Plain-English definitions of the terms that matter, from asset allocation to wash sales. Each one links to a deeper guide when you want to go further.
An employer-sponsored retirement plan, often with a matching contribution. The match is free money and should usually be captured first.
A budgeting rule: 50% of income to needs, 30% to wants, 20% to savings and debt. A starting template, not a law.
A tax-advantaged account for education savings. Earnings grow tax-free when used for qualified education expenses.
The gradual paying down of a loan through scheduled payments. Early mortgage payments are mostly interest; later ones are mostly principal.
The yearly cost of borrowing, including interest and fees. The higher the APR, the faster debt compounds against you.
The effective annual return on a deposit account, including compounding. Compare savings accounts by APY, not advertised rates.
The mix of stocks, bonds, and cash in a portfolio. It is the single biggest driver of long-term returns and the primary lever you control to match risk to your goals.
A broad category of investments (stocks, bonds, real estate, cash) that behaves similarly. Diversifying across asset classes is the core of risk management.
A two-step strategy for high earners who exceed Roth IRA income limits: contribute to a traditional IRA, then convert it to a Roth. Requires clean-slate handling of existing pre-tax IRA balances.
The named recipient on an account or policy. It supersedes your will — so keep it current.
A loan to a government or corporation that pays interest and returns principal at maturity. Bonds are the 'safe' half of a portfolio, providing income and reducing volatility.
Profit from selling an asset for more than you paid. Short-term gains (held under a year) are taxed as ordinary income; long-term gains get preferential rates.
Higher retirement contribution limits for savers 50 and older (and a 'super' catch-up at 60–63), designed to accelerate savings near retirement.
A bank deposit that locks up money for a fixed term in exchange for a fixed rate. Early withdrawal usually triggers a penalty.
Earning returns on your returns. When interest or investment gains are reinvested, growth accelerates exponentially over time — the engine behind long-term wealth.
A number lenders use to gauge creditworthiness, built from payment history, utilization, age of credit, mix, and inquiries.
Paying debts highest-interest-first to minimize total interest paid. Mathematically optimal, but slower to show progress.
Paying debts smallest-balance-first for quick psychological wins. Slightly less mathematically optimal than avalanche, but more motivating for many.
Your monthly debt payments divided by gross income. Lenders use it to cap how much they'll lend; keeping it low protects your flexibility.
A life insurance calculation: Debt + Income + Mortgage + Education = coverage need. A simple framework for sizing a term policy.
Replaces a portion of your income if you can't work due to illness or injury. Your earning power is often your largest asset.
Spreading money across many investments so no single one can sink you. It reduces risk without proportionally reducing expected return.
A cash payment a company makes to shareholders from its profits. Dividend-paying stocks and funds provide income but are not a substitute for total return.
Investing a fixed amount on a regular schedule regardless of price. It removes the temptation to time the market and smooths out purchase prices over time.
Cash set aside to cover 3–6 months of expenses (more for variable income) so a job loss or surprise bill doesn't force you into debt or forced selling.
Arranging for the transfer of your assets and decisions after death or incapacity. It's about control and clarity, not just wealth.
A fund that trades like a stock and tracks an index or basket of assets. ETFs offer instant diversification at low cost and are tax-efficient.
The annual fee a fund charges as a percentage of assets. A 1% fee can consume a quarter of your returns over decades.
A professional legally required to act in your best interest. A non-fiduciary broker need only recommend 'suitable' products, not the best ones.
Financial Independence, Retire Early — a movement focused on aggressively saving and investing to reach a point where work becomes optional.
The portion of your home you actually own: its value minus your mortgage balance. It grows through price appreciation and principal payments.
A triple-tax-advantaged account for those with high-deductible plans: deductible contributions, tax-free growth, and tax-free withdrawals for medical costs.
A fund that holds every security in a market index (like the S&P 500). It beats most active funds over time because of its rock-bottom costs.
The rising price of goods and services, which erodes purchasing power. Historically, only stocks have reliably outgrown it over long horizons.
A tax-advantaged account you open on your own. Traditional IRAs offer tax-deductible contributions; Roth IRAs offer tax-free withdrawals.
Summing specific deductible expenses (mortgage interest, state taxes, charity) instead of the standard deduction. Only worth it when the total exceeds the standard.
Coverage for extended care (nursing home, assisted living, in-home) that health insurance and Medicare generally don't cover.
Borrowing from your broker to buy securities. It amplifies gains and losses and can trigger a forced liquidation — not for beginners.
A mutual fund investing in short-term, low-risk debt. A competitive place to park cash alongside high-yield savings and CDs.
Running thousands of randomized market scenarios to estimate the probability a plan succeeds, rather than a single deterministic path.
A bond issued by a state or local government, often exempt from federal (and sometimes state) tax. Their tax-equivalent yield can beat taxable bonds for high earners.
A pooled investment fund priced once daily. Index mutual funds are the classic building block of retirement accounts.
A 3.8% surtax on investment income above certain income thresholds, layered on top of capital gains rates.
Everything you own minus everything you owe. It's the truest single measure of financial progress, and it can be negative for years in early adulthood.
Contracts giving the right (not obligation) to buy or sell an asset at a set price. High-leverage instruments that can expire worthless.
Buying and selling to restore your target allocation after market moves have drifted it. It mechanically enforces 'sell high, buy low.'
A document granting someone authority to act for you — financially or medically — if you become incapacitated.
A company that owns income-producing real estate and pays out most of its income as dividends. A liquid way to own property.
The IRS-mandated annual withdrawal from traditional retirement accounts after a certain age. Failure to take it triggers a steep penalty.
Moving money from a traditional IRA to a Roth, paying tax now to enable tax-free growth later. Often done in low-income years.
A retirement account funded with after-tax dollars that grows tax-free forever. Best when you expect your tax rate to be higher in retirement.
The danger of withdrawing from a portfolio when the market falls early in retirement, permanently impairing the portfolio's ability to recover.
A flat amount subtracted from your income before taxes. Most people take it rather than itemizing.
When inherited assets get their cost basis reset to the value at death, wiping out the original owner's unrealized gains for tax purposes.
An ownership share in a company. Stocks are the growth engine of a portfolio but can lose half their value in a bad year.
The rate applied to your next dollar of income. The US uses a progressive system — you only pay the higher rate on income above each threshold.
Realizing gains in a year when you're in the 0% long-term capital gains bracket to reset your basis tax-free.
Selling losing investments to realize a loss that offsets capital gains (and up to $3,000 of ordinary income), then reinvesting in a similar asset.
Life insurance for a fixed period (e.g., 20 years) with no cash value. It's far cheaper than permanent insurance and fits most families' needs.
A guideline that you can withdraw 4% of your retirement portfolio in year one, adjusted for inflation, with a high chance of not running out over 30 years.
Government bonds whose principal adjusts with inflation, providing a direct hedge against rising prices.
A legal entity that holds assets for beneficiaries. A revocable living trust can avoid probate and maintain privacy.
Extra liability coverage that stacks on top of your auto and home policies, protecting assets beyond their standard limits.
Repurchasing a 'substantially identical' security within 30 days of selling it at a loss, which disallows the loss for tax purposes.
Permanent insurance with a cash-value savings component. Usually far more expensive than term for the same death benefit.
A legal document directing how your assets are distributed after death. It goes through probate, a court-supervised process.
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