Explainers · Dictionary
The business & money dictionary.
Business news runs on jargon, and jargon is where confusion likes to hide. Here are the 60 terms the headlines lean on — from 401(k) to venture capital — defined plainly, definitions only, no advice. Part of our growing Explainers library.
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- 401(k)
- A workplace retirement account, named after a line in the US tax code. You set aside part of each paycheck, often with an employer match, and the money grows over the years until you retire. Contribution limits and withdrawal rules are set by the IRS and change over time.
A
- Amortization
- Paying off a debt in equal, scheduled installments, where each payment covers a little interest and a little principal. Early on, most of a mortgage or car payment is interest; near the end, it is almost all principal. The word also describes spreading the cost of an intangible asset across its useful life.
- APR
- Annual percentage rate — the yearly cost of borrowing, stated as a percentage that folds in the interest rate plus certain fees, so it is usually a truer price tag than the headline rate alone. The higher the APR, the more a loan or a carried credit-card balance costs you.
- Asset
- Anything you own that has value — cash, a house, a share of a company, a bond. The opposite of a liability, which is something you owe.
B
- Balance sheet
- A snapshot of what a company owns and owes on a given day: assets on one side, liabilities and shareholder equity on the other. The two sides always balance — hence the name — and together they show whether a business stands on solid financial ground.
- Bankruptcy
- A legal process for people or companies that can no longer pay their debts. Depending on the type, it either wipes the slate and starts fresh or reorganizes the debts under court supervision while the business keeps operating. A financial reset with lasting consequences, not a free pass.
- Basis point
- One hundredth of a percentage point — so 25 basis points is 0.25%. Finance uses it to avoid confusion: saying a rate rose "by 50 basis points" is clearer than "half a percent of a percent." You will hear it most around interest-rate decisions.
- Bear market
- A stretch when prices fall broadly, usually defined as a drop of twenty percent or more from a recent peak. Named for the way a bear swipes downward. Its cheerier opposite is a bull market.
- Bond
- An IOU. You lend money to a government or company for a set period, and they pay you interest, then return the principal at the end. Generally steadier than stocks, and generally lower reward for it.
- Broker
- A middleman that carries out your buy and sell orders in a market, since individuals cannot trade directly on an exchange. Today most stock brokers are apps or websites, and many charge no commission — they earn money in quieter ways, like interest on idle cash and how they route orders.
- Bull market
- A stretch when prices rise broadly and optimism runs high. Named for the way a bull tosses its horns upward. Bull markets last longer than bear markets, on average, which is easy to forget mid-panic.
C
- Capital gains
- The profit you make when you sell something — a stock, a house, a business — for more than you paid. It only counts once you actually sell ("realize" it); until then it is a paper gain. In many places, realized gains are taxed, sometimes at a different rate than ordinary income.
- Cash flow
- The actual money moving in and out of a business over a period. A company can look profitable on paper yet run short on cash if customers pay slowly or it is spending to grow — which is why cash flow, not just profit, decides whether the lights stay on.
- Commodity
- A raw, interchangeable good that is much the same no matter who produces it — oil, gold, wheat, natural gas, copper. Because one barrel of a given crude is like another, commodities trade mostly on price, set by global supply and demand.
- Compound interest
- Interest that earns interest. Your gains get added to the pile, and next period's growth is calculated on the bigger pile. Given enough time, it turns small, steady amounts into surprisingly large ones — the closest thing personal finance has to magic.
- Consumer Price Index (CPI)
- The most-watched gauge of inflation. It tracks the price of a fixed "basket" of everyday goods and services — groceries, rent, gas, haircuts — and reports how much that basket costs over time. When CPI climbs quickly, so does the cost of living.
- Correction
- A decline of about ten percent from a recent high — smaller and more common than a bear market. Corrections are a normal feature of markets, not a malfunction, however dramatic the word sounds.
- Credit score
- A three-digit number that sums up how reliably you have handled borrowed money. Lenders use it to decide whether to offer a loan or card, and at what rate. Higher is better; it is built mostly from paying on time and not using too much of your available credit.
- Cryptocurrency
- Digital money that lives on a decentralized network rather than at a bank, with ownership tracked on a shared ledger called a blockchain. Bitcoin was the first; thousands followed. Prices can swing hard, and unlike a bank deposit it is not government-insured.
