Glossary
Clear definitions for the financial terms that matter most, so you can make decisions with confidence.
Asset Allocation
The process of dividing investments among different asset categories, such as stocks, bonds, and cash, to balance risk and reward according to your goals and time horizon.
Benchmark
A standard or reference point—often a market index like the S&P 500—used to evaluate the performance of an investment or portfolio.
Compound Interest
Interest calculated on both the initial principal and the accumulated interest from previous periods. Over time, compounding can significantly accelerate wealth growth.
Diversification
A risk-management strategy that mixes a wide variety of investments within a portfolio. Diversification helps reduce the impact of any single investment's poor performance.
Estate Planning
The process of arranging for the management and disposal of a person's estate during their life and after death. It includes wills, trusts, powers of attorney, and beneficiary designations.
Fiduciary
A person or organization legally obligated to act in your best interest when managing your money. Fiduciaries must put your interests ahead of their own.
Grantor Trust
A trust in which the person who creates it (the grantor) retains certain powers or interests. Grantor trusts have specific income tax treatment and are often used in estate planning.
High-Yield Savings Account
A savings account that typically pays a higher interest rate than traditional savings accounts, often offered by online banks. FDIC insurance applies up to applicable limits.
Inflation
The rate at which the general level of prices for goods and services rises, eroding purchasing power over time. Long-term financial plans should account for inflation.
Liquidity
How quickly and easily an asset can be converted to cash without significantly affecting its value. Cash and money market funds are highly liquid; real estate is not.
Municipal Bond
A debt security issued by a state, municipality, or county to finance capital expenditures. Interest is often exempt from federal income tax and sometimes state tax.
Portfolio Rebalancing
The process of realigning the weightings of a portfolio's assets to maintain the desired asset allocation. Rebalancing can help manage risk as markets move.
Qualified Dividend
A dividend that is taxed at the lower capital gains rate rather than the ordinary income tax rate, provided certain holding-period requirements are met.
Required Minimum Distribution (RMD)
The minimum amount that must be withdrawn annually from traditional IRAs and most employer-sponsored retirement plans once you reach the IRS-designated age.
Standard Deduction
A fixed dollar amount that reduces the income on which you're taxed. Taxpayers can choose the standard deduction or itemize deductions, whichever is more favorable.
Tax-Loss Harvesting
Selling investments at a loss to offset capital gains and potentially reduce taxable income. Wash-sale rules restrict repurchasing the same or substantially identical security within 30 days.
Umbrella Policy
A type of liability insurance that provides coverage above and beyond the limits of your auto, home, or other primary policies. It protects assets from catastrophic claims.
Volatility
The degree of variation in the price of a financial instrument over time. Higher volatility generally means greater risk—and potentially greater reward.
Wash-Sale Rule
An IRS rule that disallows a loss deduction if you buy a substantially identical security within 30 days before or after selling at a loss.