Wall Street 4 Main StreetMindset · Manage · Build · Protect

Resource

Glossary

Plain-language definitions for the terms you'll meet across the four pillars of your financial foundation.

A B C D E F G H IL M N O P Q R S T U VY

4

403(b): A tax-advantaged retirement savings plan for employees of public schools and certain non-profit organizations, such as churches and charities. It works much like a 401(k): contributions go in pre-tax and you pay taxes on withdrawals in retirement.

457 plan: A tax-advantaged deferred-compensation retirement plan available to employees of state and local governments and some non-profits. Contributions are made pre-tax, and unlike most plans you can withdraw the money before age 59½ without penalty once you leave the job.

5

529 plan: A tax-advantaged account designed to pay for education expenses. Money grows tax-free, and withdrawals are tax-free when used for qualified costs like tuition, room and board, and books. Some states also offer a tax deduction for contributions.

A

Amortization: The process of paying off a loan through regular payments, each split between interest and principal.

B

Basis points: A tiny unit of measurement for percentages, often used for fees, interest rates, and yields. One basis point is 0.01% (one one-hundredth of a percent), so 50 basis points equals 0.50%.

Bear market: A prolonged period of falling prices, when investor confidence is weak.

Benchmarks: Indexes used as scorecards to measure how a slice of the market is performing, and to judge whether an investment is keeping pace with "the market" as a whole. The DJIA, NASDAQ, and S&P 500 are the most commonly cited.

Beneficiary: The person or entity you designate to receive an account's assets when you die. Beneficiary designations generally override instructions in a will.

Blue chips: Shares of large, well-established, financially stable companies with a long track record, such as Johnson & Johnson or Coca-Cola. Generally considered lower-risk than smaller or newer companies.

Bull market: A prolonged period of rising prices, when investor confidence is high.

C

Cash flow: The movement of money into and out of an asset or account.

Compound interest: When money earns returns, and those returns begin earning returns too, so wealth grows faster over time.

Correction: A drop of 10% or more in a stock index from a recent peak. Corrections are common and usually short-lived; they're a normal part of how markets move, not a sign that something is broken.

Cost basis: The original amount you paid to buy an investment, including any fees or commissions. It is used to calculate the capital gain or loss when you sell.

Credit freeze: A free lock on your credit report that blocks new accounts from being opened in your name until you lift it.

Custodial account: An investment account managed by an adult for a minor, created under the Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA). The assets legally belong to the child and transfer to them at the age of termination set by state law.

Custodian: The company that holds and administers your investment or retirement account, such as Fidelity, Schwab, or Vanguard.

D

DCA (dollar-cost averaging): Investing a fixed amount on a regular schedule (like every paycheck) regardless of price, instead of trying to time the market. It smooths out the average price paid over time and turns volatility into a routine rather than a decision.

Debt-to-income ratio (DTI): Your total monthly debt payments divided by your gross monthly income, used by lenders to judge how much more debt you can handle.

Dividend: A portion of a company's profits distributed to shareholders.

DJIA (Dow Jones Industrial Average): An index of 30 large, well-established US companies. One of the oldest and most widely cited market benchmarks, though its narrower list of 30 stocks makes it less representative of the broader market than the S&P 500.

E

EPP (Executive Pension Plan): An employer-sponsored pension arrangement set up for key employees or executives, funded by the company (and sometimes the employee) to build a tax-efficient retirement fund.

Escrow: An account, often tied to a mortgage, that collects money monthly to pay property taxes and homeowners insurance on your behalf.

Expense ratio: The annual fee a fund charges, shown as a percentage of your investment. As a rough guide, 0.01%–0.20% is considered good (many index funds fall here); anything above 0.20% is considered high.

F

FDIC insurance: Federal protection covering bank deposits up to $250,000 per depositor, per bank, if the bank fails.

FSA (Flexible Spending Account): An employer-sponsored account that lets you set aside pre-tax dollars for medical or dependent-care expenses. Contributions lower your taxable income, but the money generally must be used within the plan year — unused funds are forfeited, and the account doesn't move with you if you leave the job.

G

Growth stocks: Shares of companies expected to grow revenue or earnings faster than average, often trading at a higher price relative to current earnings because investors are paying for future growth.

H

Hedging: A strategy used to reduce the risk of a loss on an investment. Common hedges include holding bonds to offset stock risk, buying options, or diversifying across asset classes.

HSA (Health Savings Account): A triple tax-advantaged account available with a high-deductible health plan: contributions go in pre-tax, the money grows tax-free, and withdrawals for qualified medical costs are tax-free. Balances roll over every year, the account is yours to keep if you change jobs, and the funds can be invested for long-term growth.

I

Inflation: The gradual rise in prices over time, which erodes the purchasing power of cash. At a long-run average of roughly 3% a year, $100 left in cash today has the buying power of about $74 in ten years.

L

Large cap: Shares of the biggest companies, generally valued above $10 billion — names like Apple, Microsoft, and Johnson & Johnson. They tend to be more stable and less volatile than smaller companies.

Liquidity: How quickly an asset can be converted into cash. Cash is fully liquid; real estate is not.

