Plain-English definitions for financial terms you encounter in our calculators.
The process of paying off a loan through regular scheduled payments covering both principal and interest. Early payments are mostly interest; later ones mostly principal.
The yearly cost of borrowing money, expressed as a percentage, including fees and interest. Higher APR = more expensive loan.
Strategy of dividing investments among different asset categories (stocks, bonds, cash, real estate) to balance risk and reward.
A period when security prices fall 20% or more from recent highs. Opposite of a bull market. Associated with investor pessimism.
A period of rising security prices, typically defined as a 20%+ increase. Associated with investor confidence and economic growth.
Profit from selling an asset for more than its purchase price. Short-term (held <1 year) taxed as income; long-term taxed at lower rates.
Interest calculated on both the principal AND accumulated prior interest. Causes exponential growth — the basis of long-term wealth building.
Spreading investments across different assets, sectors, and geographies to reduce risk. If one investment falls, others may rise.
Investing a fixed amount regularly regardless of price. Reduces the impact of volatility by buying more shares when prices are low.
Liquid savings covering 3–6 months of living expenses, kept for unexpected costs or job loss. Keep in a high-yield savings account.
A basket of securities that trades on an exchange like a stock. Offers instant diversification at low cost. Often tracks an index.
A passively managed fund tracking a market index (like the S&P 500). Low fees, broad diversification, historically beats most active funds.
The general rise in prices over time, reducing purchasing power. $100 today buys less than $100 in 10 years.
How quickly and easily an asset can be converted to cash without significant value loss. Cash is most liquid; real estate is less so.
Total assets minus total liabilities. Your actual financial position. Regular tracking reveals whether you're building or losing wealth.
The complete collection of investments owned by an individual. A well-constructed portfolio balances risk tolerance with growth goals.
The original amount borrowed or invested, before any interest is added or subtracted. Loan payments reduce the principal balance.
The gain or loss from an investment relative to its cost, expressed as a percentage. Formula: (Final - Initial) / Initial × 100.
The degree of investment value fluctuation you're willing to accept. Higher risk tolerance allows more aggressive (potentially higher-return) investments.
Income generated by an investment (dividends, interest) as a percentage of its price. A bond paying $50/year on a $1,000 value has a 5% yield.
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