Sources: IRS, SEC, Federal Reserve, U.S. Bureau of Labor Statistics & U.S. Census Bureau. See our editorial standards.
Plain-English definitions of the investing and personal-finance terms that matter most — each with a formula and a worked example.
New to investing? Start here. We define 25 of the most-searched investing terms in clear language, with real numbers and links to free calculators so you can put each concept to work immediately.
The real rate of return on savings or an investment over a year, including the effect of compounding.
How you divide your portfolio among asset classes like stocks, bonds, and cash to balance risk and return.
A period when stock prices fall 20% or more from recent highs, usually amid pessimism and economic weakness.
A sustained period of rising stock prices, typically defined as a gain of 20% or more from recent lows.
The smoothed, average yearly growth rate of an investment over a period, assuming profits are reinvested.
The profit you make when you sell an investment for more than you paid for it.
Interest calculated on both the original principal and the accumulated interest from prior periods, causing your balance to grow at an accelerating rate.
The original value of an asset for tax purposes, used to calculate capital gains or losses when you sell.
Spreading investments across many assets so that no single loss can sink your portfolio.
A portion of a company’s profits paid out to shareholders, usually quarterly, as cash or additional shares.
A ratio showing how much a company pays in dividends each year relative to its share price, expressed as a percentage.
Investing a fixed dollar amount at regular intervals regardless of price, smoothing out market volatility over time.
A company’s net profit divided by its number of outstanding shares — the profit attributable to each share.
A basket of securities that trades on a stock exchange like a single stock, offering instant diversification at low cost.
The annual fee a fund charges, expressed as a percentage of your invested assets.
A fund designed to match the performance of a market index, such as the S&P 500, rather than beat it.
The total dollar value of a company’s outstanding shares — share price multiplied by shares outstanding.
A pooled investment that collects money from many investors to buy a professionally managed portfolio of stocks or bonds.
The per-share value of a mutual fund, calculated once daily from the total value of its holdings.
A valuation metric comparing a company’s share price to its earnings per share, showing how much investors pay per dollar of profit.
The original sum of money invested or borrowed, before any interest is added.
A retirement account funded with after-tax dollars, where qualified withdrawals in retirement are completely tax-free.
Interest calculated only on the original principal amount, never on accumulated interest.
A retirement account where contributions may be tax-deductible now, but withdrawals in retirement are taxed as income.
A measure of how much an investment’s price swings up and down over time.
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