Glossary of Financial Terms and Definitions
Adjustable Rate Mortgage (ARM)
What is an Adjustable Rate Mortgage? An Adjustable Rate Mortgage (ARM) is a mortgage in which the interest rate is periodically adjusted according to various market rates. Lenders tend to favor ARMs because ARM rates rise [...]
Annuity
What is an Annuity? A series of scheduled payments (e.g., each month). Each payment is usually the same amount as each of the other payments in the annuity. An annuity can take on a few different [...]
Asset
What is an Asset? Anything that you own that has value.
Bond
What is a Bond? Basically, an IOU issued by a company in order to raise money. When you buy a bond, you are essentially loaning money to a company with the understanding that you will receive [...]
Compound Interest
What is Compound Interest? The interest you receive on interest you have already earned. Example Suppose you invest $1,000 in a security that offers 10% interest compounded annualy. After one year you would have 10% more [...]
Inflation
What is Inflation? The overall increase of prices, and the overall decrease of the value of money. Accounting for infaltion is critical to your future financial security. Example Suppose you are planning your retirement and determine [...]
Liquidity
What is Liquidity? The ability to quickly turn an asset into cash. For example, $10,000 in a savings account is very liquid. If you need to access the money quickly, you can simply go to the [...]
Risk/Reward Principle
What is the Risk/Reward Principle? The concept that bigger financial rewards require bigger risks. If you are not willing to take a risk, it is less likely that you will generate large financial rewards. Thus, if [...]
Rule of 72
What is the Rule of 72? A quick way to determine how long it will take you to double your money at a given interest rate. How to Calculate Divide the number 72 by the annual [...]
Security
What is a Security? A financial asset, such as a stock or bond.
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