Personal Finance Terms You Should Know

This are the personal finance terms that you should know. It is not completed but good to have. Hope you enjoy it.

 

• Active management - A type of financial portfolio strategy that involves frequent hands-on strategic intervention (buying and selling assets) from a financial adviser.
• Amortization - The process by which the amount due on a loan is reduced over time. Generally a higher proportion of each payment goes toward interest when you begin paying off the loan, with an increasing proportion going toward principal over time.
• Annual Percentage Rate - Annual percentage rate (APR) is the total amount it will cost you to borrow money, be it through a loan, credit card, or other instruments, each year. It takes the amount of interest you'll owe and adds it to any other relevant fees.
• Annual Percentage Yield - Annual percentage yield (APY) represents the total amount of interest you'll earn on an investment or savings account in a year, including the effects of compound interest.
• Appreciation - An increase in the value of a particular asset over time.
• Asset - An item a person or entity owns that has financial value or is expected to have financial value in the future.
• Asset allocation - The mix of different financial vehicles (such as bonds, stocks, ETFs, cash, mutual funds) that an investor can spread their money across. It's important to maintain an asset allocation that's in line with your risk tolerance.
• Balance sheet - A document that provides prospective investors with a summary of a company's financial standing by detailing its assets, liabilities, and shareholders' equity.
• Bankruptcy - A legal proceeding that gives a person or business who can no longer pay their debts a chance to be released from the responsibility of paying those debts.
• Bear market - A way of describing the state of the stock market that indicates that stocks are declining in value overall.
• Blue chip - A term used to refer to companies whose stock is considered a solid investment. Maybank, Axiata, Kuala Lumpur Kepong, and Nestle are blue-chip companies.
• Bonds - A type of investment that is essentially a loan from the investor to the bond issuer ( such as the Malaysia government or a corporation). The bond issuer pays back the invested money, with interest, at specified intervals of time. Bonds carry less risk than stocks.
• Bull market - A way of describing the state of the stock market that indicates stocks are increasing in value.
• Capital gain - The profit that results from selling an asset that has grown in value.
• Capital loss - The loss an investor experiences when they sell an asset that has lost value.
• Cash flow - The movement of a person's, household's, or business's money (coming in as income and going out as expenses).
• Fixed Deposit - A financial instrument that locks away cash so that you can't use it for a certain time in exchange for a higher interest rate. Returns on FDs are guaranteed.
• Index - A tracker that measures the market performance of a particular sector, often by using a group of different securities to represent a theoretical investor portfolio. The KL Composite Index and the Dow Jones Industrial Average are indices.
• Index fund - A mutual fund made up of investments that reflect a market index, which gives investors built-in diversification. Index funds are known for their low fees.
• Inflation - The percentage by which the cost of goods and services increases and the value of money decreases over time.
• Initial public offering (IPO) - The first time a private company offers shares of itself to investors at large.
• Liabilities - Money that an individual or entity owes someone else.
• Management fees - Money paid to investment managers and/or investment advisers in exchange for managing investments.
• Mortgage - A loan you take out to buy a piece of property, where the piece of property is the collateral. That means if you fail to make payments, the lender can seize the property.
• Mutual fund - A financial instrument that uses a pot of money from many different investors to buy a diversified mix of stocks, bonds, and other securities.
• Net worth - The total value of all of your assets (wage income, investments, property) minus the total amount of your debt.
• Passive management - A hands-off investment strategy where the investor sets up a portfolio to reflect a stock index, often through ETFs and mutual funds.
• Premium - The amount you pay monthly to maintain insurance coverage.
• Price-to-earning (P/E) ratio - The measure of how a company's current stock price relates to its current earnings per share.
• Principal - The dollar amount of money you deposited into an account or borrowed, not including interest.
• Real Estate Investment Trust (REIT) - A public company that owns a series of properties that generate income. Investors can buy shares to gain exposure to real estate.
• Recession - A prolonged period (at least several months) of declining economic activity.
• Refinance - To replace a loan, such as a mortgage, with a different loan that has a better interest rate or other more favorable terms.
• Return on investment - ROI is a measurement of how much a particular asset has grown in value since you bought it relative to how much you paid for it.
• Risk tolerance - The measure of how much market fluctuation an investor is willing to take on in their investment portfolio. Risk tolerance depends on many factors, including how close a person is to retirement, what other goals they may use the money for, and their general disposition.
• Robo-adviser - An online service that offers financial planning and automatic investing operated by algorithm, generally with a much lower fee than a human financial planner.
• Stock - A type of investment that, when purchased, gives you partial ownership of the company. Also known as a share.
• Yield - The earnings an investment returns to its owner, expressed as a percentage. Yield can include interest and dividends.