With plenty of technical jargon, an array of innovative and new financial products to tailor to your specific situation and an evolving industry, it can be hard to keep up with all the financial terms out there. Here are a few terms to know:
Asset: In the case of personal finances, something that has either a monetary or an exchange value, such as cash or the home you own.
Capital gain: The profit from selling an asset for more money than you originally paid for it. If you sell it for less, you have a capital loss. Since capital gains and losses can affect how much you pay in taxes, these two terms may be important to discuss with your tax advisor come tax season.
Compounding: The act of taking interest earned on an investment and putting it back into the investment to earn still more interest.
Dividend: When talking about a publicly traded company, dividends refer to the portion of a company’s profits paid out to shareholders. One of the other places profits can go is back into the company. Typically, dividends are paid each quarter or twice a year.
Diversified portfolio: An investment strategy that spreads your assets over a variety of stocks, bonds and other investments. It simply means to think about how much money you’re putting into what type of investment. Asset allocation affects both the risk and the return you can expect from your financial assets.
Dollar cost averaging: Investing smaller, fixed amounts at regular intervals, like $100 per month.
Load: A fee charged by certain mutual funds. These fees can be charged when you purchase a fund or when you sell a fund.
Retirement plan distribution: A payout of funds from a retirement plan. These funds can come from a company-sponsored 401(k) or an Individual Retirement Account (IRA). Different retirement plans will have different options as to when and under what circumstances you can take your money from the plan. You’ll typically want to wait until you are at least 59 1/2 years old before taking money out of your qualified retirement plan to avoid early-withdrawal penalties.
Retirement plan roll over: Transferring funds from one retirement plan account (e.g. 401(k), IRA, etc.) to another. The funds are not subject to tax or penalties, and continue the tax deferred growth.
Financial terms aren’t always easy to understand. A first step in selecting a financial advisor is making sure you’re working with someone who is speaking a language you understand and never be afraid to ask for clarification.
This article first appeared in Thrivent Magazine.
This column was prepared by Thrivent Financial for your local representatives’ use.
Thrivent Financial is represented in the Boone area by Heartland Associates – Ames, which includes Duane D Faas, Kirt Till and David M Sparrey at 315 6th Street, Suite 100, Ames, (515) 292-7077.