Lexicon

Personal finance is a term that covers managing your money and saving and investing. It encompasses budgeting, banking, insurance, mortgages, investments, retirement planning, and tax and estate planning. It often refers to the entire industry that provides financial services to individuals and households and advises them about financial and investment opportunities.

The rate of interest that major banks charge their most credit- worthy corporate customers. Why should you care? Well, because the inter- est rates on various loans you may be interested in are often based on the prime rate. And, guess what — you pay a higher interest rate than those big corporations!

Quantitative easing is an unconventional monetary policy in which a central bank purchases government securities or other securities from the market in order to increase the money supply and encourage lending and investment. When short-term interest rates are at or approaching zero, normal open market operations, which target interest rates, are no longer effective, so instead a central bank can target specified amounts of assets to purchase. Quantitative easing increases the money supply by purchasing assets with newly created bank reserves in order to provide banks with more liquidity.

Real estate is property made up of land and the buildings on it, as well as the natural resources of the land including uncultivated flora and fauna, farmed crops and livestock, water, and any additional mineral deposits.

Real estate investment trusts are like a mutual fund of real estate investments. Such trusts invest in a collection of properties (from shopping centers to apartment buildings). REITs trade on the major stock exchanges. If you want to invest in real estate while avoiding the hassles inherent in owning property, real estate investment trusts may be the right choice for you.

Refinance is taking out a new mortgage loan (usually at a lower interest rate) to pay off an existing mortgage (generally at a higher interest rate). Refinancing is not automatic, nor is it guaranteed. Refinancing can also be a hassle and expensive. Weigh the costs and benefits of refinancing carefully before proceeding.

Return on assets (ROA) is an indicator of how profitable a company is relative to its total assets. ROA gives a manager, investor, or analyst an idea as to how efficient a company's management is at using its assets to generate earnings. Return on assets is displayed as a percentage.

Return on equity (ROE) is a measure of financial performance calculated by dividing net income by shareholders' equity. Because shareholders' equity is equal to a company’s assets minus its debt, ROE could be thought of as the return on net assets.

ROE is considered a measure of how effectively management is using a company’s assets to create profits.

The percentage of profit you make on an investment. If you put $1,000 into an investment and then one year later it’s worth $1,100, you make a profit of $100. Your return on investment is the profit ($100) divided by the initial investment ($1,000) — in this case, 10 percent.

The return on investment formula is as follows:

ROI = Current Value of Investment - Cost of Investment / Cost if Investment

Russell 2000 Index is a small-cap stock market index of the bottom 2,000 stocks in the Russell 3000 Index. It was started by the Frank Russell Company in 1984. The index is maintained by FTSE Russell, a subsidiary of the London Stock Exchange Group.

The Russell 2000 is by far the most common benchmark for mutual funds that identify themselves as "small-cap", while the S&P 500 index is used primarily for large capitalization stocks. It is the most widely quoted measure of the overall performance of the small-cap to mid-cap company shares. The index represents approximately 8% of the total market capitalization of the Russell 3000 Index.

S&P 500, or just the S&P, is a stock market index that measures the stock performance of 500 large companies listed on stock exchanges in the United States. It is one of the most commonly followed equity indices, and many consider it to be one of the best representations of the U.S. stock market. The average annual total return of the index, including dividends, since inception in 1926 has been 9.8%; however, there were several years where the index declined over 30%. The index has posted annual increases 70% of the time.

The secondary market is where investors buy and sell securities they already own. It is what most people typically think of as the "stock market," though stocks are also sold on the primary market when they are first issued. The national exchanges, such as the New York Stock Exchange (NYSE) and the NASDAQ, are secondary markets.

A shareholder, also referred to as a stockholder, is a person, company, or institution that owns at least one share of a company’s stock, which is known as equity. Because shareholders are essentially owners in a company, they reap the benefits of a business’ success. These rewards come in the form of increased stock valuations, or as financial profits distributed as dividends. Conversely, when a company loses money, the share price invariably drops, which can cause shareholders to lose money, or suffer declines in their portfolios’ values.

If you’re retired or disabled, Social Security is a government safety net that can provide you with some income. The program is based on the idea that government is responsible for the social welfare of its citizens. Whether you agree with this notion or not, part of your paycheck goes to Social Security, and when you retire, you receive money from the program.

Sovereign default is a failure in the repayment of a county's government debts. Countries are often hesitant to default on their debts, since doing so will make borrowing funds in the future difficult and expensive. However, sovereign countries are not subject to normal bankruptcy laws and have the potential to escape responsibility for debts without legal consequences.