Glossary of Financial Terms
Many of the following definitions are taken from Conscious Finance, by Rick Kahler, CFP®, and Kathleen Fox.
401(k)
An employer-sponsored retirement plan. Employee contributions are taken out before withholding taxes are computed, and many employers offer matching contributions.
529 Plan
A state-sponsored college savings plan through which a donor can set up an account for children, grandchildren, or other relatives. The donor retains control of the account and can transfer it to another family member. Earnings are not taxed if they are used for college expenses.
Annuity
An investment product from a life insurance company, providing tax-deferred earnings but often charging substantial fees. The defining characteristic of all annuities is the option for a guaranteed distribution of income for life. Many people choose instead to receive the accumulated principal in a lump-sum payment.
Asset Allocation
The percentage of a given asset class in a diversified portfolio.
Asset Class
A given category of investment, such as U.S. stocks, international stocks, U.S. bonds, international bonds, real estate, commodities, or cash.
Asset Class Diversification
Having a mixture of at least five and preferably eight or nine asset classes in an investment portfolio.
Asset Management
Professional management of both securities (such as stocks, bonds, limited partnerships, and mutual funds) and tangible assets like real estate to meet specified investment goals for the benefit of an investor.
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