Bradley Valentin 
Updated June 2025
Basic Terms
Budget – A budget is a financial plan that consists of income and expenses for any individual or organization (individual, family, company, government, etc.). A budget can be made before a financial term to show how funds will be allocated (such as a yearly government budget), or it can be made to get control of finances and review how certain amounts of money have been spent. Check out our starter budget here.
Credit Rating/Credit Scores – A credit rating is given to an organization to assess the ability to pay back loans and debt. Governments and companies are issued credit ratings by several independent organizations and usually range from AAA (being best) to D (being worst).
Individual credit ratings are called credit scores and range from 300-850, lower being worse, and higher being better. Credit scores are based on many factors including total debt, payment history, length of credit history, types of credit, and new or recent credit.
Credit Union – A credit union is a financial institution (like a bank) that is usually very localized and member-owned. Generally, credit unions are seen as more consumer-friendly, and work for the local people and community.
Interest/Interest Rates – Interest rates are the rate of return that a lender receives when lending money. Many factors determine an interest rate, which includes government rates, financial institutions rates, and the state of an economy. For lenders, a higher interest rate means more income, while for borrowers, a lower interest rate means a better deal and more money saved.
Mortgage – A mortgage is a type of loan that is usually given to consumers looking to purchase a home (or multiple homes). Mortgages can also be used to purchase other real estate, such as land and property, and are usually long-term loans (often in terms of 10-30 years). Mortgages are large, long-term investments, and approval depends on credit rating, down payments, and risk. Mortgages can be given to both consumers and businesses.
Risk – Risk is the measurement of the possibility of losing money or assets on an investment. Financial institutions use risk to evaluate loans, such as mortgages, personal loans, car loans, and more. Risk can also be used for individuals or corporations when evaluating the stock market or other investments.
Shares – Shares are portions of the company, which are generally presented through stock purchases. Ownership of a share equates to ownership in a portion of a company. While some may own the majority share of a company, these shareholders usually own millions of shares which are often valued in the millions or billions of dollars.
Stock Market – The stock market is a virtual place where trading of shares that represent an ownership of a company takes place. Investors and brokers make investments within the stock market, and stocks are often built into a company’s and shareholders’ income and profit. Prices for stocks decrease and increase regularly, while investors look to find a way into a lower-priced stock that has the potential to increase to make a profit.
Intermediate Terms
401(k) – A 401(k) refers to a profit-sharing retirement plan for employees, allowing them to contribute part of their salary to their accounts. 401(k) contributions are tax deductible and have limitations on contributions as well as when the funds can be used. For more information on contribution limits and other limitations, visit the IRS website here.
Bitcoin – Bitcoin is a specific cryptocurrency that is a virtual substitute for money. It has no involvement from third-party financial institutions such as banks, credit unions, or governments. It is the largest cryptocurrency in the world and has grown in value by tens of thousands of dollars since it was first introduced in 2009. Bitcoin can be saved or used in transactions as an alternative currency.
Bearish – A pessimistic view in terms of a stock. Someone who is bearish on a stock looks at the company or stock as one that would potentially be a negative investment.
Bonds – A bond is a debt security that is issued by governments or corporations. Issuers of bonds pay interest or coupon payments, usually annually or semiannually, while returning the value at the end of the agreement. There are treasury bonds which are issued by the U.S. Treasury as well as corporate bonds which are issued by corporations to investors. Bonds are a way for investors or corporations to diversify their portfolios and gain profits, while corporations and government entities use bonds to pay for projects or finance programs.
Bullish – An optimistic view in terms of stock. The opposite of bearish, someone who is bullish on a stock sees a positive outlook on a company and its stock.
Cash Flow – Cash flow refers to the movement of cash that is being transferred throughout a company. Cash flows are generated by productive assets through the sale of goods and services and are transferred in cash to pay wages and salaries, suppliers, interest, taxes, and investors and shareholders. Some view cashflows as the positive money left after expenses are paid, but this would only be applied in specific situations and does not apply to all companies or firms.