D
- Deflation
- The opposite of inflation — prices falling across the economy over time. It sounds pleasant, but a sustained bout can be dangerous: if people expect things to get cheaper, they put off spending, which slows the economy further. Central banks work hard to avoid it.
- Diversification
- Spreading money across many different investments so no single one can sink you — the financial version of not putting all your eggs in one basket. It does not remove risk, but it smooths the ride by making sure your fortunes do not ride on one bet.
- Dividend
- A slice of a company's profits paid out to shareholders, usually in cash and usually every quarter. Not every company pays one; younger, fast-growing firms often reinvest the money instead.
E
- Earnings
- A company's profit over a period — what is left after all the costs. Public companies report earnings every quarter, and markets often move less on the number itself than on whether it beat or missed what everyone expected.
- Emergency fund
- A stash of cash set aside for life’s surprises — a job loss, a medical bill, a car repair — kept somewhere safe and easy to reach. It is the buffer that keeps an unexpected expense from turning into debt.
- Equity
- Ownership. In a company it is the slice that belongs to shareholders after debts are subtracted; in a house it is the part you actually own versus what the bank still holds. In short: whatever is left over that is truly yours.
- ETF
- An exchange-traded fund — a single, tradable basket that holds many investments at once (say, hundreds of stocks). Buy one share and you own a sliver of everything inside, which is why ETFs are a popular way to spread money around cheaply.
F
- Federal Reserve (the Fed)
- The central bank of the United States. Its main job is keeping prices stable and employment healthy, mostly by raising or lowering the cost of borrowing. When headlines say the Fed 'hiked' or 'cut', that's the lever they mean.
- Fiscal policy
- How a government uses spending and taxes to steer the economy — cutting taxes or boosting spending to speed things up, doing the reverse to cool them off. It is the government’s economic lever, separate from the central bank’s control of interest rates (monetary policy).
G
- GDP
- Gross domestic product — the total value of everything a country produces in a period. The broadest single scoreboard for how an economy is doing. Growing GDP is good; shrinking GDP for long enough is one sign of a recession.
H
- Hedge fund
- A private investment firm that pools money from wealthy investors and institutions and invests it using a wide range of strategies, often with more freedom — and more risk — than an ordinary fund. Despite the name, hedging is not required; the label is looser than it sounds.
I
- Index
- A scoreboard that tracks a group of investments as one number, like the S&P 500 for large US companies. When people say 'the market' went up or down, they usually mean an index did.
- Index fund
- A fund built to mirror an index like the S&P 500, simply holding what the index holds instead of trying to beat it. Because there is little for a manager to do, fees tend to be low — a big reason index funds became a default way many people invest.
- Inflation
- The rate at which prices rise over time, which means each dollar buys a little less than it used to. A small, steady amount is normal and even healthy; a lot, too fast, is what makes life feel expensive. How it gets measured
- Interest rate
- The price of borrowing money, quoted as a percentage. Higher rates make loans and mortgages costlier and cool the economy; lower rates do the opposite. Central banks nudge them to steer growth and inflation.
- IPO
- An initial public offering — the first time a private company sells shares to the general public. It raises cash for the company and lets early owners cash out, in exchange for far more scrutiny and a stock price that reacts to everything.
L
- Leverage
- Using borrowed money to amplify an investment or a business. It magnifies gains when things go well and losses when they do not, which is why leverage is called a double-edged sword. More debt means bigger swings in both directions.
- Liability
- Something you owe — a loan, a mortgage, an unpaid bill. It is the mirror image of an asset, and your net worth is simply your assets minus your liabilities.
- Liquidity
- How easily something can be turned into cash without moving its price. Cash is perfectly liquid; a house is not. In markets, liquid assets are easy to buy or sell quickly at a fair price.
M
- Market capitalization
- A company's total value on the stock market — share price times the number of shares. It is the quickest way to compare company sizes, and the reason a firm can be 'huge' by market cap while selling something you have never heard of.
- Mergers & acquisitions (M&A)
- The buying, selling, and combining of companies. A merger blends two firms into one; an acquisition is one company buying another. Either way, the goal is usually to grow faster, cut costs, or grab something the buyer could not build on its own.
