Financial Planning Glossary

The process of spreading loan payments over time so each payment covers both principal and interest, gradually reducing the balance to zero.

The yearly cost of borrowing expressed as a percentage, including interest and fees, used to compare loan and credit card costs.

The strategy of distributing investments among different asset classes to balance risk and return.

A person or entity designated to receive assets from a will, trust, insurance policy, or retirement account upon the owner's death.

A plan for allocating income toward expenses, savings, and debt repayment over a specific period, typically monthly.

The profit realized from selling an asset for more than its purchase price. Long-term gains (held over one year) are taxed at lower rates than short-term gains.

Interest calculated on the initial principal and on all accumulated interest from prior periods.

A numerical rating (typically 300-850) representing creditworthiness, based on payment history, credit utilization, length of history, and other factors.

Spreading investments across various assets to reduce the impact of any single investment's poor performance on the overall portfolio.

Investing fixed amounts at regular intervals to reduce the impact of price volatility on the overall purchase cost.

A cash reserve set aside for unplanned expenses or financial emergencies, typically three to six months of living expenses.

The annual fee expressed as a percentage of assets that a mutual fund or ETF charges to cover operating costs.

A person or entity legally obligated to act in another party's best financial interest.

A type of mutual fund or ETF designed to track the performance of a specific market index such as the S&P 500.

The rate at which the general level of prices for goods and services rises, eroding purchasing power over time.

The ease with which an asset can be converted into cash without significantly affecting its value.

The total value of all assets minus all liabilities, representing an individual's overall financial position.

The process of realigning the weightings of assets in a portfolio to maintain the original desired allocation.

The legal process of validating a will and administering a deceased person's estate through the court system.

The degree of variability in investment returns that an individual is willing and able to withstand.

An individual retirement account funded with after-tax dollars, allowing tax-free growth and tax-free qualified withdrawals in retirement.

A savings strategy where money is set aside regularly for a known future expense such as a vacation, car purchase, or annual insurance premium.

Selling investments at a loss to offset capital gains and reduce taxable income, then reinvesting in a similar but not identical asset.

The principle that money available now is worth more than the same amount in the future due to its potential earning capacity.

A legal arrangement in which one party (trustee) holds and manages assets on behalf of another party (beneficiary), often used to avoid probate and control asset distribution.