Skip Navigation

Financial Planning and Investing Glossary

Compiled by Barbara O'Neill, Ph.D., CFP, Rutgers New Jersey Agricultural Experiment Station (NJAES) Cooperative Extension


  1. AGI (Adjusted Gross Income)—The last line on the front page of IRS form 1040, indicating income before subtracting personal exemptions, deductions, and credits are taken.
  2. APR (Annual Percentage Rate)—The total annual cost for a loan, credit card, or other type or credit. For example, a credit card might have an APR of 18%.
  3. Amortization—The process of reducing an outstanding debt by making regular payments that include both principal and interest until a loan is eventually repaid. An example of amortization is a home mortgage.
  4. Annual Fee—An amount charged to a credit card holder by some creditors to maintain an account. Annual fees are charged regardless of whether or not a credit card is used.
  5. Annual Report—A report that public companies are required to file annually to describe the preceding year's financial results and plans for the upcoming year. Included in an annual report is information about a company's assets, liabilities, earnings, and profit or loss.
  6. Annuity—A contract with an insurance company where the issuer agrees to make regular payments to someone for life or for a fixed time period in exchange for a lump sum or periodic deposits.
  7. Asset—Anything of value (e.g., securities, property) that you own that increases your net worth.
  8. Asset Allocation—The placement of a certain amount of one's investment capital within different types of asset classes (e.g., 50% stock, 30% bonds, and 20% cash).
  9. Asset Allocation Fund—An "all-in-one" mutual fund that includes stocks, bonds, and cash equivalent assets in its portfolio.
  10. Automatic Investment Plan (AIP)—An arrangement where investors have money withdrawn periodically from their bank account to purchase shares of stock or a mutual fund.
  11. ATM—An acronym for automated teller machines that enable consumers to make deposits and withdrawals electronically 24 hours a day.
  12. Average Daily Balance Method—The most common method of calculating the balance on a credit card in order to determine finance charges. The total of the unpaid balances for each day in a billing period is divided by the number of days in the billing period (e.g., $6,000 divided by 30 = $200). The finance charge is then figured on this average balance.


  1. "Bad" Debt—Credit used to purchase items that depreciate in value or are no longer around when the bill arrives (e.g., food, restaurant meals, gasoline), especially if a balance is revolved and interest is paid.
  2. Balance—The amount of money on deposit in a bank account or outstanding on a loan or credit card.
  3. Bank—A for-profit financial institution where consumers can access a variety of services such as checking and savings accounts, credit cards, safe deposit boxes, and loans.
  4. Bankruptcy—The process of petitioning a court to discharge one's debts. There are two types of personal bankruptcy: Chapter 7 (liquidation of assets) and Chapter 13 (debt repayment plan).
  5. Bank Statements—A document that indicates the beginning and ending balance of a bank checking or savings account and transactions (e.g., deposits, checks that have cleared) that have taken place during the statement period.
  6. Basis/Cost Basis—The value assigned to an asset, generally it's purchase price plus the amount of subsequent deposits, that is used to determine a capital gain or capital loss for tax purposes.
  7. Bear Market—The term used to describe a prolonged period of declining stock prices.
  8. Beneficiary—Individual(s) identified to inherit specific property (e.g., beneficiaries are named on an insurance policy and retirement savings plans such as an IRA).
  9. Before (Pre-) Tax Dollars—Money contributed to a tax-deferred savings plan (e.g., 401(k) and some IRAs) that you do not have to pay income tax on until withdrawal at a future date.
  10. Bond—A debt certificate or IOU issued by a corporation or unit of government. Borrowers are promised interest for loaning their money to the bond issuer and the return of their investment at a specified future date.
  11. Broker/Stock Broker—A professional who executes investors' orders to buy and sell securities and generally provides some financial advice.
  12. Budget—Also known as a spending plan, it is a plan for spending and saving money that balances household income and expenses.
  13. Bull Market—The term used to describe a prolonged period of rising stock prices.
  14. Buy and Hold—A strategy of purchasing securities believed to be of high quality and keeping them for a number of years.