Certificates of Deposit (CDs) – A CD is an investment offered by banks and credit unions for individual investors. Like a bond, CDs offer the investor an interest payment, but the payments are received at the end of the term, unlike a bond where interest payments are received throughout the term. CDs can be purchased in small or large sums, and interest rates vary by financial institution and are heavily impacted by the interest rates set by The Federal Reserve and the state of the economy.
Common Stock – A common stock is an equity share that represents a basic ownership claim in a corporation. This is the most common type of equity in a corporation and comes with the right to vote on the election of the board of directors or the right to vote on a merger or acquisition. Unlike preferred stockholders, common stockholders have lower priority on the claim to a company’s profits or assets in bankruptcy.
Compound Interest – Compound interest is interest that is earned off of principal and interest payments previously earned. For example, if you have $100 and receive 10% interest after one year, you would have a total of $110. However, with compound interest, in year two you would earn interest on the $100 initial investment as well as your $10 of previously earned interest. This is different than simple interest, which calculates interest from principal alone. When funds are invested into accounts that earn compound interest, and additional investments are contributed to that account, compound interest becomes an extremely strong way to save money, especially over long periods in retirement accounts.
Cryptocurrency – Cryptocurrency is an alternate currency that is completely digital/virtual. Unlike other funds (money, notes, dollars, yen, etc.) cryptocurrency is not backed by governments or central authorities. Cryptocurrency can be spent like cash with many different vendors, and it can also be invested in like a corporate stock. The most common cryptocurrency is Bitcoin.
Diversification – Diversification is the reduction of risk through multiple assets. Diversification is usually referred to when looking at an investment portfolio. Having multiple stocks, bonds, grants, etc., from different organizations is an example of diversification, as opposed to putting all of your investment funds into one company/stock.
Dividends – A dividend is money paid out from a company to stockholders as a form of payment for owning a share of the company. Not all stockholders or companies pay dividends on stocks, however, large shareholders of companies that pay stocks can make huge (but taxable) profits from dividends. Dividends are not always paid in cash but sometimes are paid in the form of more shares in a company.
Dividend Aristocrat – A dividend aristocrat is a company on the S&P 500 that has followed a policy of increasing dividends every year for at least 25 consecutive years.
Dow Jones Industrial Average (DJI) – The DJI is a stock market index that tracks 30 large companies on the New York Stock Exchange. The DJI is often used as a standard in the stock market to evaluate the health of many stocks and trading. When the DJI is high in price, the stock market is usually performing well, adversely when the DJI is low, the stock market is generally performing poorly.
Employee Stock Purchase Plan (ESPP) – An ESPP is a stock plan for employees to purchase their company’s stock at a discounted price. Hundreds of companies offer ESPP, or similar plans, as an opportunity for employees to get started at a largely discounted price in their investments.
Equity – Equity can refer to asset equity (such as home equity) or shareholders’ equity. Asset equity is the difference between what you owe on an asset (such as a home) and what the asset is worth. For example, if you purchased a home worth $300,000 and put $30,000 down and the remaining $270,000 is mortgaged, you would have $30,000 in equity. Another example would be if the same home went up in value by $25,000 since you purchased the home (new value $325,000), and you’ve made $10,000 in payments towards the principal, you would have a total of $65,000 in equity ($30,000 down payment + $25,000 in increased value +$10,000 paid).
Shareholders’ equity is the amount of money that would be returned to shareholders if a company was liquidated and the debt was paid off. This number is important for investors, as it helps them have an understanding of a company’s value.
Financial Market – A financial market is a market where financial assets such as stocks and bonds are purchased and sold. The stock market is the best example of a financial market, but there are also bond markets, derivative markets, and real estate markets (among others).
The Federal Reserve – The Federal Reserve (often referred to as ‘The Fed’) is a government institution that regulates commercial banking, interest rates, and national monetary policy. The Fed was created in 1913 under the Federal Reserve Act of 1913 to enhance the safety of the U.S. banking system.
Initial Public Offering (IPO) – An initial public offering is when a corporation first decides to issue stock to the public. An IPO can be used to raise new funds or offer founders or investors a way for them to cash out on the investment placed in the company.