- Monetary policy
- How a central bank, like the Federal Reserve, manages the economy by steering the cost and supply of money — mainly by raising or lowering interest rates. Loosening encourages borrowing and growth; tightening cools an overheating economy or fights inflation.
- Mutual fund
- A pool of money from many investors, run by a manager who buys a mix of stocks, bonds, or both. Buy a share and you own a slice of the whole basket. The older cousin of the ETF, it typically trades once a day, after the market closes.
N
- Net worth
- What you would have left if you sold everything you own and paid off everything you owe — assets minus liabilities. It is the single clearest snapshot of financial standing, for a person or a household, and the number most worth watching over time.
P
- P/E ratio
- Price-to-earnings — a company’s share price divided by its earnings per share, a quick gauge of how much investors will pay for each dollar of profit. A high P/E signals big growth expectations (or hype); a low one, caution or a bargain. Most useful when comparing similar companies.
- Portfolio
- The full collection of investments a person or institution holds — stocks, bonds, funds, cash, and more, taken together. How a portfolio is mixed matters more to its ups and downs than any single holding inside it.
- Principal
- The original chunk of money in play, before interest — the amount you borrow on a loan, or the amount you first invest or deposit. Interest is always calculated on top of the principal.
- Private equity
- Firms that buy whole companies (or big stakes in them) that are not traded on a public stock market, work to make them more valuable, and sell them later for a profit. Unlike hedge funds, they usually take control and hold for years, not days.
R
- Recession
- A meaningful, widespread decline in economic activity that lasts more than a few months — falling output, rising unemployment, weaker spending. Recessions are a normal part of the economic cycle, even though each one feels unprecedented.
- Recurring revenue
- Income a business can count on arriving again and again — subscriptions, memberships, service contracts — rather than one-off sales. Predictable and sticky, it is why so many companies want you on a monthly plan instead of a single purchase.
- Revenue
- The total money a company takes in from selling its products or services, before any costs are subtracted — the "top line" of its income statement. Big revenue is not the same as profit; a company can sell a lot and still lose money once expenses are counted.
- Roth IRA
- A personal retirement account you fund with money you have already paid tax on, so qualified withdrawals in retirement come out tax-free. Its counterpart, the traditional IRA, flips the timing — a tax break now, tax paid later. Limits and rules are set by the IRS.
S
- Short selling
- Betting that a price will fall. A trader borrows shares, sells them, and hopes to buy them back cheaper later, pocketing the difference. If the price rises instead, the losses can pile up fast — one of the few bets where the downside has no natural ceiling.
- Stock
- A share of ownership in a company. Own one and you own a tiny piece of the business, entitled to a sliver of its future profits and value. Prices rise and fall with what buyers and sellers think that slice is worth.
- Supply and demand
- The basic engine of prices. When lots of people want something scarce, the price rises; when there is a glut and few buyers, it falls. Nearly every price — of a stock, a house, a barrel of oil — is this tug-of-war reaching a temporary truce.
T
- Tariff
- A tax on imported goods, paid by the company bringing them into the country and often passed along in the final price. Governments use tariffs to protect home industries or apply pressure abroad; the trade-off is usually higher costs for buyers.
U
- Unemployment rate
- The share of people who want a job and are actively looking but do not have one. It is a headline measure of economic health — rising unemployment signals a weakening economy, while a very low rate can hint at one running hot.
V
- Valuation
- An estimate of what a company or asset is worth. For public companies the market sets it minute by minute; for private ones it is negotiated, often when investors put money in. A "$10 billion valuation" is a claim about worth, not cash sitting in a vault.
- Venture capital
- Money invested in young, high-risk companies with room to grow fast, in exchange for a slice of ownership. Most bets fail; the rare winners are meant to pay for all of them and then some. It is the fuel behind most of the startups you have heard of.
- Volatility
- How much and how fast a price swings around. High volatility means big, jumpy moves in both directions; low volatility means a calmer ride. It measures turbulence, not direction — a market can be volatile on the way up.
Y
- Yield
- The income an investment pays, expressed as a percentage of its price — the interest on a bond or the dividend on a stock. A higher yield means more income per dollar invested, though sometimes for a reason worth checking.
Now watch the jargon disappear.
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