Some Finance Definitions You Should Have Learned In School

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Economic resources that are owned or controlled by an individual, company, or government and have a measurable value in monetary terms. Assets can include physical objects such as buildings, equipment, & inventory, Financial instruments such as; stocks, bonds, and cash, and Intangible Assets such as; patents, trademarks, and goodwill. Assets can be used to generate income or provide value to their owners, and are typically listed on financial statements and used to evaluate the financial health and performance of an entity. 

Obligations or debts that an individual, company, or government owes to another entity. These obligations can be in the form of payments, services, or other resources that must be provided to the creditor in the future. Examples of liabilities can include bank loans, accounts payable, wages payable, and taxes owed. Liabilities represent the financial obligations that an entity has and must be paid off using its assets or future income. They are also listed on financial statements and used to evaluate the financial health and performance of an entity. 

Ownership interest that an individual, company, or institution has in an asset or business. In the context of business, equity typically refers to the portion of a company's assets that is owned by its shareholders. Shareholders' equity represents the residual value of a company's assets after all liabilities have been paid off. This includes common stock, preferred stock, retained earnings, and other reserves. Equity represents the amount of capital that is invested in a company by its owners and can be used to generate future profits. It is an important measure of a company's financial health and is often used to evaluate its value and potential for growth. 

This refers to an investment strategy that prioritizes higher returns and is willing to take on higher levels of risk.

Aggressive investors are often willing to invest in higher-risk investment types such as emerging market stocks, small-cap stocks, or cryptocurrencies. They may also be more likely to engage in short-term trading and to take advantage of market volatility to maximize returns, if they are experienced enough.

Aggressive investors typically have a higher risk tolerance than conservative investors and are willing to accept greater volatility and the possibility of short-term losses in pursuit of higher long-term returns. However, this strategy can also result in greater losses in the event of a market downturn.

An aggressive strategy may be appropriate for some investors but may not be suitable for others, depending on their individual circumstances. Investors should carefully consider their financial goals, risk tolerance, and investment schedule when developing their investment strategy. (Investing 102)

Appreciation is the increase in value of an investment over time. When an investment appreciates, its market value rises, resulting in a gain for the investor who owns the item. For example, if an investor buys a stock for $100 and its market value increases to $150, the investment has an appreciation of $50.

Appreciation can occur for a variety of reasons, such as a company's strong financial performance, positive economic news, or increased demand for a particular investment.

Investors often seek to invest in assets that they believe will appreciate over time, such as stocks, real estate, or commodities. Please note that there is no guarantee that an investment will appreciate in value, and it is important for investors to carefully research and analyze their opportunities to understand the potential risks and rewards. (Investing 102)

A balance transfer is a process where you move the outstanding balance from one credit card to another, likely to take advantage of a promotional offer or to consolidate multiple credit card balances into one card. Promotional offers are typically lower interest rates or a delay in repayments - for example, only need to make minimum payments for 6 months.  (Finance 105)

Bankruptcy is a legal process that can eliminate or restructure debt when individuals and businesses can no longer pay them. This provides the individual or business with a fresh start and is governed by federal law and required filing a petition in a bankruptcy court. There are several different types of bankruptcy, and the most common ones for individuals are Chapter 7 and Chapter 13 bankruptcy. Both types of bankruptcy may provide folks some relief from overwhelming debts, however, deciding which type to file is determined by the specific circumstances and financial goals of the person filing. It is extremely advisable to understand the implications, eligibility, and consequences of filing for bankruptcy by consulting with a bankruptcy attorney.

Chapter 7 Bankruptcy (Liquidation) -

• Debt is entirely discharged (eliminated). It involves the sale of any non-exempt assets to repay creditors.
• Business and individuals can request chapter 7, however individuals must pass certain financial health tests to qualify
• The bankruptcy process usually takes a few months to complete.
• Certain debts, such as student loans, child support, and tax obligations are NOT eliminated.

Chapter 13 Bankruptcy (Reorganization) -

• This type involves creating a repayment plan which would restructure the debt and help repay debts over a three to five-year period.
• Individuals do not sell their assets and are required to make regular payments to a bankruptcy trustee, who then distributes the money owed to creditors.
• It is available to individuals with a regular income and who have unsecured debts below a certain threshold.
• Chapter 13 allows individuals to catch up on missed mortgage payments or car loan payments, which can prevent foreclosure or repossession.
• At the end of the repayment plan, any remaining eligible debts may be discharged.