  1. Capital Gain/Appreciation—An increase in the market value of an investment.
  2. Capitalization—Market value of a company, calculated by multiplying the number of shares outstanding by the price per share. Often referred to as "cap," as in a "large cap stock."
  3. Cash Flow—The relationship between household income and expenses. For example, households that spend more than they earn have negative cash flow.
  4. Cash Investments (a.k.a., "Cash Equivalents")—Highly liquid securities that are appropriate for emergency savings and short-term financial goals (e.g., money market funds and savings accounts).
  5. Cash Value—The savings component of a whole life, variable life, or universal life insurance policy.
  6. Caveat Emptor—"Let the buyer beware," a warning for all consumers to shop carefully.
  7. CD—A fixed amount of money deposited with a financial institution for a specified amount of time. An acronym for Certificate of Deposit, CDs are sold by banks with principal insured by the Federal Deposit Insurance Corporation (FDIC). Brokerage firms may also sell CDs. Interest paid on CDs varies with the amount deposited and the length of time the money is invested.
  8. Checking Account—An account that allows owners to draw upon deposited funds by writing a check.
  9. Collateral—Something of value pledged to secure a loan (e.g., a car as security for a car loan).
  10. Collectible—A tangible item, such as coins, stamps, and art, purchased as an investment.
  11. Commission—Fee paid to a broker to trade securities, generally based on the number of shares trade or the dollar amount of the trade.
  12. Compound Interest—Interest credited daily, monthly, quarterly, semi-annually, or annually on both principal and previously credited interest.
  13. Consumer Price Index (CPI)—The Consumer Price Index (CPI) is a measure of inflation used by the U.S. Bureau of Labor Statistics. Changes in the price of more than 300 goods and services are tracked and recorded.
  14. Core Holding—The foundation of a portfolio (e.g., a stock index fund) to which an investor might add additional securities. Financial author Charles Schwab calls this strategy "core and explore."
  15. Co-signer—Someone who agrees to make payments on a loan if the primary borrower does not.
  16. Contribution—A voluntary deposit to a retirement plan such as a 401(k) or IRA.
  17. Conversion—The transfer of funds from a traditional IRA to a Roth IRA. IRA conversions are a taxable event in the year that a conversion is made.
  18. Credit—The receipt of money, good, or services in exchange for a promise to repay the amount borrowed at a future date.
  19. Credit Card—A plastic card issued by a financial institution indicating that an account has been established to make purchases or cash advances in exchange for a future payment and a fee called interest. Any debt balance remaining is revolved to the following month.
  20. Credit Card (Secured)—A credit card backed by a sum of money deposited with the creditor by the account holder to use as security for the loan.
  21. Credit Counseling Agency—An organization, which can be structured as for-profit or not-for-profit, that administers debt repayment plans for individuals who are having difficulty repaying their creditors. Agencies generally charge a fee for this service, which can vary among agencies.
  22. Credit History—How a person has used credit in the past (e.g., paying bills on time vs. late payments).
  23. Credit Report—A report issued by a credit reporting agency that indicates how a person has used credit in the past. It is generated from data provided by creditors and public records upon the request of consumers, creditors, and others with a legitimate business reason to check the report.
  24. Credit Union—A member-owned financial institution where consumers can access a variety of services such as checking and savings accounts, credit cards, safe deposit boxes, and loans. Members generally have some type of common affiliation such as employment.


  1. Debit—The deduction of money from a financial account.
  2. Debt—General term used to indicate an outstanding balance of money owed for loans, mortgages, credit cards, and other forms of credit.
  3. Debt Limit (Debt-to-Income Ratio)—The maximum amount of debt that a person should have expressed as a percentage (generally is no more than 15% to 20%) of their monthly after-tax (net) income.
  4. Debt Reduction—A systematic process of repaying debt to reduce the outstanding balance owed.
  5. Defined Benefit Pension Plan—A type of pension that promises a retiree a specific monthly benefit at retirement based on a formula that incorporates factors such as earnings (e.g., average of highest 3 or 5 year's salary) and years of service.
  6. Defined Contribution Pension Plan—A type of pension where a worker and/or worker's employer contributes to an account in the worker's name and the amount received at retirement is based on the amount contributed and investment gains and losses. There is no formula to calculate future benefits. Defined contribution plans are used increasingly by employers instead of defined benefit.
  7. Deposit—The addition of money to a financial account.
  8. Direct Deposit—The process of depositing money electronically into a bank or credit union transaction account. Direct deposit is commonly used for employee paychecks and government benefit checks.
  9. Direct Transfer—Movement of retirement funds from one qualified retirement plan directly to another qualified plan without the owner taking possession of the funds.
  10. Disability Insurance—Type of insurance that replaces lost earnings when someone is unable to work due to accident or illness.
  11. Diversification—The process of selecting different investments to reduce investment risk.
  12. Dividend—A distribution of income from investments to shareholders.
  13. Dollar-Cost Averaging—The process of investing a regular amount at a regular time interval.
  14. Dow Jones Industrial Average (DJIA)—The Dow Jones Industrial Average is an average of the stock price of 30 selective stocks. It is widely quoted each day as a barometer of stock market activity. Because the Dow Jones Industrial Average uses such a small number of stocks, it is often criticized for not representing the whole market, which is why other indexes, such as the Standard and Poor's 500 and Russell 3000, also are used.


