Many of the following definitions are taken from Conscious Finance, by Rick Kahler, CFP®, and Kathleen Fox.
An employer-sponsored retirement plan. Employee contributions are taken out before withholding taxes are computed, and many employers offer matching contributions.
A state-sponsored college savings plan through which a donor can set up an account for children, grandchildren, or other relatives. The donor retains control of the account and can transfer it to another family member. Earnings are not taxed if they are used for college expenses.
Having a mixture of at least five and preferably eight or nine asset classes in an investment portfolio.
Professional management of both securities (such as stocks, bonds, limited partnerships, and mutual funds) and tangible assets like real estate to meet specified investment goals for the benefit of an investor.
Strategies that go beyond liability insurance, using a set of legal techniques and statutory laws to protect wealth against liability and frivolous lawsuits. Learn more about asset protection.
Investments through which one loans money to a corporation or government.
The size of a company whose stock an investor might own, described as large-cap, mid-cap, and small-cap.
Certified Commercial Investment Manager (CCIM®) is a certification obtained by experts in the area of commercial and investment real estate. The education required to obtain the CCIM includes: financial analysis, market analysis, user decision analysis, and investment analysis. After completing the required course work, candidates must submit a portfolio proving their in-depth knowledge and experience in the commercial investment field. Candidates must then pass a comprehensive, six-hour exam administered by the CCIM® institute. Currently only 6% of commercial real estate practitioners hold this designation, which reflects on the caliber of the program, as well as why it is a highly coveted and respected designation.
A designation conferred by the Certified Financial Planner Board of Standards. A CFP® has received approved training and industry certification in the six areas of financial planning: estate planning, retirement planning, cash flow management, risk management, tax planning, and investments.
To become a Certified Financial Planner® (CFP®), an applicant must complete and commit to four E's: Education, Examination, Experience, and Ethics.
All CFP® candidates are required to have bachelor's degrees and to complete a CFP® Board-Registered education program covering the major areas of comprehensive financial planning, including Financial Planning Fundamentals, Investments, Retirement, Taxation, Estate, and College Planning. The planner must then take a 10-hour examination on over 80 financial planning topics. The pass rate for this exam averages between 50% and 60%. After passing the exam, planners must spend three years gaining full-time work experience to insure they know how to apply their knowledge.
Certified Financial Planners® must sign an ethics code that discloses any previous criminal charges. They must also adhere to the CFP® Board's Code of Ethics and Professional Responsibility and Financial Planning Practice Standards. This requires adherence to a fiduciary standard, which means making a commitment to always act in the best interests of their clients. This is a crucial difference between CFP®'s and many other financial professionals, who may be primarily sellers of financial products whose loyalty is to the companies they represent.
To maintain the CFP® designation, planners must complete 30 hours of Continuing Education every two years, including two hours specifically on ethics.
The Chartered Financial Consultant® (ChFC®) designation is a program to certify planners in Advanced Financial Planning. The requirements are similar to those for the CFP®, except they also include additional course work in financial planning. Planners must also pass an examination, obtain three years of work experience, sign a code of ethics, and obtain 30 hours of CE credit every two years.
A percentage of the total invested in a financial product (such as a mutual fund, annuity, or other investment) that is paid to the sales representative who sold the product.
Bulk products, such as metals, grains, and foods, that are traded on a commodities exchange. Investments in commodities typically are in contracts which are bought and sold by the individual, mutual fund, or limited partnership. Investors rarely take physical possession of the assets.
A monthly report that tracks inflation and the cost of living. It measures changes in the cost of a given set of consumer products and services, such as housing, food, utilities, and transportation.
A technique to reduce risk by investing in a variety of asset classes; an essential component of wise investing.
Shares of a company's profits paid to investors.
An index showing the values of 30 large publicly-traded U.S. companies. Reports that the DOW is up or down refer to the average increases or decreases in stock prices of those companies.
Making decisions about distributing one's assets at death, and the strategies to carry out those decisions.
The mechanics or "hard facts" aspects of managing money, such as investment returns, bank statements, and budgets.
