20 Commonly Misunderstood Financial Terms You Must Know

Think about the first time you rode a bike: Was it scary at first? Didn’t you start pedaling, feel the wind on your face, and wonder why you were ever afraid?

Learning how to manage your money is no different, and it starts with building your financial vocabulary.

Learning financial terminology can feel intimidating, but many of these terms are easy to grasp once they’re properly explained. And the more of them you understand, the better you’ll be at making wise money decisions.

Read through these 20 commonly misunderstood terms to boost your financial word bank today.

Here are 4 strategies the 1% use to deal with inflation.

Fee-only financial adviser

A fee-only financial adviser helps you manage your money without receiving any commissions from the products or solutions they offer you. Instead, you’ll pay them directly via a flat fee, an hourly rate, a monthly retainer, or a percentage of assets under management (AUM).

Asset allocation

Asset allocation refers to how you divide money across different kinds of investments. What percentage do you have in stocks? What proportion of your portfolio is devoted to bonds? How diverse is your portfolio as a whole? All of that information is your asset allocation.

Compound interest

Compound interest is interest that accumulates over time, based on your total account balance, both principal and interest. This can either work for you or against you.

When it comes to saving and investing, compound interest is your best friend. This interest grows on both your original principal and the past interest you have earned on that principal. When it comes to borrowing, however, compound interest can increase the amount you owe at a rapid rate.

Rebalancing

Rebalancing involves making changes to your asset allocation by buying and selling in a way that shifts money to specific types of investments. If you have set a target asset allocation — such as 60% stocks and 40% bonds — you will continually rebalance to make sure you remain invested according to that original…

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