  1. Earned Income—Wages and salaries from a job or net earnings from self-employment. Earned income does not include pension income or interest and dividends on investments.
  2. ETA—An acronym for Electronic Transfer Accounts. ETAs are used for direct deposit by people who receive regular checks from the federal government, such as Social Security benefit payments.
  3. Elimination Period—The number of days, starting from the date of an insurable event, before benefits are paid on certain types of insurance policies (e.g., long-term care, disability).
  4. Emergency Fund—A sum of money set aside in a readily accessible savings account for unanticipated events such as unemployment, medical bills, and car repairs. A sum of money to cover basic living costs for three months is recommended.
  5. Estate Planning—The process of organizing your assets for use during your lifetime and distribution after death in accordance with prevailing state and federal laws.
  6. Expense—Item for which household income is spent, including basic needs, such as housing and utilities, and discretionary purchases, such as entertainment and clothing.
  7. Expense Ratio—The percentage of mutual fund assets deducted for management and operating expenses. The expense ratio and other information about a fund can be found in its prospectus.


  1. Fair Market Value—The value for which you could reasonably expect to buy or sell an item.
  2. Federal Deposit Insurance Corporation (FDIC)—Federal agency that insures bank deposits up to $100,000. Investments purchased at banks, however, are not FDIC insured.
  3. Financial Planning—The process of establishing financial goals and developing an action plan to achieve them. The financial planning process includes all aspects of personal finance including managing cash flow, insurance, investing, taxes, and retirement and estate planning.
  4. Fixed Expenses—Household expenses, such as housing or car loan payments, that don't vary over time.
  5. Fixed-Income Security—A "loanership" investment, such as a bond, that pays a specific rate of interest that remains the same until maturity.
  6. Flexible Expenses—Household expenses, such as food, transportation, and gifts, that vary from month to month.
  7. 401(k) Plan—A tax-deferred retirement savings plan available to employees of for-profit corporations.
  8. 403(b) Plan—similar to a 401(k), a tax-deferred retirement savings plan for employees of tax-exempt educational, medical, or research organizations, colleges, and public schools.
  9. Fundamental Analysis—The process of evaluating a company's sales, earnings, profitability and other financial data to determine its investment potential.
  10. Future Value—The amount that a sum of money today will be worth in the future with growth due to compound interest.


  1. "Good" Debt—Credit that is used to purchase items that retain or increase in value over time. Examples include a college education or job training and a home purchase or improvements.
  2. Gross Income—The amount of earnings before deductions such as income taxes and Social Security. Gross income is calculated by prorating a worker's annual salary according to the number of pay periods or by multiplying an hourly wage rate by the number of hours worked.
  3. Growth Fund—A mutual fund that invests in stock with an objective of capital appreciation.


