Glossary · 12 terms
Personal Finance
All personal finance terms in the EquitiesAmerica.com glossary — plain-English definitions for American investors.
Asset Allocation
Asset allocation is the strategy of dividing an investment portfolio among different asset classes — such as stocks, bonds, and cash — based on an investor's goals, time horizon, and risk tolerance.
Compound Interest
Compound interest is the process by which interest (or investment returns) is earned not only on the original principal but also on all previously accumulated interest, causing wealth to grow at an accelerating rate over time.
Diversification
Diversification is the practice of spreading investments across multiple assets, sectors, geographies, and asset classes so that poor performance in any single holding does not severely damage the overall portfolio.
Dollar Cost Averaging(DCA)
Dollar cost averaging (DCA) is the practice of investing a fixed dollar amount at regular intervals regardless of market conditions, which results in buying more shares when prices are low and fewer shares when prices are high.
Emergency Fund
An emergency fund is a dedicated savings reserve held in liquid, low-risk accounts specifically to cover unexpected expenses or income disruption, such as a job loss, medical bill, or major car repair.
FIRE Movement(FIRE)
The FIRE movement — Financial Independence, Retire Early — is a personal finance philosophy centered on achieving financial independence well before traditional retirement age through aggressive saving, frugal living, and strategic investing.
Inflation(CPI)
Inflation is the general increase in prices across an economy over time, which reduces the purchasing power of money — meaning a given amount of cash buys less tomorrow than it does today.
Net Worth
Net worth is the total financial value of an individual or household, calculated by subtracting all liabilities (debts) from all assets (everything owned of value).
Rebalancing
Rebalancing is the process of realigning the proportions of a portfolio back to its target asset allocation by selling assets that have grown beyond their intended weight and buying those that have fallen below.
Risk Tolerance
Risk tolerance is an investor's personal capacity and willingness to endure losses or volatility in their portfolio in pursuit of potentially higher returns.
Rule of 72
The Rule of 72 is a simple mental math shortcut that estimates how many years it takes for an investment to double in value by dividing the number 72 by the annual rate of return.
Time Horizon
Time horizon is the length of time an investor expects to hold an investment or maintain an investment strategy before needing access to the funds.