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Financial Concepts
| Term | Definition |
|---|---|
| Aggressive | high risk but expect more gain; invest in stocks, willing to lose the most |
| ALOE | assets, liabilities, and owner’s equity; used to calculate net worth |
| Annual Report | detailed report showing a company’s operations and financial performance over the past 12 months |
| Assets | what you own (e.g., cash, car, house) |
| Back-end (Deferred) Load Mutual Funds | mutual funds that charge a fee when shares are sold |
| Balance Sheet | snapshot of a company’s assets, liabilities, and owner’s equity at a specific time |
| Bear Market | downturn of 15-20% or more in multiple indexes |
| Beige Book | summary of business conditions in the 12 Federal Reserve Banks |
| Ben Bernanke | head of the Fed during the 2008 financial crisis |
| Beta Number | measures a stock’s volatility compared to the market; if interest rates increase, beta may decrease |
| Blend MF | mutual fund that invests in a mix of growth and value stocks |
| Budget | plan for spending and saving money |
| Bull Market | period of rising stock prices, marked by optimism and investor confidence |
| Capital Appreciation | increase in the value of an investment over time |
| Cash Flow Statement | tracks the exchange of money between a company and its customers |
| Common Stock | stock with voting rights but no guaranteed dividends |
| Compound Interest | interest earned on both principal and accumulated interest; the earlier you invest, the greater the effect |
| Consumer Confidence | measure of how optimistic consumers feel about the economy; high confidence boosts spending |
| Consumer Price Index (CPI) | measures changes in the price of consumer goods; rising CPI indicates inflation |
| Contractionary Monetary Policy | decreases money supply to combat inflation; involves raising interest rates |
| Corporation | business owned by stockholders |
| Credit Cards | financial tools that allow borrowing up to a limit; paying balances in full avoids interest |
| Current Ratio | measures a company’s ability to pay short-term liabilities with current assets; below 1 signals risk |
| Debt-to-Equity Ratio | compares a company’s debt to shareholders’ equity; high ratio indicates higher risk |
| Discount Broker | brokerage service with low fees but no investment advice |
| Discount Rate | interest rate banks pay to borrow from the Federal Reserve; lowering it encourages lending |
| Discretionary Income | money left after paying for necessities |
| Dividend | portion of company profits paid to stockholders; not guaranteed and may be cut |
| Dollar Cost Averaging | investing fixed amounts regularly to reduce market timing risk |
| Dow (DOW) | stock index of 30 large companies |
| Earnings Per Share (EPS) | portion of a company’s profit allocated to each share; higher EPS suggests profitability |
| ETF (Exchange Traded Fund) | index fund traded like a stock, with updated prices and lower costs |
| Expansionary Monetary Policy | increases money supply to stimulate economy; involves lowering interest rates |
| Expense Ratio | annual fee charged by mutual funds as percentage of assets; lower ratios mean more returns |
| Federal Funds Rate | interest rate banks charge each other for overnight loans; influences broader rates |
| Federal Reserve (FED) | central bank of the U.S., created to ensure financial stability |
| Fiscal Policy | government use of spending and taxes to influence the economy |
| Front Load Mutual Funds | mutual funds that charge a fee when shares are purchased |
| Full Service Broker | brokerage offering advice but charging high fees |
| Fundamental Analysis | evaluating a stock based on underlying business factors |
| Gross Domestic Product (GDP) | total value of goods and services produced; rising GDP signals growth |
| Growth MF | mutual fund focused on stocks with high growth potential |
| Growth Stocks | stocks of companies expected to grow above-average; typically reinvest earnings |
| Henry Paulson | Treasury Secretary during the 2008 financial crisis |
| Income Stocks | stocks that pay high dividends, typically from mature companies |
| Index | benchmark like S&P 500 or DOW used to track market performance |
| Initial Public Offering (IPO) | first sale of a company’s stock to public; often volatile initially |
| Jerome Powell | current Chair of the Federal Reserve |
| Jobless Claims Report | tracks people filing for unemployment; rising claims signal weakness |
| Liabilities | what you owe (e.g., loans, credit card debt) |
| Limit Order | order to buy/sell stock at specific price |
| Liquidity | ease of converting asset to cash |
| Market Capitalization | total market value of company’s shares; small-cap=risky, large-cap=stable |
| Market Order | order to buy/sell stock immediately at current price |
| Monetary Policy | Federal Reserve’s control of money supply and interest rates |
| Money Market | low-risk, short-term investments |
| Morningstar Quote | tool for evaluating mutual funds’ performance and ratings |
| Mutual Fund | pooled investment vehicle managed by professionals |
| NAV (Net Asset Value) | price per share of mutual fund |
| No-load Mutual Funds | mutual funds with no sales charges |
| Open Market Operations | Fed’s buying/selling securities to control money supply |
| Owner’s Equity | net worth (assets minus liabilities) |
| P/E Ratio (Price-to-Earnings) | stock price divided by earnings per share; high P/E may mean overvalued |
| Passively Managed Fund | index fund with minimal management and low fees |
| Pay Yourself First | saving portion of income before spending |
| Preferred Stock | stock with guaranteed dividends but no voting rights |
| Premium (Life Insurance) | monthly payment for coverage |
| Profit Margin | percentage of revenue that becomes profit; higher margins indicate efficiency |
| Public Company | owned by investors and traded on stock exchange |
| Quantitative Analysis | evaluating investments using measurable data |
| Reserve Requirement | percentage of deposits banks must hold; lowering it increases lending |
| Retail Sales Report | measures consumer spending; rising sales indicate strength |
| Return on Equity (ROE) | profitability relative to shareholders’ equity; higher ROE=better |
| Reverse Stock Split | reduction in shares, increasing price per share; often negative signal |
| R-squared | measures how fund performance correlates with benchmark |
| Rule of 72 | formula to estimate doubling time (72/interest rate) |
| S&P 500 | index of 500 large U.S. companies |
| Sector | group of related industries (e.g., technology) |
| Securities and Exchange Commission (SEC) | regulates U.S. securities markets |
| Sharpe Ratio | measures risk-adjusted return; higher=better returns per risk |
| Short Selling | betting stock will fall by borrowing/selling shares; risky if price rises |
| Simple Interest | interest calculated only on principal |
| Standard Deviation | measures volatility of returns; higher=higher risk |
| Stock Broker | licensed professional who buys/sells stocks for clients |
| Stock Split | increase in shares, reducing price per share; makes shares more affordable |
| Technical Analysis | evaluating stocks using charts and trends |
| Term Life Insurance | coverage for specific period; cheaper than whole life |
| Tim Geithner | president of NY Fed during 2008 crisis |
| Turnover (Mutual Fund) | frequency assets are bought/sold; high turnover may increase taxes |
| Value MF | mutual fund focused on undervalued stocks |
| Volatility | degree of price variation; higher=higher risk |
| Whole Life Insurance | coverage with fixed premiums and cash value |
| Working Capital | ability to pay short-term liabilities; decline may signal trouble |
| Yield | rate of return as percentage; higher yield often means higher risk |
Created by:
rosie.belle
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