Opportunity Cost – Opportunity cost is the return from the best investment alternative that is given up when another investment is chosen. Every decision and investment has an opportunity cost, even if small. For example, if children ask their parents to go to the pool and then get ice cream, and the parents say that the children can only choose one, the opportunity cost would be the option that the children do not choose.
Preferred Stock – A preferred stock entitles holders to dividend payments and unlike common stockholders, does not come with voting rights, but instead comes with preferred treatment to claim profits and assets in a corporate bankruptcy.
Roth IRA – A Roth IRA (individual retirement account) is a retirement savings account that grows tax-free and is withdrawn tax-free at age 59 1/2. After-tax funds are contributed to a Roth IRA, but there are many restrictions to contributions and withdrawals.
Rug Pull – A rug pull is a scam where owners of an investment (usually cryptocurrency) will get smaller investors to invest money into an investment, only to pull out of the investment as the price has gone up. This gives the owners or initial investors of the scam hundreds of thousands (or millions) of dollars, while the later investors are left with a worthless investment.
Standard and Poor’s 500 (S&P 500) – The S&P 500 is a stock index created in 1957 and measures the leading 500 publicly traded companies in the U.S. Like the DJI, it is often used to measure the health and well-being of the stock market, but also measures the strength of the top companies in the United States.
Tariff – A Tariff is a government tax on imported goods to the country. Tariffs move the equilibrium price of a product on the supply and demand chart, generally increasing prices.
Traditional IRA – A traditional IRA (individual retirement account) is a retirement savings account that grows tax-deferred. Unlike a Roth IRA, pre-tax funds are contributed to a traditional IRA, and capital gains and dividend income taxes are assessed after withdrawal.
Advanced Terms
Annuity – An annuity is a retirement plan that is usually purchased from insurance companies to allow the investor to have a paycheck after retirement. An annuity can also refer to any series of equally spaced cash flows over a specific number of periods.
Beta (Stock Beta) – A beta, or stock beta, is a measurement of market risk. Beta measures a stock’s volatility in relation to the overall market. A beta of 1 has the same systematic risk as the market, a beta of more than 1 has more systematic risk than the market, a beta of less than 1 has less systematic risk than the market, and a beta of 0 has no systematic risk.
Broker – A broker refers to individuals or organizations that act as an intermediary between investors and markets. Brokers can be stock brokers who serve firms or individual investors, or real estate brokers, who serve consumers or businesses looking to make real estate transactions.
Exchange-Traded Fund (ETF) – An ETF is a pooled investment that represents multiple stocks/securities. They can be traded just like other stocks, and are generally used to diversify portfolios to avoid the risk of investing in just one stock.
Margin Account/Calls – Margin accounts are brokerage accounts in which investors are loaned cash to purchase stocks. A margin call occurs when the investor’s equity in the account falls below the required broker’s amount.
Non-Fungible Tokens (NFTs) – NFTs are digital/virtual assets that can be traded like stocks or other assets. These are usually represented as some form of art, pictures, videos, or more.
Options – An option is a contract that offers investors the opportunity to buy or sell a security, such as a stock, index, or ETF. Option contracts have dates on which the investor needs to exercise their option, and come with potentially high risk and high reward.
Securities – A security refers to investments such as bonds, stocks, contracts, and more.
Systematic Risk – Also known as market risk, systematic risk is the risk that has affects many assets across the world.
Treasury Bills – Often referred to as “T-Bills,” Treasury bills are investments used by the U.S. government to borrow funds to fund projects. These are similar to bonds, in that investors can purchase a T-bill and usually have short maturity.
Value Stock – A value stock is one that is trading below its value. This means that the firm’s earnings power is strong, while the trading value is low. Value stocks can often be identified with a lower P/E ratio.
Unsystematik Risk – This is risk to an asset, or a small number of assets that mainly impacts individual companies and has little impact to the rest of the market.
Many definitions are sourced from several economic, financial, and investment books and institutions including, but not limited to: Investopedia.com; Financial Markets & Institutions by Jeff Madura; IRS; Fundamentals of Corporate Finance by Parring, Bates, Gillan, & Kidwell
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