Glossary topic
Investor Basics
72 terms
Why this topic matters
Build the foundation around your trading capital. Read portfolios, financial statements, account structures, tax calculations, credit, and compounding with clear definitions and worked examples. Connect the market result with the finances behind it.
Explore the surrounding concepts, then move directly into options, flow, dealer positioning, volatility, and market structure. The glossary connects the foundation with the tools and workflow used to plan the next trade.
Topic questions
Investor Basics FAQ
#
2 terms401(k)
A 401(k) is an employer-sponsored retirement plan that lets workers defer part of their pay into an investment account with pre-tax or Roth tax treatment.
529 Plan
A 529 plan is a qualified tuition program that offers federal tax-free investment growth and tax-free withdrawals for qualified education expenses.
A
8 termsAdjustable-Rate Mortgage (ARM)
An adjustable-rate mortgage (ARM) is a home loan whose rate resets on a set schedule to an index plus a margin, within caps, often after a fixed-rate period.
Annual Percentage Rate (APR)
Annual percentage rate (APR) is the cost of credit stated as a yearly rate, which for a loan combines interest with applicable finance charges such as fees.
Annual Percentage Yield (APY)
Annual percentage yield (APY) is the effective one-year return on a deposit account with compounding included, standardized so savers can compare accounts directly.
Annuity
An annuity is an insurance contract that turns premiums into accumulated value, income payments for a fixed period or for life, or a combination of both.
Asset
An asset is a resource a person or business owns or controls that is expected to produce future economic benefit, such as cash, inventory, equipment, or a patent.
Asset Allocation
Asset allocation is a portfolio’s target mix of stocks, bonds, cash and other investments, set as percentage weights and maintained by rebalancing.
Asset-Backed Security (ABS)
An asset-backed security is a bond whose payments come from a pool of loans or receivables that a lender sells into a separate legal entity and repackages into tranches.
Auction Rate Securities
Auction rate securities (ARS) are long-term bonds or preferred shares whose interest or dividend rate resets at scheduled auctions, often weekly or monthly.
B
6 termsBalance Sheet
A balance sheet is a financial statement that reports a company’s assets, liabilities and equity on one date, with assets always equal to liabilities plus equity.
Bankruptcy
Bankruptcy is a federal court process that resolves debts a person or business cannot pay, through liquidation of nonexempt assets, a repayment plan or reorganization.
Basis Point (bp)
A basis point is one one-hundredth of a percentage point, so 1 bp equals 0.01 percent and 100 basis points equal 1 percentage point.
Boglehead
A Boglehead is an investor who follows John Bogle’s principles of broad diversification, low costs, consistent saving and a written long-term allocation.
Bond
A bond is a tradable debt claim on which the issuer owes interest and principal under stated terms, with coupon, price, maturity and credit quality setting its yield.
Bottom-Up Investing
Bottom-up investing is an approach that picks securities from company fundamentals first and treats industry and macroeconomic conditions as secondary inputs.
C
12 termsCapital Gains
A capital gain is the profit realized when a capital asset such as stock or real estate is sold for more than its adjusted cost basis.
Capital Loss
A capital loss is the amount by which a capital asset’s net sale proceeds fall below its adjusted basis, which can offset capital gains and carry forward.
Cash Flow
Cash flow is the actual money moving into and out of a business or household over a period; a business reports it as operating, investing and financing activity.
Certificate of Deposit (CD)
A certificate of deposit (CD) is a bank time deposit that pays an agreed rate for a stated term and usually charges a penalty for withdrawals before maturity.
Certified Financial Planner (CFP)
A Certified Financial Planner (CFP) is a financial professional certified by CFP Board after meeting its education, exam, experience and ethics requirements.
Chartered Financial Analyst (CFA)
The CFA charter is an investment-analysis credential earned through three exam levels, practical skills modules, qualifying work experience and CFA Institute membership.
Collateral
Collateral is an asset a borrower pledges to a lender so the lender can seize and sell it to recover the balance if the borrower defaults.
Compound Annual Growth Rate (CAGR)
Compound annual growth rate is the constant yearly rate that would carry a beginning value to an ending value over a stated number of years under steady compounding.
Compounding
Compounding is the process by which interest or investment returns are added to principal, so each later return is calculated on the balance earlier results produced.
Cost Basis
Cost basis is the amount of your investment in an asset for tax purposes, and it is subtracted from sale proceeds to determine taxable gain or loss.
Credit History
Credit history is the record of how a person has borrowed and repaid money, compiled by consumer reporting companies and used by lenders to approve and price new credit.
Credit Score
A credit score is a three-digit number, generally on a 300 to 850 scale, that predicts how likely a borrower is to repay debt on time based on credit report data.
D
8 termsDebt-to-Income Ratio
A debt-to-income ratio (DTI) is the percentage of gross monthly income that goes to required monthly debt payments, used by lenders to judge repayment capacity.
Deductible
A deductible is the part of a covered insurance loss or care cost that the policyholder pays before the applicable benefits begin paying under the policy’s terms.
Default
Default is a borrower’s failure to meet the terms of a debt agreement, either by missing a scheduled payment or by breaching a covenant in the loan contract.
Dependent
A tax dependent is a person who meets the IRS tests for a qualifying child or a qualifying relative, two categories with separate eligibility and support rules.