(Finance 104 & 105)

Bond maturity refers to the date when a bond reaches the end of its term and the principal amount (the original amount of money borrowed) is repaid to the bondholder or purchaser of the bond.

When an investor purchases a bond, they are essentially lending money to the bond issuer (such as a government or corporation) for a selected period of time, generally ranging from one to thirty years. At the end of the period, the issuer repays the principal amount lended to the bondholder, along with any remaining interest payments that may be owed.

The maturity date is listed in the bond's terms and is an important factor for investors when choosing which bond to invest in. Bonds with longer maturities typically offer higher yields (interest payments), however also carry greater risk due to the possibility of changes in interest rates, inflation, and other economic factors over time.

Investors may choose to hold bonds until their maturity, or they may sell their bonds on a secondary market using a brokerage platform prior to maturity if they need to liquidate their investment. (Investing 102)

Conservative investing is a strategy that minimizes risk and prioritizes the preservation of money.

A conservative investor tends to prioritize investments with lower levels of risk, such as bonds, cash, or blue-chip stocks, rather than higher-risk investments like emerging market stocks or cryptocurrencies. They may also choose to diversify their portfolio across multiple investment types to reduce their overall risk.

Conservative investors typically have a long-term investment investment schedule and are willing to sacrifice potential returns for greater security and stability of their investments. 

While a conservative investing approach can help to protect against losses, it may also result in lower returns over the long term. (Investing 102)

Your Credit history is a detailed record of your borrowing and repayment activities over time, providing a complete summary of credit behavior and financial responsibility. Credit history is maintained by credit bureaus, such as Experian, , Equifax, and TransUnion and is used by lenders, creditors, and other financial institutions to assess your creditworthiness when reviewing applications for loans, credit cards, or other credit related items. (Finance 104)

A credit limit refers to the maximum amount of money that you are able to borrow from a financial institution on a credit card or credit line. Your credit limit is determined based on factors such as your credit history, income, and overall creditworthiness.

For example, if one of your credit cards has a credit limit of $10,000,you can spend $10,000 on the card before you reach the maximum limit. Typically any purchases made with the card after reaching your limit will be decline, however in some cases if you exceed the credit limit you may incur penalties, such as over-limit fees or potential negative impacts on your credit score.

Credit limits can change over time based on the your financial behavior, such as increasing it as your credit score increases. Additionally, different types of credit products may have different limits, such as a personal loan or credit card. (Finance 105)

Creditworthiness refers to a lender's assessment of your ability to repay borrowed money or fulfill  your financial obligations, and is used when approving loans, extending credit, or setting interest rates. Your creditworthiness is determined by your credit history, score, income, financial records(tax returns or past loan history), and your debt-to-income ratio, which is the percentage of your monthly income that goes towards payments for your rent/mortgage, credit card, or other debt.  . (Finance 105)

Decentralization is the nature of a cryptocurrency network in which the control and decision-making are distributed across a network of participants, rather than being centralized in a single entity.

In a decentralized cryptocurrency network, there is no central authority, such as a government or a central bank, that controls the creation or distribution of the cryptocurrency. Instead, the network is maintained by a network of users, often referred to as nodes or miners, who validate and record transactions on a blockchain ledger.

Decentralization is a key feature of many cryptocurrencies, such as Bitcoin and Ethereum, and is seen as a way to provide greater security, transparency, and resilience to the network. Since there is no central point of control, it is considered to be more difficult for a single entity to manipulate the system. However, decentralization can also lead to challenges such as  regulatory compliance, scalability, and governance issues, which are the subject of ongoing debate in the cryptocurrency community. (Investing 102)

Dividends are a portion of a company's profits that are distributed to its shareholders. Companies can choose to pay out dividends as a way to reward their shareholders and show that they are financially stable.

Dividends are typically paid out on a regular basis, usually each quarter or annually, and the amount paid out to each shareholder is proportional to the number of shares they own.

