Reference

Glossary

Plain-language definitions for the terms you'll meet along the way. Every linked word in a chapter brings you straight here.

Annual Percentage Yield (APY): The real rate of return earned on a savings deposit over a year, taking compounding into account. A higher APY means your money grows faster.
Asset Allocation: A core strategy of spreading your investments across the major asset classes — equities, fixed income, and cash equivalents — to balance risk and return.
Capital Gain: The difference between the purchase price and the sale price of an asset, such as a stock, when you sell it for more than you paid. Long-term gains are often taxed at a lower rate than ordinary income.
Certificate of Deposit (CD): A type of savings account where you agree to leave money on deposit for a fixed period — typically three months to five years — in exchange for a higher interest rate. CDs bought through a bank are FDIC insured up to $250,000.
Compounding: When the money you earn on an investment is added to the original amount, forming a larger balance. Future earnings are then based on that larger amount, so your money can grow faster over time.
Diversification: Owning a variety of investments — across asset classes, industries, and types — so that a downturn in any one doesn't sink your whole portfolio.
Dividend: A payment a company makes to its shareholders representing a share of its profits. Some investors hold dividend-paying stocks for the regular income.
Exchange Traded Fund (ETF): An investment that trades on a stock exchange like a share of stock but holds a basket of securities like a mutual fund. Most are index-based and provide automatic diversification.
FDIC Insurance: Protection from the Federal Deposit Insurance Corporation that covers up to $250,000 in each of your eligible bank accounts if the bank fails. Look for the FDIC logo.
FICA Taxes: Federal payroll taxes withheld from your paycheck that fund Social Security and Medicare. They're a mandatory reduction to your take-home pay.
Fiduciary: A financial professional with a legal duty to act in your best interest. Investment advisers are fiduciaries; brokers are required to act in your best interest but are not.
Filing Status: Your tax category (such as single or married filing jointly) that, along with your income, helps determine how much income tax is withheld from your pay.
Individual Retirement Account (IRA): A tax-advantaged retirement account you can open with a financial institution — useful for retirement saving and for rolling over an employer plan when you change jobs.
Inflation: The increase in the price of goods and services over time, which reduces the purchasing power of your money. Building wealth means earning returns that outpace inflation.
Mutual Fund: An investment that pools money from many investors to buy a portfolio of stocks, bonds, or both. Because it holds many securities, it is already diversified.
Net Worth: The total value of everything you own (assets) minus everything you owe (debts). Growing your net worth over time is a core measure of building wealth.
Payday Loan: A short-term, very high-interest loan that can trap borrowers in debt. It's one of the options to avoid when covering an emergency expense.
Portfolio: The full collection of investments you own. Building its value depends on making informed choices and managing them over time.
Tax-Deferred: An arrangement that lets you postpone paying taxes on certain earnings until you withdraw the money later — typically in retirement, often at a lower tax rate.
Vesting: The schedule that determines when you fully own the contributions your employer made to your retirement plan. Once fully vested, all the money in the account is yours.
Volatility: How quickly and dramatically an investment's value can change. More volatile investments carry more risk but can offer higher potential returns over the long term.