Depreciation
Depreciation is the accounting allocation of a tangible asset’s cost, less its expected salvage value, across the years of its useful life.
Discretionary Income
Discretionary income is the take-home cash remaining after a household’s essential costs, available for saving, investing, extra debt payments and optional spending.
Dollar-Cost Averaging
Dollar-cost averaging (DCA) is the practice of investing a fixed dollar amount at regular intervals, so purchases spread across highs and lows instead of one entry price.
Down Payment
A down payment is the cash a buyer pays up front toward the purchase price of a home, vehicle, or other financed asset, with the remaining balance covered by a loan.
E
1 termF
4 termsFee-Only Financial Planner
A fee-only financial planner is an advice professional paid solely by client fees, with no commissions, referral payments, or product revenue from third parties.
Fiduciary
A fiduciary is a person or institution legally obligated to act in another party’s best interest when managing that party’s money, property or decisions.
Fixed Income
Fixed income is the category of debt investments, such as bonds, notes and CDs, whose interest and principal payments follow terms set in a contract.
Flexible Spending Account (FSA)
A flexible spending account (FSA) is an employer-sponsored arrangement that lets an employee set aside pre-tax salary for eligible health or dependent care expenses.
G
1 termH
1 termI
4 termsIncome Statement
An income statement is a financial statement that reports a company’s revenue, expenses and profit over a period, ending in net income and, for public companies, EPS.
Index Fund
An index fund is a mutual fund or ETF that seeks to track a chosen market index by holding its securities, a representative sample or derivatives.
Internal Rate of Return (IRR)
Internal rate of return (IRR) is the discount rate that sets the net present value of an investment’s cash flows to zero, expressed as a rate per period.
Internal Revenue Service (IRS)
The Internal Revenue Service (IRS) is the U.S. Treasury bureau that administers and enforces federal tax law, processes returns, collects tax and issues refunds.
L
1 termM
3 termsManagement Fees
A management fee is the recurring charge an investor pays a fund manager or advisor to manage a portfolio, usually quoted as an annual percentage of assets.
Mortgage
A mortgage is a long-term loan secured by real estate, where the property serves as collateral and the lender can foreclose if the borrower stops paying.
Mutual Fund
A mutual fund is a pooled investment company that invests money from many shareholders in a portfolio of securities and prices its shares once per day at net asset value.
N
2 termsNet Present Value
Net present value (NPV) is the sum of an investment’s discounted cash inflows and outflows, measuring in today’s dollars the value it adds at a chosen discount rate.
Net Worth
Net worth is the value of everything a person or household owns minus everything it owes, measured at a single point in time.
P
3 termsPassive Investing
Passive investing is a strategy that seeks to match the return of a benchmark index, usually with index funds or ETFs, instead of trying to pick securities that beat it.
Personal Finance
Personal finance is the management of an individual or household budget: income, spending, saving, borrowing, insurance, taxes, and investing over time.
Profit and Loss Statement
A profit and loss statement (P&L) is a financial report that shows a business’s revenue, expenses and resulting profit or loss over a month, quarter or year.
R
5 termsRebalancing
Rebalancing is the process of returning a portfolio to its target weights through trades, contributions or withdrawals after uneven returns or cash flows cause drift.
REIT
A REIT is a corporation or trust that owns or finances income-producing real estate and must distribute at least 90% of its REIT taxable income to shareholders.
Return on Investment (ROI)
Return on investment (ROI) is the profit or loss from an investment divided by its cost, expressed as a percentage of the money originally committed.
Roth IRA
A Roth IRA is an individual retirement account funded with after-tax contributions whose qualified withdrawals, including earnings, are free of federal income tax.
Rule of 72
The Rule of 72 estimates how many years a balance takes to double at a fixed annual growth rate by dividing 72 by that rate stated in percent.
S
1 termT
4 termsTax-Loss Harvesting
Tax-loss harvesting is selling an investment at a loss in a taxable account so the realized loss offsets capital gains and, within limits, ordinary income.
Terminal Value
Terminal value is the estimated value of a business at the end of a forecast period, capturing every cash flow expected after the last explicitly forecast year.
Time Value of Money
The time value of money is the concept of converting cash flows at different dates to a common value using a rate and a time horizon, as present or future value.
Total Expense Ratio (TER)
The total expense ratio (TER) is a fund’s annual operating costs divided by its average net assets, expressed as a percentage deducted from fund assets.
U
2 termsU.S. Savings Bonds
U.S. savings bonds are non-marketable Treasury securities, issued as Series EE or Series I, that accrue interest for up to 30 years and are redeemed with the government.
Unsecured Loan
An unsecured loan is credit issued without a specific asset pledged as collateral, so approval usually rests on repayment capacity, credit history and the loan terms.
V
3 termsValue Investing
Value investing is the practice of buying securities priced below an estimate of their underlying business value, based on the cash the business can produce.
VT
VT is the Vanguard Total World Stock ETF, a market-cap-weighted index fund that holds thousands of developed and emerging market stocks in one exchange-traded share.
VTI
VTI is the Vanguard Morningstar Total Stock Market ETF, an index fund that covers large, mid, small and micro-cap US stocks in one exchange-traded position.