is free money your company adds to your 401(k) based on your contributions. Learn how matching works and why you should never leave it on the table.

Escrow is a neutral third party that holds funds during a transaction, or a mortgage account that collects taxes and insurance. Learn both types of escrow.

An ETF is a basket of securities that trades on a stock exchange like a single stock. Learn how ETFs work, types of ETFs, fees, and how to buy one.

An expense ratio is the annual fee a fund charges as a percentage of your investment. Learn how expense ratios work, what's a good expense ratio, and why fees matter.

The federal funds rate is the interest rate banks charge each other for overnight loans, set by the Federal Reserve. Learn how it affects mortgages, savings, and stocks.

Fiscal policy is how the government uses spending and taxation to influence the economy. Learn the difference between fiscal and monetary policy.

A fixed-rate mortgage locks your interest rate for the entire loan term, keeping your payment predictable. Learn how it works and when it's the right choice.

Free cash flow is the cash a company generates after paying for operations and capital expenditures. Learn why FCF is the truest measure of financial health.

Fundamental analysis evaluates a stock by examining financial statements, earnings, industry position, and economic conditions to determine its intrinsic value.

Futures are contracts obligating the buyer to purchase an asset at a predetermined price on a future date. Learn how futures work, types, and risks.

GDP measures the total value of goods and services produced in a country. Learn how GDP is calculated, what it reveals about the economy, and its limitations.

Growth investing focuses on companies with above-average revenue and earnings growth. Learn how growth investing works and how it compares to value investing.

A hedge fund is an investment partnership that uses advanced strategies to generate returns. Learn how hedge funds work, their fee structure, and whether they beat the market.

A high-yield savings account pays 10-25x more interest than traditional bank savings accounts. Learn how they work and why they're ideal for emergency funds.

Home equity is the difference between your home's market value and what you owe on your mortgage. Learn how equity builds, how to access it, and why it matters.

Hyperinflation is extremely rapid inflation, typically exceeding 50% per month. Learn what causes it, famous historical examples, and how to protect against it.

An index fund is a type of mutual fund or ETF that tracks a market index like the S&P 500. Learn how index funds work, their low fees, and why most investors should use them.

Inflation is the rate at which prices rise and purchasing power falls. Learn what causes inflation, how it's measured, and how to protect your investments from it.

Intrinsic value is the true underlying worth of an asset based on its fundamentals, independent of its market price. Learn how investors estimate intrinsic value.

An IRA is a tax-advantaged individual retirement account. Learn about Traditional vs Roth IRAs, contribution limits, and how to open one.

Large-cap stocks are companies with market capitalizations above $10 billion. Learn about large-cap characteristics, benefits, and how they anchor portfolios.

A limit order lets you set the maximum price you'll pay (or minimum you'll accept) for a stock. Learn how limit orders work and when to use them.

Liquidity measures how quickly and easily an asset can be converted to cash without losing value. Learn about liquid vs illiquid assets and why liquidity matters.

Margin trading means borrowing money from your broker to buy more stocks than you could with cash alone. Learn how margin works, margin calls, and the risks involved.

Market capitalization is a company's total value calculated by multiplying share price by shares outstanding. Learn large-cap vs small-cap and how investors use market cap.

A market order is an instruction to buy or sell a stock immediately at the best available price. Learn when to use market orders and their risks.

The mega backdoor Roth lets you contribute up to $46,000+ per year to a Roth account through after-tax 401(k) contributions and in-service conversions.

Mid-cap stocks are companies with market capitalizations between $2 billion and $10 billion. Learn why mid-caps are often called the 'sweet spot' of investing.

Monetary policy is how the Federal Reserve uses interest rates and money supply to manage inflation and employment. Learn the tools and how they affect you.

A money market account combines features of savings and checking accounts, often with higher rates and check-writing ability. Learn how they work.

A moving average smooths price data to identify trends by averaging prices over a set period. Learn about simple vs exponential moving averages.

A mutual fund pools money from many investors to buy a diversified portfolio of stocks, bonds, or other assets. Learn types, fees, and how mutual funds compare to ETFs.

The national debt is the total amount the federal government owes to creditors. Learn how it accumulates, who holds it, and whether it matters for investors.

Net worth is everything you own minus everything you owe. Learn how to calculate your net worth, average net worth by age, and how to grow it.

Options are contracts giving you the right to buy or sell a stock at a set price. Learn calls vs puts, how options work, and the risks of options trading.

The P/E ratio measures a stock's price relative to its earnings per share. Learn how to calculate P/E, what's a good P/E ratio, and how investors use it.

