Compound Interest Compound Interest is one of the most important concepts in the modern world, and a cornerstone of the financial system in every economy. The concept of “Compound Interest” is surprisingly simple, but incredibly powerful! Simple Interest Before we talk about the power of Compound Interest, we first need to understand Simple Interest. In Read More…

Competitive Advantage An advantage of one company over another’s in one aspect of operations or production. Companies in competition with each other try to improve their own competitive advantages and reduce the advantages held by other companies.

Competition A feature of a market economy where multiple producers of a similar good or service compete for customers and businesses. This usually results in lower prices and more innovation than systems where there is only one producer.

Comparative Advantage An advantage one country or economy has over another in terms of the production of one type of good or raw material. By exploiting comparative advantages and engaging in trade, multiple countries can increase their total wealth compared to trying to produce everything themselves.

Company A for-profit business. A company can be organized as a sole proprietorship (owned by one person), partnership (owned by a handful of people), or corporation (which sells stock to many small owners).

Communism A type of command economy based in principle on common ownership of all assets in a country, with resource allocation determined by a central planning agency.

Common Stock The most frequently traded stock that is accessible to individual investors. This type of stock has voting rights for some important management decisions for the company. While it also is eligible for dividends, it is paid only after preferred stock. Click Here for our lesson on Stocks

Commodity ETF An exchange traded fund invested in a specific commodity, and companies that produce these commodities. This is a mechanism for which an investor that can only trade stocks and ETFs can add commodities to their portfolio.

Commodity A fundamental input of production, which generally is of the same quality wherever it comes from. This can include things like lumber, crude oil, refined copper, cattle, and many other raw inputs.

Commissions A transaction cost charged by many brokerages in exchange for executing a trade. Commissions can be a flat fee per trade, a fee per share traded, or a percent value of the total transaction amount.

Commercial Paper A type of short-term corporate bond issued by a corporation to cover immediate cash flow needs. Commercial paper usually is paid off within a number of months. Click Here for our lesson on Bonds

Commercial Loan A type of loan issued from a bank to a business to finance growth. These are most common with small to medium sized businesses. Click Here for our lesson on Corporate Debt

Command Economy An economic system that bases production based on directions from a central planning agency, rather than market forces and prices.

Collision Coverage A type of auto insurance that covers damage to the insured vehicle in case of a crash. This is more expensive than liability coverage, which only covers the damage to the other person’s vehicle. Click Here for our lesson on Car Insurance

Collateral An asset that is used to secure a loan. If the loan goes into default (meaning it is not being paid on time), the person or company who issued the loan can seize the asset and sell it to satisfy the debt. Related Lessons

Co-Insurance A percentage of the cost of covering an expense that is paid by the insured person. This is most common in health insurance, where after the deductible is fully paid the insured person will still pay some amount (typically 20%) of the healthcare costs until their out-of-pocket maximum. Click Here for our lesson on Read More…

Closing Costs The fees incurred as part of closing a loan, typically a mortgage. This can include legal fees and recorder fees. Depending on the type of loan, this can be a considerable addition to the total cost of the loan. Click Here for our lesson on Mortgages

Classes Of Stock Types of stock offered by a company to raise money for growth. Common Stock is the most frequent and is what is purchased by individual investors. This gives voting rights for some important management decisions. Preferred Stock is usually held by the company’s original management team and has preference for dividends. However, Read More…

Children’s Health Insurance Program (CHIP) A federally sponsored health insurance program for children, specifically for families that earn too much money to qualify for Medicaid. Click Here for our lesson on Health Insurance

Chicago Mercantile Exchange (CME) A securities exchange based in Chicago that trades in commodities and futures contracts.

Chicago Board Options Exchange (CBOE) A securities exchange based in Chicago that focuses exclusively on option contracts. Click Here for the Investing101 Chapter on an Introduction to Options (30 min)

Checks A document used to provide authorization to transfer money out of one’s checking account to some other bank account. It includes the account to be transferred from, the amount to be transferred, the name of the person or company to transfer to, and a signature for authorization.

Checking Account A type of bank account used for ease of making transactions. Checking accounts are “demand deposits”, designed for frequent deposits and withdrawals. Related Lessons

Check Clearing The act of a system of banks to transfer funds from one account to another based on the instructions on a check.