  1. Income—A source of money with which to save and pay household expenses. Common sources of income include salary from a job, self-employment earnings, alimony and child support payments, gifts, tax refunds, and public assistance.
  2. Income Fund—A mutual fund that invests in stocks or bonds with a high potential for current income, either dividends (e.g., utility stocks) or interest (e.g., bonds).
  3. Index—An unmanaged collection of securities whose overall performance is used as an indication of stock or bond market trends. An example of an index is the widely quoted Dow Jones Industrial Average. Another frequently reported index is the Standard & Poor's 500.
  4. Index Fund—A type of mutual fund that aims to match a particular stock or bond index by investing in the securities found in the index.
  5. Inflation—The erosion of purchasing power over time through an increase in the cost of goods and services. For example, $100 at the beginning of the year buys less than $100 at the end of the year. If the annual inflation rate is 2 percent, the $100 you spend on groceries in January buys only $98 of food in December. People on a fixed income feel the effects of inflation the most.
  6. Installment Loan—An amount of money that is borrowed to buy things like a house, car, or appliance. Loans are typically repaid in equal monthly amounts, such as a 36-month loan to buy a car. The longer the repayment period, the lower the monthly payment but the greater the total interest cost.
  7. Interest (Borrowing)—The cost for borrowing money, generally expressed as a percentage of the amount borrowed, such as 18% interest on a credit card balance. Actions by the Federal Reserve System influence the interest rates charged to consumers.
  8. Interest (Saving)—The return on an investment, such as 5% earned on the amount invested in a bond.
  9. Interest Rate Risk—The risk that the value of fixed-income securities (e.g., bonds) will decline when interest rates rise.
  10. Intestate—Dying without a will.
  11. Investing—The process of purchasing assets such as stocks, bonds, real estate, and mutual funds with the expectation of future income and/or capital gains (growth in value).
  12. Investment Clubs—Organizations of investors who meet regularly, study investment options, and contribute money toward the purchase of securities.
  13. IRA—An acronym for Individual Retirement Account, IRAs are tax-deferred accounts established by workers with earned income to save for retirement. There are two types of IRAs: Traditional IRAs, which may or may not be tax-deductible, and Roth IRAs, described below.
  14. IRA (Roth)—A type of IRA where contributions are not tax-deductible but earnings on savings are tax-exempt if made more than five years after a Roth IRA is established and after age 59 ½.


  1. "Junk" Bond—Also called high-yield bonds, they are high-risk bonds (rated less than BBB) that are offered by issuers with low bond ratings and, therefore, have a greater chance of default.


  1. Keogh Plan—A tax-deferred retirement savings plan for self-employed workers.


  1. Laddering—Creating a CD or bond portfolio with a combination of assets with different maturity dates. As each bond or CD matures, the proceeds are reinvested at the longest time interval to maintain the ladder.
  2. Leverage—The use of borrowed money to make an investment (e.g., a home mortgage).
  3. Liability—Money owed by an individual or business that decreases net worth.
  4. Life Insurance—A contract with a life insurance company where a policyholder pays a premium in exchange for an amount paid to his or her beneficiaries in the event of death. Life insurance is not needed by everyone but should be purchased by anyone with financial dependents (e.g., children).
  5. Liquidity—The ability to convert an asset to cash quickly without loss of value.
  6. Long-Term Care Insurance—Type of insurance that covers the cost of support services (e.g., home health care and nursing home care) when someone is unable to perform basic activities of daily living such as bathing, eating, and dressing.


  1. Marginal Tax Rate—The rate that you pay on the last (highest) dollar of personal or household (if married) earnings. As a result of the May 2003 tax law, there are currently six federal marginal tax rates: 10%, 15%, 25%, 28%, 33%, and 35%.
  2. Market Risk—The risk that the price of investments will be affected by the volatility of financial markets in general.
  3. Maturity—The date on which the principal amount of a bond or CD must be paid.
  4. Money Market Mutual Fund—A type of mutual fund that invests in short-term, liquid cash assets.
  5. Morningstar—An investment research company known for its ratings of the performance of mutual funds. Morningstar fund reports are found in the reference section of many libraries.
  6. Mortgage—A loan used to purchase a home with the real estate used as collateral to secure the loan. The interest portion of mortgage payments is generally tax-deductible.
  7. Mutual fund—An investment company that pools deposits from many shareholders and invests in the stock, bonds, or cash assets of many companies in order to achieve the specific objectives of the fund.


