CDs, IRAs, ETFs Oh My! Finance Acronyms

CDs, IRAs, ETFs Oh My! Finance Acronyms

Everything you read about personal finance or investing seems to be riddled with acronyms. There’s IRAs,CDs, ETFs and about one thousand more. In this post I’m going to explain some of the most common finance acronyms:



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Finance Acronyms:

APR: Annual Percentage Rate – this is the amount you’ll pay in interest over the course of a year on a loan. APR is not the same thing as interest rate

 

401(k): Employer established retirement plan- account where you can defer part of your salary for retirement investment purpose. Your employer offers different fund options.

 

401(b): Like a 401(k) but given by certain tax-exempt employers (non-profits) and public workers.

 

Bonds: Debt investment, the investor loans money to an entity (government or corporation) over a fixed set of time. Bond investors are debt holders. The entity pays back the debt at a interest rate



 

CD: Certificate of Deposit- a savings certificate issued by a bank. You give the bank a specified amount of money for a determined amount of time in order to get a larger return than a usual savings account.  Your money is locked up for the duration of the certificate. For example you might

 

EPS: Earnings per share- tool for measuring profitability. Determined by dividing the net income of the company by the number of outstanding common stock shares.

 

ETF: Exchange traded fund- an investment fund traded on the exchanges. ETFs trade like stocks

 

FDIC: Federal Deposit Insurance Commission – insures the money you give to the bank will be there when you want to take it out.

 

IPO: Initial public offering – when a stock first hits the market and is available for trading on the exchange.

 

IRA: Individual Retirement Account – A savings account set up to save for retirement. IRAs have lots of tax-advantages. There are different kinds of IRAs:

Traditional IRA- Traditional IRA accounts are funded before taxes are taken out (from gross pay). You pay taxes when you take the funds out at retirement age.

Roth IRA-  Roth accounts are funded after taxes are taken out (from net pay). You don’t pay any taxes when you take the funds out at retirement age.

More information about different types of IRA’s found here

Mutual Funds: Investment funds managed professionally. Investors pool funds together for the purpose of investing in different securities (stocks, bonds etc.) Mutual funds are structured and maintained based on the investment objectives.



 

ROE: Return on Equity – Company’s annual income divided by shareholders’ equity. Also called book value. You use ROE to compare companies to each other

 

ROI: Return on Investment – a way investors calculate return. It’s typically calculated as (Gain on Investment – Cost of Investment)/ Cost of Investment

 

Securities: Stocks, bonds, mutual funds- financial instrument that holds some kind of monetary value. There are two kinds of securities, debt and equity.

 

Stock (shares): A share of ownership of a company,  also be called equities

 

What other finance acronyms do you know?



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