Charles Schwab The first “Discount Broker” that focused on providing no-frills, low-cost stock investing brokerage accounts for individual investors.

Charity A non-profit organization or religious group with an operating goal of some societal good, not earning profits and growth. Click Here for our lesson on Charity

Charitable Giving The act of giving away money or assets to non-profit charitable organizations or religious groups. Click Here for our lesson on Charity

Chapter 7 Bankruptcy A type of bankruptcy where your assets and income are taken over by a trustee, who sells off some assets and garnishes some income to pay off your debts. After as much of the debt as possible is paid, the remainder is discharged. Related Lessons

Chapter 13 Bankruptcy A type of bankruptcy where your assets are not sold off. Instead, you must create a payment plan approved by a court, and for several years all income is seized to enforce the payment plan. Related Lessons

Day’s Change The amount a stock’s price changes from the previous day’s closing price. Related Lessons

Certified Public Accountant (CPA) A professional designation for accountants showing a high level of expertise and ethical training. A CPA designation is required to create financial statements accepted by investors. Click Here for our lesson on Certifications in the Finance Industry

Certified Financial Planner (CFP) A professional certification that allows the certified person to legally give investment and wealth management advice and planning services. Click Here for our lesson on Certifications in the Finance Industry

Chartered Financial Analyst (CFA) A professional certification offered by the CFA institute that focuses on advanced investment analysis. Click Here for our lesson on Certifications in the Finance Industry

Certificate Of Deposit A type of investment issued by a bank, similar to a savings account. The bank pays a higher interest rate than a savings account, but the depositor typically cannot withdraw until a set expiration date.

Centralized Management A management style that focuses all decision making in a small group of upper management, with the rest of the organization executing the plans made at the top.

Catch A Falling Knife The concept stating that investors must be wary when trying to “buy low” and should wait until a stock’s price and stops falling before “buying in”. Related Lessons

Cash Flow Statement A fundamental financial statement showing the flow of cash in and out of a company over a specified time frame. Click Here for our lesson on Cash Flow Statements

Cash Basis Accounting A method of accounting based only on when cash transactions occur, regardless of when it was “earned”. For example, if you conduct some work in January but are only paid in February, you will recognize the transaction in February.

Cash Advance The action of converting your credit card’s line of credit into cash. Unlike most types of credit card purchases, cash advances usually start accumulating interest immediately, instead of after a grace period. Click Here for our lesson on Credit Cards

Cash This can refer to actual physical currency (like dollar bills and coins), but also on-demand bank deposits that can be immediately spent.

Cartel An arrangement between several companies to coordinate their pricing and market strategies for their mutual benefit. The formation of cartels is typically illegal in capitalist economies.

Career Plan An action plan to build one’s career. This usually includes identifying a long-term goal (such as a dream job), and a series of milestones one would need to achieve to get there.

Career The road a person takes through their professional life. This includes both the actual jobs held, but also education and other training you acquire.

Card Verification Value (CVV) A security feature on both credit and debit cards. This is an extra 3- or 4-numbers on the back on a credit card that must be entered for most types of online purchases as an additional verification mechanism. Related Lessons

CARD Act The Credit Card Accountability Responsibility and Disclosure Act. This law introduced a number of consumer protections specific to credit cards, such as increasing interest rates with no notice, excessive fees, and confusing billing cycles. It also restricts credit cards for people under 21. Click Here for our lesson on Credit Cards

Car Loan A type of amortized loan used to purchase a vehicle. Compared to a mortgage, the loan term is typically much shorter, and interest rates higher. Related Lessons

Car Insurance A type of insurance covering cars. It includes, at minimum, liability insurance in case you cause damage to another person, property, or vehicle, but can also include additional coverage to protect you from damage caused by others. Click Here for our lesson on Car Insurance

Capitalism An economic system based on a market economy and an emphasis on continuous re-investment of profits in future growth.

Capital Property Rights The legal protection of investments and other assets from government seizure. Strong capital property rights are necessary to encourage investment, as people are unlikely to invest if they fear government seizure.