  1. Net Asset Value (NAV)—The market value of a mutual fund's total assets, after deducting fund liabilities, divided by the number of shares outstanding. NAV is the price per share of a fund.
  2. Net ("Take-Home") Income—The amount of money that a worker receives in a paycheck after items such as income taxes, Social Security (FICA) tax, retirement plan savings, union dues, and other items have been deducted.
  3. Net Worth—A "snapshot" of your financial situation calculated by subtracting debts (liabilities) from assets. All figures in a net worth statement reflect their current fair market value.
  4. New York Stock Exchange (NYSE)—Located on Wall Street in New York City, the largest and oldest stock exchange in the U.S. that trades the stock of established companies that meet its stringent listing requirements.
  5. No-Load Fund—A mutual fund that requires no up-front or marketing fees to purchase shares.


  1. Ordinary Income—Current income from various sources that is subject to standard marginal tax rates. Ordinary income includes salary/wages, net income from a business, dividends, and interest and capital gains that are reported on 1099 statements.


  1. Passbook Savings Account—A bank account that is very liquid but usually pays a very low interest rate. Passbook accounts should be used for emergency savings and short-term goals.
  2. Penalty—An additional tax due when conditions of retirement savings plan are not fulfilled. An example is the 10% penalty for early withdrawals before age 59½. Late withdrawals (i.e., not making minimum required distributions after age 70½) from a traditional IRA or 401(k) plan are another example of an instance when penalties are assessed.
  3. Penny Stocks—Stocks that sell for $5 per share or less and are generally considered risky.
  4. Pension—An employment-based retirement savings plan that pays benefits to workers at retirement. There are two general types of pensions: defined benefit and defined contribution.
  5. Periodic Expenses—Household expenses that occur generally one to four times a year, instead of monthly, such as quarterly insurance premiums or property tax payments.
  6. Portfolio—The combined holding of stocks, bonds, cash equivalents, or other assets (e.g., real estate) by an individual or household.
  7. Portfolio Rebalancing—Periodically adjusting the holdings in an investment portfolio to maintain a certain asset allocation.
  8. Premium—A fee paid to an insurance company in exchange for third-party protection against a certain type of risk (e.g., loss of a home, disability, liability).
  9. Present Value—Today's value of a sum of money that will be received at a future date.
  10. Principal—The original amount of money invested or borrowed, excluding any interest or dividends.
  11. Probate—The court-supervised process of validating a will, paying debts of the deceased, and distributing the proceeds to named beneficiaries (heirs).
  12. Prospectus—An official booklet that describes a mutual fund including its objectives, expenses, historical performance, purchase and redemption policies, and fees.


  1. Retirement Planning—The process of planning one's finances and making lifestyle decisions for later life, typically for the period of time after paid employment ceases.
  2. Return—Investment gain or loss (e.g., XYZ stock had a 15% average annual return).
  3. Risk—Exposure to investment loss. For example, a high-risk investment carries with it a high chance of loss.
  4. Risk Tolerance—A person's capacity to emotionally and financially handle the risks associated with investing.
  5. Rollover—Transfer of funds from a retirement savings plan, such as a 401(k) or 403(b), to a traditional IRA. The term is also used for changes from one type of IRA investment to another. If done properly, according to tax law, rollovers are a non-tax able event.


  1. Salary—An annual amount of compensation, received by workers from an employer, that is pro-rated on a weekly, biweekly, or monthly payment schedule. Salary income is subject to state and federal government income taxes and Social Security tax (FICA), which are generally deducted from a worker's earnings via payroll withholding.
  2. Sales Charge/Load—The amount charged to purchase mutual fund shares.
  3. Savings account—An account established at a bank or credit union for storing money. Interest is paid on deposited money and withdrawals can be made by visiting a bank teller or using an ATM card, if one is available. Minimum deposit amounts may be required in order to avoid fees.
  4. Secured Debt—A debt that is backed by some type of collateral in order to reduced the risk to the lender. An example is a car loan where the car is used as security (collateral) for the loan.
  5. Securities—A term used to refer to stocks and bonds (e.g., tax-exempt securities) in general.
  6. Share—A unit of ownership in a company (common stock) or mutual fund. The value of a share will vary according to market conditions and other factors.
  7. Simplified Employee Pension (SEP)—A tax-deferred retirement savings plan for self-employed individuals and small business owners.
  8. Social Security—Federal government program that provides retirement and disability benefits to workers and their dependents. Workers pay for Social Security through payroll taxes. Specific information about Social Security benefits and criteria for eligibility can be found at
  9. Spending Plan/Budget—A written plan for spending and saving money.
  10. Stock—A type of investment that represents a unit of ownership of a corporation. This ownership is represented by shares of stock, which are a claim on the corporation's assets and earnings.


