Financial lingo can sometimes sound like a foreign language. What are indexed annuities? What is an amortization schedule? How ’bout a no-load fund? Well, if you sometimes hear financial terms and you don’t quite know what they all mean, don’t worry, you’re not alone. Let’s look some common financial terms.
What are large cap stocks and small cap stocks? What does all that “cap” stuff mean? Cap is short for capitalization which simply is the total value of the company’s shares. Large cap stocks have a market value of $5 billion or more, and small caps have market values of between $50 and $500 million.
What’s a mutual fund, and how does that differ from simply buying a stock? A mutual fund typically holds ownership in maybe hundreds of different companies. If you buy a stock, you buy ownership in just one company.
What is a growth stock mutual fund? It’s a mutual fund where the primary objective is appreciation of the stocks it holds. It may not payout much of a dividend.
What’s definition of an IRA and a Roth IRA, and what is the difference? They are Individual Retirement Accounts that are tax advantaged and both grow tax free. When you invest in an IRA you get a tax deduction on what you put in, and you pay taxes on what you take out. With the Roth IRA, you don’t get a tax deduction on what you put in, but what you take out is tax free.
What’s an amortization schedule? An amortization schedule is simply a loan repayment schedule for a real estate mortgage.
What is a will, and what’s a trust? What’s the difference between the two? Both wills and trusts name one or more people to manage an estate and direct how the assets are to be distributed. The biggest difference is that a trust does not have to go thru probate.
Learn and understand these terms and you will have passed your first test in Financial lingo 101!