Capital Preservation The concept that an investor should be principally concerned with not losing their initial investment, more than chasing gains.

Capital Investment The purchase of an asset with an aim for growth. This usually involves purchasing stock in a company.

Capital Gains Tax A type of income tax charged on the realized gains from the sale of an asset, like a stock. Capital Gains taxes typically have one rate for short-term gains (earned in less than 1 year) and long-term gains (realized gains longer than 1 year). Related Lessons

Capital Asset Pricing Model (CAPM) A mathematical model that uses different measures of risk versus reward to determine whether an asset (like a stock) is a good addition to a given diversified portfolio. Click Here for our lesson on Building an Investing Strategy

Capital A type of asset that is used to generate economic activity. This can both refer to the specific assets, such as a machine at a factory, or funds raised by a company to purchase these assets to fund growth (“Seed Capital”).

Call Option A contract that gives the buyer the right, but not obligation, to buy a stock at a specific price at any time before the specified expiration date. Click Here for the Investing101 Chapter on an Introduction to Options (30 min)

Call Interest The general interest of investors to purchase call options on a stock. This is generally a measure of market sentiment on how many investors are currently interested in these options. Click Here for the Investing101 Chapter on an Introduction to Options (30 min)

Buy What You Know An investment strategy championed by Peter Lynch that says that an investor should start by exploring companies that they are already familiar with and can see are successful a “street level”.

Buy Now, Pay Later A financing option where the purchaser buys an item immediately, and pays it off with monthly installments, usually over 4 months.

Buy And Hold An investing strategy that focuses on buying stocks or other securities with no intention to sell. This is the investing strategy championed by Warren Buffett. Click Here for our lesson on Building an Investing Strategy

Business Plan A document prepared by a business explaining what their business aims to achieve, their mission statement, short-term and long-term goals, and how they plan to achieve them.

Business Incubator A for-profit or non-profit organization that aims to provide resources and support for start-up business enterprises, typically including shared accounting resources and office space, and expert mentorship on business planning, market strategy, and administration.

Business Cycle The cycle of expansion and recession of the economy over time. Business cycles consist of a period of optimism and growth (expansion) followed by a period of uncertainty and stagnation (recession).

Burrito A type of meal originating in Mexico, including any combination of rice, beans, meats, and vegetables wrapped in a tortilla.

Bureaucratic Management A management style that focuses on success through clear organizational structure, well-defined roles, and refinements to workflow processes.

Bureau Of Labor Statistics A government agency in the United States that compiles important statistics on the labor force. The BLS is one of the organizations that publishes key economic indicators used to measure the health of the economy.

Bull Market A period of general market optimism, typically marked by a general increase in stock prices. Related Lessons

Budgeting Strategy A plan created by an individual or business in how they build their budget. A budgeting strategy ensures that the budget is working to reach a larger financial goal, such as “pay yourself first” to build savings and wealth, or to focus on paying off debt faster to escape costly financing charges. Related Read More…

Budget A financial planning document outlining what income will be received, what bills and other expenses will need to be paid, and what savings goals can be reached over a specified timeframe, typically per month. Related Lessons

Bubble An act where the general prices in an industry or entire market become inflated beyond their rational value due to too many investors rushing in all at once. Bubbles are typically followed by a crash, once investors start to see the bubble being formed and try to pull their money out all at once.

Brokerage Account An account held at a brokerage firm where an investor deposits cash or other investments and can purchase securities from a securities exchange. The brokerage account also holds these securities while the investor owns them as a custodian (instead of mailing individual stock certificates to each investor for every trade). Click Here for Read More…

Brokerage A company consisting of one or several stock brokers and maintain individual investor’s brokerage accounts to facilitate trading of securities. Click Here for our lesson on What is a Brokerage?

Broker A custodial agent that acts as a go-between for parties who wish to make a transaction. For stock market investing, a broker is the person who acts as the go-between from an individual investor and the stock exchanges themselves.

Breakout A term in technical analysis where a security’s price exists some established support and resistance lines. Breakouts can be positive (meaning the price starts increasing) or negative. A primary goal of technical analysis is to identify when breakouts are likely to happen, and whether they will be positive or negative.

Break Even The price point where an investor is neither earning a profit nor loss.

