GLOSSARY OF FINANCIAL TERMS: 8 MUST-KNOW DEFINITIONS
In a recently conducted survey, only 37 percent of participants were considered to have a passable level of financial literacy.1 The number sounds low, but it’s not hard to see why more than 60 percent of participants had trouble answering basic financial questions. The financial field is packed full of special terms, abbreviations and concepts many people don’t come across day to day. It can be tough to differentiate between concepts when you’re someone simply looking to make the best financial decisions for you and your family. But when it comes to your money, you always want to be in the know. That’s why we’re providing 15 must-know definitions below you can use to make more informed decisions moving forward.
Banking Terms To Know
Net Worth
Your net worth is found by subtracting your liabilities (or debts) from your assets. To determine this value, you can add up everything you have of value. This includes investments, money in the bank and the current value of your car and home. Then, you’ll want to subtract any current money owed, including credit card debt, student loans, mortgage balances and any other debts. The remaining amount is your net worth.
FICO Score
FICO, which is an acronym for Fair Isaac Corporation, is a method used to determine how credible a borrower may be. This score is typically dependent on factors including total debt owed, length of credit history and previous payment performance. A FICO score can be between 300 and 800. The higher your score, the better a chance, in general, you have at obtaining loans or other forms of financing.
Investment Terms To Know
Asset Allocation
When developing your portfolio, asset allocation refers to the process of dividing your assets into different asset classes. The most popular asset classes include stocks, bonds and cash or cash equivalents. Typically, your asset allocation is determined based on several factors including risk tolerance and time horizon.
Capital Gains
This is the amount of value an asset has gained or increased since the original purchase. Capital gains are typically used to describe an increase in value of stocks or real estate. It’s important to note, however, that these gains are only shown on paper until the actual entity is sold.
Rebalancing
Rebalancing is the process used to help maintain the proper asset allocation for your specific needs. This is a necessary part of keeping your asset allocation in check as stocks, bonds and other assets are sold or purchased or gain and lose value over time.
Mutual Funds
When choosing to invest in a mutual fund, you are pooling your money together with other investors into one account that is then typically managed by a professional. These types of investments can include any of the most common asset classes including stocks, bonds, cash and cash equivalents (such as a certificate of deposit).
Insurance Terms To Know
Beneficiary
In the event you were to pass away while owning a life insurance policy, the beneficiary is the person who would receive the insurance payout after your death.
Umbrella Insurance
Umbrella insurance is a type of liability insurance designed to provide blanket coverage protecting most aspects of your financial life. Specifically created to cover you in the case of a lawsuit, this coverage steps in when you’ve reached the liability limits on your auto insurance or other types of insurance.
1 http://www.usfinancialcapability.org/results.php?region=US
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.
Asset allocation, which is driven by complex mathematical models, cannot eliminate the risk of fluctuating prices and uncertain returns. Re-balancing may be a taxable event. Before you take any specific action be sure to consult with your tax professional.
Investors should consider the investment objectives, ricks and charges, and expenses of mutual funds carefully before investing. The prospectus, which contains this and other information about the funds, and can be obtained directly from the company or from your financial professional. The prospectus should be read carefully before investing or sending money.