Understanding Financial Terms

Plain-English definitions for common financial terms.

A

Amortization
The gradual repayment of a loan through scheduled payments that cover both principal and interest.
Annuity
A financial product that pays out a fixed stream of income, typically used during retirement.
Asset allocation
How an investment portfolio is divided among different asset categories, such as stocks, bonds, and cash.

B

Bear market
A period when prices in a market fall 20% or more from recent highs, usually accompanied by pessimism.
Bond
A loan made to a company or government that pays fixed interest over a set period.

C

Compound interest
Interest calculated on both the initial principal and the accumulated interest from prior periods.