  1. Taxable Income—The amount of income that a taxpayer looks up in a tax table to determine the tax due on after subtracting adjustments, deductions, and exemptions from gross income.
  2. Tax-Deferred—Investments where earnings that are not taxed in the current year but will be later, usually at the time of withdrawal. Examples of tax-deferred investments are Individual Retirement Accounts (IRAs), employer 401(k) and 403(b) plans, and annuities.
  3. Tax-Exempt (Tax-Free)—Investments where earnings are free from tax liability. An example of a tax-exempt investment is municipal bonds and bond funds.
  4. Term Life Insurance—Type of life insurance policy that pays benefits only if the policyholder dies within the period of time covered by the policy. Term policies are generally the least expensive type of life insurance policy because there is no cash value (savings) component.
  5. The Rule of 72—Formula used to determine at what interest rate or during what time period a sum of money will double. The answer is found by dividing the known variable into 72.
  6. The Time Value of Money—The fact that a dollar received today is not worth the same as a dollar received at a previous or future time period, due to the interest that can be earned on the money.
  7. Thrift Savings Plan (TSP)—A retirement savings plan that is offered to federal government workers, both uniformed service members and civilian employees. Specific information about the TSP is available at the Web site
  8. Total Return—The combination of income and capital gains or losses on an investment.
  9. Treasuries (Bills, Notes, and Bonds)—Debt obligations of the U.S. government. Treasury bills are the shortest term investment, followed by Treasury notes (intermediate-term), and Treasury bonds (long-term). All three types are available for a minimum deposit of $1,000 or in multiples thereof.
  10. Triple Witching Day—The third Friday of March, June, September, and December when contracts for stock index futures, stock index options, and stock options all expire and financial markets tend to be particularly volatile.
  11. Trust—A legal instrument that grants control of one's assets to a person or financial institution. Trusts can be revocable or irrevocable and can manage property while the creator is alive (living trust) or following the creator's death (testamentary trust).
  12. Trustee—A person or financial institution that manages the property of others.
  13. Turnover Rate—The percentage of mutual fund holdings that have changed in a year. The higher the turnover rate (e.g., 100% vs. 20%), the higher a fund's transaction costs and taxable gains.


  1. Umbrella Liability Coverage—Excess liability insurance that supplements the liability limits of a homeowner's or renter's policy and automobile insurance policy.
  2. Unsecured Debt—A debt that is secured only by a borrower's promise to repay it, rather than by some type of collateral. A common example of an unsecured debt is the balance on a credit card.
  3. U.S. Savings Bonds—Available in two forms (Series EE and inflation-adjusted Series I), these are low-cost federal debt securities. Interest on both types of savings bonds is adjusted semi-annually on May 1 and November 1 according to market conditions. For additional information about purchasing U.S. savings bonds, check or


  1. Value Line—An investment research company known for its ratings of the performance of company stocks. Value Line reports are found in the reference section of many libraries.
  2. Values—Beliefs about what is important in a person's life that influence financial goals and spending decisions.
  3. Vesting—The date when you are entitled to receive money that your employer has contributed to your retirement account.
  4. Volatility—The degree of price fluctuation associated with a specific investment or market index. The more price fluctuation that is experienced, the greater the volatility.


  1. Wages—Payment by an employer to a worker for services performed on an hourly, daily, or weekly basis or according to a specified piecework rate. Like a salary, wages are subject to state and federal income tax and Social Security tax withholding.
  2. Whole Life Insurance—Type of life insurance policy that combines protection for the life of an insured person and a savings component known as the cash value.
  3. Will—A legal document that states what people want done with their property after they die (e.g., charitable donations) and who they want to manage their financial affairs, settle their estate, and serve as guardian for minor children.
  4. Withdrawal—The process of taking money out of a financial account, thus lowering the balance.
  5. Withholding—Deduction of federal and state income taxes, Social Security taxes, and other items, such as union dues and health insurance premiums, from a worker's paycheck.


  1. Zero-Coupon Bond—A corporate, municipal, or Treasury bond that originally sells at a deep discount from its face value (generally $1,000) and whose value increases annually until maturity.