M

Margin: Borrowed money from a brokerage used to buy investments. Buying on margin amplifies both gains and losses — if the investment drops, you can lose more than your original cash and still owe the loan. It's an advanced, higher-risk strategy.

Margin call: When investments bought with borrowed money (margin) fall far enough in value, the broker demands you deposit more cash or securities — or sell holdings — to cover the shortfall. A margin call can force you to sell at the worst possible time.

Market cap: Short for market capitalization: a company's total value on the stock market (share price × number of shares). Roughly: small cap is under $2 billion (many regional banks), mid cap is $2–10 billion (Etsy, Roku), and large cap is $10 billion+ (Apple, Microsoft).

Mid cap: Shares of medium-sized companies, generally valued between $2 billion and $10 billion. They sit between small caps (higher growth, higher risk) and large caps (more stable, slower growth).

N

NASDAQ: Both a stock exchange and the name of its composite index, which is heavily weighted toward technology companies. Often used as a benchmark for tech-sector performance specifically.

Net worth: Everything you own (assets) minus everything you owe (liabilities).

O

Opportunity cost: The value of what you give up when you choose one option over another. For example, money spent today could have been invested, and the potential future growth you miss is the opportunity cost.

Options: Contracts that give you the right (but not the obligation) to buy or sell a stock at a set price by a set date. Options are advanced tools used to speculate or hedge, and they can expire worthless — most long-term investors don't need them.

P

Pension: A retirement plan, usually offered by an employer, that pays a set monthly income for life based on your salary and years of service. Pensions are increasingly rare outside government and certain union jobs.

Performance: How an investment or portfolio has done over a specific period, usually measured as a percentage gain or loss. It is best judged against a benchmark and your own goals, not just whether the number is positive.

Power of attorney: A legal document that lets someone else make financial or medical decisions on your behalf if you're unable to.

Principal: The original amount borrowed (or still owed) on a loan, not including interest.

Probate: The court process of validating a will and distributing an estate, which can be slow and public.

Q

Qualified dividend: A dividend that meets IRS rules to be taxed at the lower long-term capital-gains rate rather than your ordinary income rate. Most dividends from US companies you've held for a while qualify.

R

Rebalance: Adjusting your portfolio back to your target mix of stocks, bonds, and cash after market moves have shifted the proportions. Rebalancing keeps your risk level steady over time.

Recession: A period when the economy shrinks instead of grows, typically defined as two consecutive quarters of declining economic activity. Recessions are part of the normal business cycle and are usually followed by a recovery.

Return: The profit or loss on an investment, expressed as a percentage of the original amount. For example, a $1,000 investment that grows to $1,100 has a 10% return.

S

S&P 500: An index of roughly 500 of the largest US public companies, weighted by market cap. Widely used as shorthand for "the US stock market" and the benchmark most index funds are built to track.

Share: A single unit of ownership in a company. Owning shares means owning a small piece of that business.

Short selling: A strategy where an investor borrows shares, sells them, and hopes to buy them back later at a lower price to return them. If the price rises instead, losses can be unlimited, making short selling a high-risk, advanced tactic.

SIPC protection: Coverage for brokerage accounts up to $500,000 if the brokerage firm fails — it does not protect against normal market losses.

Small cap: Shares of smaller companies, generally valued under $2 billion. They can grow faster than large companies but are more volatile and riskier.

Spread: The difference between the price a buyer is willing to pay and the price a seller will accept (the bid–ask spread), or more broadly the gap between two related rates or prices. A wider spread usually means lower liquidity or a higher cost to trade.

Step-up in cost basis: A tax rule that resets the cost basis of an inherited asset to its value on the date of the original owner's death. This can reduce the capital-gains tax owed when the heir later sells the asset.

T

Term life insurance: Life insurance that covers a fixed period (like 20 years) and has no cash value — if you outlive the term, the coverage simply ends.

Transfer on death (TOD): A registration that lets an investment or bank account pass directly to a named beneficiary when the owner dies, bypassing probate.

Trust: A legal arrangement where assets are held and managed, often to avoid probate or control how and when assets pass to beneficiaries.

U

Universal life insurance: Permanent life insurance that lasts your whole life and builds cash value, at a significantly higher premium than term.

V

Valuation: An estimate of what an investment or company is truly worth. Valuations use measures like earnings, cash flow, and assets to judge whether a stock looks cheap or expensive — but no valuation is guaranteed to be correct.

Value stocks: Shares that appear cheap relative to a company's earnings or assets, often in established, out-of-favor, or slower-growing businesses. Investors buying value stocks are betting the market is underpricing them.

Value vs. growth stocks: Two broad investing styles. Growth stocks are companies expected to grow fast (tech, biotech) and often pay no dividend. Value stocks look cheap relative to their earnings or assets (banks, utilities) and often pay dividends. Neither is better — a simple S&P 500 index fund holds both, so you don't have to choose.

Volatility: How much an investment's price fluctuates. Higher volatility means bigger swings, both up and down.

Y

Yield: A measure of how much income an investment generates, usually shown as a percentage.

Yield curve: A line plotting the interest rates (yields) of bonds of equal credit quality across different maturities, from short-term to long-term. A normal curve slopes upward; an inverted curve, where short-term rates sit above long-term ones, is often watched as a possible recession signal.