Penny stocks are shares of small companies trading below $5 per share. Learn why penny stocks are risky, how they differ from blue chips, and why most investors should avoid them.

Portfolio rebalancing means adjusting your investments back to your target allocation. Learn how to rebalance, when to do it, and why it matters for long-term returns.

The price-to-book ratio compares a stock's market price to its book value per share. Learn how P/B works and what it tells you about a stock's valuation.

PMI is insurance that protects the lender when you put less than 20% down on a home. Learn how much it costs and how to remove it.

Quantitative easing is when the Federal Reserve buys bonds to inject money into the economy and lower interest rates. Learn how QE works and its effects.

Quantitative tightening is when the Federal Reserve reduces its bond holdings, removing liquidity from the financial system. Learn how QT works and its market impact.

A recession is a significant decline in economic activity lasting more than a few months. Learn what causes recessions, how they affect investments, and how to prepare.

Refinancing replaces an existing loan with a new one, usually at a lower interest rate or better terms. Learn when refinancing makes sense and the costs involved.

The Relative Strength Index (RSI) is a momentum indicator measuring the speed and magnitude of price changes. Learn how to read RSI and identify overbought/oversold conditions.

Required minimum distributions are mandatory annual withdrawals from retirement accounts starting at age 73. Learn RMD rules, calculations, and penalties.

ROI measures the gain or loss on an investment relative to its cost. Learn the ROI formula, how to calculate it, and what counts as a good ROI.

A rollover moves retirement funds from one account to another without triggering taxes or penalties. Learn the types, rules, and common mistakes.

A Roth IRA lets you invest after-tax dollars and withdraw everything tax-free in retirement. Learn Roth IRA rules, limits, and why it's the most powerful retirement account.

The Rule of 72 is a shortcut to estimate how long it takes for an investment to double at a given annual return. Just divide 72 by the annual interest rate.

Sector rotation is a strategy of moving investments between industry sectors based on the economic cycle. Learn which sectors lead at different stages.

Short selling means borrowing shares and selling them, hoping to buy them back cheaper. Learn how short selling works, the risks, and famous short squeezes.

A sinking fund is money set aside monthly for a planned future expense like car repairs, vacations, or insurance premiums. Learn how sinking funds prevent budget surprises.

Small-cap stocks are companies with market capitalizations typically between $300 million and $2 billion. Learn about small-cap risks, returns, and the small-cap premium.

Social Security provides retirement income, disability benefits, and survivor benefits. Learn how it works, when to claim, and whether it will be there for you.

Stagflation is the rare combination of stagnant economic growth, high unemployment, and high inflation. Learn why it's so dangerous and how to invest during it.

A stock split divides existing shares into multiple new shares, lowering the price per share without changing the company's total value. Learn how stock splits work.

A stop-loss order automatically sells a stock when it drops to a specified price, limiting your losses. Learn how stop-loss orders work and their limitations.

Supply and demand is the fundamental economic model explaining how prices are determined. Learn the laws, the equilibrium concept, and real-world examples.

Swing trading means holding stocks for days to weeks to capture short-term price moves. Learn how swing trading works and how it compares to day trading.

A target-date fund automatically adjusts its asset allocation from aggressive to conservative as you approach retirement. Learn how they work and who should use them.

Technical analysis studies price charts, patterns, and indicators to predict future price movements. Learn how it works and how it differs from fundamental analysis.

A trade deficit occurs when a country imports more goods and services than it exports. Learn what trade deficits mean for the economy, currency, and jobs.

Treasury bills are short-term government securities that mature in one year or less. Learn how T-bills work, current rates, and how to buy them through TreasuryDirect.

The unemployment rate is the percentage of the labor force that is jobless and actively seeking work. Learn how it's measured, its limitations, and what it means for markets.

A value trap is a stock that looks cheap based on metrics but keeps declining. Learn how to identify value traps and avoid this common investing mistake.

Vesting determines when employer-contributed benefits become fully yours. Learn about vesting schedules, cliff vesting, and how it affects job change decisions.

Volume is the number of shares traded in a given period. Learn how volume confirms trends, signals reversals, and affects liquidity.

Yield is the income return on an investment, expressed as a percentage. Learn about dividend yield, bond yield, yield vs return, and what yield tells investors.

The yield curve plots bond yields across different maturities. Learn how a normal, flat, and inverted yield curve signal economic conditions.

A zero-based budget assigns every dollar of income a specific purpose, so income minus expenses equals zero. Learn how it works and why it's so effective.