| A | B |
|---|
| 401K | defined contribution retirement account that is taken out of your paycheck before you pay any taxes on this income. You don’t pay any taxes on this money until you start withdrawing money. As an employee, you control how much you contribute, as well as how this money is invested. Often times, an employer may contribute money to the account as well |
| Certificate of Deposit (CD) | an account that pays interest on a sum of money that a person has deposited. Usually, the person has to leave the money in the cd for a certain length of time before they can withdraw the principal and interest. If they withdraw it before that time, they often have to pay a penalty to the bank |
| Compound Interest (Savings) | interest paid periodically and paid on the principal plus interest earned |
| Defined Benefit Plan | a type of pension plan in which an employer guarantees that they will pay an employee a certain amount of money upon retirement. The amount is predetermined using a formula that accounts for things such as the employee’s earning history, number of years they worked, and their age |
| Defined Contribution Plan | a retirement plan in which the employee and/or employer set aside money into an account for the employee. This account is normally a percentage or fixed amount per pay period |
| Interest (Savings) | money paid to you by a financial institution when you deposit funds there |
| Investing | act of purchasing assets (stocks, bonds, property) with expectation that they will increase in value over time |
| IRA (Individual Retirement Account) | retirement account that allows investors to make tax-deductible contributions. Individuals are responsible for setting up and managing the account |
| Liquidity | refers to the speed with which an asset can be sold without hurting its value. Cash is the most liquid asset because you can exchange it immediately with no change in its value. Other assets may have a lower liquidity because you have to pay fees or penalties or you may have to wait until you can sell them because it takes time to find a buyer |
| Money Market Account | a type of bank account where the bank invests the money in government and corporate securities in order to pay a higher interest rate than a regular savings account. You typically have to have a large minimum balance in order to have such an account |
| Pension | a sum of money paid to employee upon retirement based on certain conditions of the organization’s retirement plan |
| Return (Rate of Return) | earnings you receive from an investment, expressed as a percentage of the investment |
| Risk | refers to the likelihood that an investment will decrease in value. A high risk investment is one that usually has a higher possible rate of return, but also a higher possibility that it will lose money over time |
| Roth IRA | retirement account that allows individuals to contribute their retirement. The individual sets up and manages the account. They pay taxes on the money when they contribute it, unlike with a traditional IRA. Account holders are not taxed when they begin drawing money, again unlike with a traditional IRA |
| Saving | a portion of your income that you do not spend on your current needs, but instead set aside for future needs. For example, money put into savings accounts |
| Savings Account | an account you set up at a depository institution where you put funds for future use |
| Time Value of Money | the amount of money one would need to receive today to equal a certain sum in the future. For example, a lottery winner who wins $1 million has a choice of (1) receiving a certain amount of money every year until the total is $1 million or (2) receiving a sum today (present value), which when invested at current interest rates would yield $ 1 million (future value) over the same period of time |
