Financial Glossary

APR

Annual Percentage Rate. The yearly interest rate charged on borrowed money or earned on invested money.

Asset Allocation

How you divide your portfolio among different asset classes (stocks, bonds, cash, real estate).

Bear Market

A market in decline of 20% or more from recent highs. Often signals economic contraction.

Beta

A measure of a stock's volatility relative to the market. Beta > 1 means more volatile than the market.

Blue Chip

Large, well-established, financially sound companies with a long track record. Think Apple, Coca-Cola.

Bond

A loan you give to a government or corporation. They pay you interest (coupon) and return the principal at maturity.

Bull Market

A sustained rise in asset prices, typically 20%+ from a recent low. Characterized by optimism and growth.

Capital Gains

Profit from selling an asset for more than you paid. Short-term (< 1 year) taxed as income; long-term taxed at lower rates.

Compound Interest

Earning interest on your interest. The foundational concept behind long-term wealth building.

Correction

A decline of 10-20% from recent highs. Less severe than a bear market; often seen as healthy.

Cryptocurrency

Digital assets secured by cryptography on decentralized networks. Bitcoin, Ethereum, and thousands of others.

Diversification

Spreading investments across different assets to reduce risk. "Don't put all your eggs in one basket."

Dividend

A portion of a company's profits distributed to shareholders, usually quarterly. A key source of passive income.

Dollar-Cost Averaging

Investing a fixed amount at regular intervals regardless of price. Reduces the impact of volatility.

Earnings Per Share (EPS)

A company's profit divided by its outstanding shares. A key measure of profitability.

ETF

Exchange-Traded Fund. A basket of securities that trades on an exchange like a stock. Low cost, instant diversification.

Federal Reserve

The US central bank. Controls monetary policy, sets interest rates, and acts as lender of last resort.

Fiscal Policy

Government decisions on spending and taxation. Stimulus packages and tax cuts are fiscal policy tools.

Forex

Foreign Exchange. The global market for trading currencies. The largest and most liquid market in the world.

Futures

Contracts to buy or sell an asset at a set price on a future date. Used for hedging and speculation.

Hedge

An investment designed to reduce the risk of adverse price movements in an asset.

Hedge Fund

Private investment funds that use complex strategies (long/short, leverage, derivatives) for high-net-worth investors.

Index Fund

A fund that tracks a market index like the S&P 500. Passive investing with low fees and strong long-term returns.

Inflation

The rate at which prices rise over time, eroding purchasing power. The Fed targets ~2% annual inflation.

IPO

Initial Public Offering. When a private company first sells shares to the public on a stock exchange.

Liquidity

How quickly an asset can be converted to cash without significantly affecting its price.

Market Cap

A company's total value: share price × total shares outstanding. Used to classify stocks as small, mid, or large cap.

Monetary Policy

Central bank actions to control money supply and interest rates to achieve economic goals.

Mutual Fund

A professionally managed pool of money from many investors. Actively managed with higher fees than ETFs.

Options

Contracts giving the right (not obligation) to buy (call) or sell (put) an asset at a set price by a set date.

P/E Ratio

Price-to-Earnings Ratio. Stock price divided by earnings per share. A key valuation metric.

Portfolio

The total collection of investments owned by a person or institution.

Quantitative Easing

When a central bank buys assets (bonds) to inject money into the economy and lower interest rates.

REIT

Real Estate Investment Trust. Companies that own income-producing real estate. Trades like a stock, pays dividends.

Recession

Two consecutive quarters of negative GDP growth. Characterized by rising unemployment and declining output.

Rebalancing

Periodically adjusting your portfolio back to its target allocation after market movements shift the weights.

Risk Tolerance

Your ability and willingness to endure investment losses. Determines your asset allocation strategy.

S&P 500

An index of 500 large US companies. The most widely followed benchmark for US stock market performance.

Sharpe Ratio

Risk-adjusted return. Higher is better. Measures how much return you're getting per unit of risk taken.

Short Selling

Borrowing and selling a stock hoping the price drops so you can buy it back cheaper. High risk.

Volatility

The degree of price variation over time. High volatility means bigger swings — higher risk and potential reward.

Yield

Income generated from an investment, usually expressed as a percentage. Dividends and bond coupons are yields.

Zero-Coupon Bond

A bond that pays no periodic interest. Sold at a discount; you receive face value at maturity.