Financial planners whose income is a combination of commissions on financial products they sell and fees for financial planning.
Financial planners who receive no commissions, kickbacks or hidden fees from any source, but whose earnings come from direct fees to clients.
The legal obligation of a professional adviser, such an attorney or a CFP®, to act in clients' best interests. A financial product salesperson has no fiduciary obligation to customers.
A term with no precise industry definition that can be used by financial planners, investment managers, and sellers of financial products.
A professional with training and certification in coaching as well as knowledge of exterior finance, who can help clients establish and work toward financial goals.
The process of working with a financial coach to define and work toward financial goals. Financial coaching focuses primarily on the future, while financial therapy explores and resolves issues from the past.
Comprehensive advice and assistance to a client for the purpose of meeting the client's financial needs and life goals. This includes, but is not limited to, these major areas: cash flow management, education planning,retirement planning, investment planning, risk management and insurance planning, tax planning, estate planning and business succession planning (for business owners).
A psychologist or family counselor trained in psychotherapy and financial planning, who can help clients work through deep and sometimes dysfunctional beliefs about money (see Money Scripts) that are causing problems in their lives.
The process of combining experiential therapy with financial planning to help clients work through and resolve dysfunctional beliefs about money that are causing problems in their lives.
Investment contracts to buy or sell given quantities of a commodity or other asset at a given price on a designated date.
An investment based on the expectation that a company will grow quickly, rather than on its current profitability.
Reducing investment risk by including strategies such as short selling and futures contracts in a diversified portfolio.
An approach to financial planning that helps clients with both the interior and exterior aspects of their relationship with money.
The emotional aspects of financial decisions: what we believe and how we feel about money.
Providing for one's future by not merely saving part of one's earnings, but by buying a diversified portfolio of assets that will increase in value over time.
Individual retirement account, not an investment in itself but a "container" to hold investments. An IRA permits individuals to set aside money each year, with earnings tax-deferred until withdrawals begin at age 59 1/2 or later (or earlier, with a 10% penalty). The exact amount depends on the year and your age. IRAs can be established at a bank, mutual fund, or brokerage. A traditional IRA allows the amount deposited to be deducted from current income, but any distributions are fully taxable. A ROTH IRA does not allow for a current deduction from income, but all distributions are tax-free.
An integral approach to estate planning which also includes the interior aspects.
An entity similar to a corporation that may be created for ownership of a business or to hold assets such as real estate properties for asset protection.
A pool of money, invested by shareholders, which is managed by an investment company.
A U.S. stock market trading in approximately 3200 companies. Reports that the NASDAQ is up or down refer to the average increases or decreases in all the stocks traded through NASDAQ that day.
The value of all your assets (savings, investments, real estate, personal property, money owed to you, etc.), minus all your liabilities (mortgage, auto loans, education loans, credit card debt, etc.).
All of one's financial assets.
An investment company that owns a variety of real estate and sells shares to small investors.
Preparing for retirement, both by investing to provide financial security and by planning for activities, career possibilities, and relationships that will provide a fulfilling life during retirement.
The amount of an investment's yield, plus or minus its appreciation or depreciation. Its real return is the return adjusted for inflation.
The practice of selling securities which are borrowed from a third party (usually an investment bank) with the intention of buying the same securities back at a later date to return to the lender.
Putting money into a high-risk investment in the hope of building wealth quickly.
An investment that is an ownership share of a publicly-traded company.
Inflation-indexed bonds issued by the U.S. Treasury where the principal is adjusted to the Consumer Price Index.
A legal arrangement whereby a person gives real or personal property to another person to be managed for the benefit of the giver, another person, or an entity such as a charitable organization. Trusts are often used in estate planning and for asset protection.
An investment chosen based on a company's intrinsic value: cash and assets, high dividends, and low debt.
The degree to which the price of an investment fluctuates.
The ability to exercise good judgment in the face of imperfect knowledge.
The interest or dividend paid to an investor, not the same as the return on an investment.