Retirement, Investments, & Insurance for Individuals Build your knowledge Investment terms you need to know

Investment terms you need to know

A few key investment terms help you build a wealth of financial knowledge.

Man and woman seated on a couch looking at investment terms on a laptop computer
6 min read |

Budgeting, saving for retirement, workplace benefits: Figuring out your finances can be stressful and hard—and a knowledge deficit may translate into real dollars. Nearly 40% of people admit their lack of financial literacy cost them at least $500.1

Luckily, you don’t need a master’s degree in finance to master basic investment terms. This list helps you make sense of everything from your paycheck to your retirement savings.

401(k), 403(b), or 457 plan

An employer-sponsored retirement account; it is set up by your employer for you. Allows you to make ongoing contributions, typically as automatic pre-tax payroll deductions.

Annualized rate of return

Annual rate of return on investments over a period of years. Annual percentage rate: Real cost of borrowing, including interest rate, fees, and additional charges.

Annual or quarterly retirement statement

Document detailing retirement contributions, withdrawals, and rate of return (or loss) for a period of time.


Investment contract that provides provide a guaranteed source of income in retirement; many different types available.2


A financial asset’s increase in value over a period of time.


Something you own, such as property or investments. Asset allocation: How you divide the funds in your retirement savings; typically assets are allocated to balance between risk tolerance and expected return on investment.

Asset class

Categories of securities, such as stocks, bonds, and cash.

Bear market

A decline in stock market value of 20% or more; opposite of a bull market (see below).


A loan to a government or company; bonds typically make up some portion of investment accounts.

Brokerage account

Investment account opened with a stock brokerage or investment firm, which then places orders on your behalf.

Bull market

An extended period of stock market gains exceeding 20%; opposite of a bear market (see above).

Capital gains

Profits from selling something you own—an asset—such as a home, stocks, or bonds.

Compound interest

When investment growth, in the form of dividends and/or capital gains, is reinvested and then continues to earn more interest over time.

Deferred compensation

A way for employers to help employees save for retirement and supplement an existing qualified employer-sponsored retirement plan; deductions may be made as a before income taxes (pre-tax), which reduces income tax liability.

Disability insurance

Insurance that helps replace a portion of income if a serious illness or injury prevents you from working; often included in workplace benefits plans.


When someone owns different investments in several asset classes (see above) to balance the effects of volatility and maximize returns.


Portion of company profits paid to shareholders.

Dow Jones Industrial Average (Dow/Dow Jones/DJIA)

A weighted average of the stock prices of 30 United States-based companies; probably the most well-known stock index.

Employee stock ownership plan (ESOP)

A company-provided plan that gives employees stocks or ownership shares; typically based on tenure.

Employer match

Often included as part of 401(k), 403(b), or 457 employer-sponsored retirement plans. Employers may match up to a certain percentage of your contribution to your retirement savings.

Employer-sponsored retirement plan

A retirement plan such as a 401(k) set up by your employer for you that allows you to make ongoing contributions, typically as automatic pre-tax payroll deductions.

Equity fund

A type of mutual fund invested in the stocks of companies.

Federal Reserve Board (The Fed)

Federal Reserve System governing board that sets the nation’s interest rate and manages financial policy.

Financial professional

A person who offers insight into financial-related topics. Fixed income fund: A mutual fund that pays a set rate of return by investing in bonds and other debts to generate income.

Flexible spending account (FSA)

Workplace benefit that allows you to contribute to a pre-tax savings account and use the funds for qualified medical expenses. FSA funds must be used in the year in which they are saved.

Gross income

Your income before payroll taxes and deductions.

Health savings account

A pre-tax savings account for qualified health expenses; these funds do not have to be used from year to year.

Index fund

A passively managed mutual fund that mimics the investments in an index.

Individual retirement account (IRA)

Investment account not tied to an employer; you make contributions with pre-tax dollars but pay taxes upon withdrawal.


An increase in the price of goods and services.

Interest rate

The price of money, from the rate on loans (such as mortgages) to the rate paid on accounts (such as savings).

Investment fund

A group that pools resources to invest in things like stocks or stock indexes.

Managed account

Investment account actively overseen by a professional.

Mutual fund

A pooled investment vehicle, managed by a professional, that lets investors purchase different asset classes in a single transaction; funds follow a pre-set investment ratio and risk level.

Net income

The income paid to you after all payroll deductions are made, aka your paycheck. Net worth: Your assets minus your liabilities.

Pre tax

Investments made with gross income, or those that you have not yet paid taxes on; includes 401(k) or IRAs.


An investment collection.


Defined by the National Bureau of Economic Research as two consecutive quarters in a row of declining economic activity, or gross domestic product.

Required minimum distribution

Money that you, once you reach a certain age, are required to withdraw from employer-sponsored retirement plans, such as 401(k)s.

Risk tolerance

Your personal ability to tolerate volatility in investments.

Roth IRA

Investment account not tied to an employer; you make contributions with post-tax dollars, so do not pay taxes when you withdraw funds.


A legal owner of shares of a company; may be common or preferred. Common shareholders generally have voting rights but are paid last, while preferred are paid first.


Ownership claim of a company (private or public).

Stock index

A measurement of a collection of public stocks, such as the Dow, Nasdaq, or S&P.


Owner of a common or preferred stock.

Stock market or exchange

Collection of public stock buyers and sellers, such as the New York Stock Exchange (NYSE).

Tax deferred

Investment accounts, such as IRAs, for which you have not yet paid taxes, but will do so when making withdrawals.

Vested balance

The total percentage of employer contributions to your retirement savings based on your tenure; the time and structure of vesting varies based on your workplace benefits.


Fluctuations in your investments.


The total deducted from your gross income (see above) to arrive at your net income.

Workplace benefits

The compensation provided by your employer; may include employer-sponsored retirement plans, disability insurance, wellness programs, and more.

Target date fund

Investment account that grows assets and reduces risk over a specified period of time; the name often includes a year, such as 2035, at which time the investor will begin to make withdrawals.

Target risk fund

Investment account that offers a mostly steady rate of risk over a specified length of time.

What's next?

One step you can take today to get started building your financial foundation? Check out how much you’re saving now versus how much you could be saving. Log in to to check your savings rate. Don’t have an employer-sponsored retirement account or want to save even more? We can help you set up your retirement savings with an individual retirement account (IRA). Ready to learn more ways you can build your financial foundation? Our learning library can help.