Branding The marketing exercise of a company to establish a recognizable presence between themselves and their end customers. Branding helps differentiate companies from their competition.

Bottom Line The last line of an income statement, showing a company’s net profit or loss for the time period covered by this financial statement, typically quarterly or yearly.

Bond Expiration The date at which a bond expires, and the company or government who issued the bonds must pay back the original amount borrowed, typically $1000 per bond. Click Here for our lesson on Bonds

Bonds A type of loan where a bank, company, or government sells its debt to individual investors in exchange for regular interest payments. Bonds are typically denominated in $1000, and pay interest monthly, annually, quarterly, or semi-annually. At the expiration of the bond, the original loan amount is also paid back. Click Here for our Read More…

Blue Sky Laws State-level laws in the United States regulating the securities industry. In particular, Blue-Sky laws emphasize transparency from companies that seek public investments in order to prevent fraud.

Blue Chip An extremely large and stable publicly traded corporation with a reputation for reliability. These are typically the largest companies in a country.

Black-Scholes Model An options pricing model based on underlying factors, such as the option’s price, time until expiration, and volatility. While an option’s actual trading price is determined by bid and ask prices of investors, this model is used to identify what the “fair” price of an option theoretically should be. Click Here for the Read More…

Black Thursday October 24, 1929. This was the day when the Great Depression is largely considered to have begun, when the stock markets entered a panic with investors entering a period of heavy selling.

Bills Payable statements sent to an individual or business for goods or services that have been rendered. Bills have a due date, the latest date at which the bill can be paid in order to remain in good standing with this vendor.

Billionaire A person with a net worth of more than one billion dollars.

Bid Price The highest price a potential buyer of a good, service, or security would be willing to pay. Related Lessons

Better Business Bureau A consumer protection non-profit organization that maintains ratings of businesses based on their own reviews and customer feedback. The BBB tries to help consumers be aware of the reputation of a business.

Benefits Additional compensation from a job beyond base salary or wages. This can include health insurance, vacation time, flexible working hours, and other perks. Related Lessons

Beneficiary In life insurance, the person who receives the insurance payment if the insured person dies.

Beat The Market To achieve returns on investment greater than some other standard benchmark, usually compared to the S&P 500.

Bear Market A period of general market uncertainty, usually accompanying declining stock prices or pessimism. Related Lessons

Barrier Of Entry Any factor that may prevent a new competitor from entering a market. It could be natural barriers, like a required technology or skill that is hard for competitors to get, or artificial, like a legal protection of a monopoly. Click Here for our lesson on What is Competition?

Bankrupt To be unable to pay one’s debt and seek legal protection and discharge of one’s debts. This usually involves a partial repayment plan and a custodian that sells off assets to pay off as much of your debt as possible. Click Here for our lesson on Bankruptcy

Banker’s Acceptance A contract with a bank where you can make a deposit (plus fees) that can be withdrawn later by you or whoever you transfer the contract to. This is frequently used as a go-between for making a transaction where one party does not know the credit worthiness of the other party, so the Read More…

Bank Statements Documents issued from banks to their account holders. These typically include a list of transactions made on an account, starting and ending balance, and any interest earned. Related Lessons

Bank Deposits The total amount of money deposited at a bank by its customers. This is the amount of money available for the bank to lend. Click Here for our lesson on Banks, Credit Unions, and Savings and Loans

Bank Accounts An account at a bank or other financial institution where a customer or business deposits money for safekeeping, to earn interest, or to facilitate other financial transactions. Click Here for our lesson on Banks, Credit Unions, and Savings and Loans

Bank A financial institution that issues savings and checking accounts and earns a profit by issuing loans that charge interest. Other types of banks focus solely on investing. Click Here for our lesson on Banks, Credit Unions, and Savings and Loans

Balloon Payments When a loan is heavily backloaded, with small payments in the beginning of the term but a very large payment at the end of the loan term. Click Here for our lesson on Mortgages

Balanced Budget A budget that exactly balances incoming revenues and outgoing expenses. Related Lessons

Balance Transfer The act of transferring the outstanding balance of one credit card to another credit card, usually with a lower interest rate or some other incentive to lower the total amount owed. Related Lessons