Some investors seek out stocks with higher dividends as a way to generate passive income from their investments. (Investing 102)

Diversification is an investment strategy that involves spreading your investments throughout several different investment types(i.e. stock, bonds, mutual funds, etc) in order to reduce your risk and potentially enhance overall returns. The main goal of diversification is to avoid putting all your eggs in one basket, with variety of investments that have different levels of risk and performance.

Financial viability is the ability of a person or company to maintain financial their health over a long period of time. This would include the capacity to generate enough income to cover any expenses, meet any debt obligations, and achieve any financial goals.

For individuals, financial viability would mean having a steady income, being able to manage your expenses, being prepared for unexpected financial hardships, and being able to save and invest. 

Financial viability for businesses involve generating more revenue than expense(known as profit), managing costs and expenses effectively, managing debt and cash on hand, and ensuring that there is a solid plan for growth and long term finances. (Finance 104)

Freezing your credit is a security measure that can restrict access to your credit report, making it more difficult for identity thieves to open new accounts or loans in your name. When you freeze your credit, credit bureaus are required to place a freeze on your credit file, preventing potential creditors from viewing your credit report without your consent. This adds an extra layer of protection against unauthorized access to your personal information. (Finance 104)

When a third-party pulls your credit when determining to extend credit to you - such as when you are applying for a car loan or credit card. These inquiries should not occur without your consent or knowledge. 

When you authorize a lender to perform a hard inquiry, they will request a detailed copy of your credit report from one or more of the major credit bureaus (such as Equifax, Experian, or TransUnion). The lender will then use this information to assess your creditworthiness and determine whether to approve or deny your application.

A hard credit inquiry will be recorded on your credit report and may temporarily decrease your credit score. Although your score does decrease, the amount is usually small and will only remain on your credit report for about 12 to 24 months. Please note that multiple hard inquiries made over a short period of time, about 6 months, may have the potential to impact your score more significantly. (Finance 104)

Defaulting on a loan is the failure to fulfill the repayment obligations that are outlined in the loan agreement. When you default on a loan, it means you have not made the required loan payments within the agreed-upon terms, such as missing multiple scheduled payments or not paying the full amount when due. This can apply to various types of loans, including personal loans, student loans, mortgages, car loans, or credit card debt. Defaulting on your loan can have serious negative consequences to your credit score and overall financial health.  (Finance 104)

Market volatility refers to the tendency of stock prices or overall market values to fluctuate rapidly and unpredictably over short periods of time.

Multiple factors can contribute to market volatility, including the release of good/bad economic news, news specific to a company, geopolitical events, and changes in investor sentiment.

When markets experience high levels of volatility, it can be difficult for investors to make informed decisions about buying or selling stocks. This creates uncertainty and can increase the risk of losses for investors who are unable to ride out the ups and downs of the market.

However, it is important to note that volatility can also create opportunities for experienced investors who are able to identify undervalued stocks or take advantage of short-term market movements.  (Investing 102)

 A positive payment history is your record of consistently making on-time payments foy your credit obligations, such as loans, credit cards, or utility bills and demonstrates responsible financial behavior.

A positive payment history is an important part of your credit score. Lenders and credit bureaus use your payment history to assess your creditworthiness when considering any applications for new credit or loans. A consistent and long payment history indicates that you are reliable and likely to repay your debts on time. (Finance 104)

A Publicly Traded company has shares that are available for purchase by members of the public through a stock exchange, using brokerages - such as Fidelity, Etrade, or Robinhood.

When a company goes public, it typically offers its shares for sale in an initial public offering (IPO), which allows it to raise money from a large number of investors. After the IPO, the company's shares can be bought and sold by individual investors through stock exchanges such as the New York Stock Exchange (NYSE).

Publicly traded companies are subject to strict regulatory requirements, including regular financial reporting and disclosure of material information to the public. This transparency helps to protect investors and to ensure that the stock market operates fairly and efficiently. (Investing 102)

Short-term market fluctuations are rapid and temporary shifts in the prices of financial assets over a brief period of time, such as stocks, commodities, bonds, or currencies shifting over the course of a week. The market fluctuations may be caused by events such as; market news, investor sentiment, geopolitical events, and company-specific developments - like a failed product release.

Short-term market fluctuations are defined by sharp increases (rallies) or decreases (sell-offs) in stock prices within a matter of days, weeks, or months. They are often a result of reactionary news and investor sentiment that can by volatile and unpredictable.