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Finally Decipher Common Financial Jargon: 12 Financial Terms You Need to Know
Admin • July 7, 2023
Are there financial terms you’ve heard so often that you think you understand them but would have a hard time defining? As we navigate financial waters, we often find that we have opportunities to grow our understanding of common financial terms.
While you certainly don’t need to get a finance degree to be successful in your personal finances, you can become well-versed in common terms so you can make informed and educated decisions.
Whether you want to brush up on common financial jargon for yourself, or want to share these with a young adult starting their financial journey, we hope you’ll find value in this easy to understand definitions.
Top 4 Financial Buzzwords in 2023
Since the COVID-19 pandemic, there have been many financial buzzwords flying around in the news. And while you may have a vague understanding of what’s happening, it’s best to clearly understand these financial terms so you can confidently navigate the economy.
- Shrinkflation . This refers to downsizing the amount of product in a particular package (such as a bag of chips) while the price remains the same. Companies know that savvy consumers will notice if the price of an item increases. But consumers may be less likely to notice a smaller amount of the product. This strategy is a response to the rising prices of goods. As a consumer, you can try a different, less expensive brand, compare products per ounce instead of per package, and try shopping at different stores.
- The Fed. Interest rates have starkly risen this year, and we often hear it’s “the Fed” who’s raising them. The Federal Reserve System is our country’s central bank. They are responsible for creating the United State’s monetary policy, regulating banks, operating the country’s payment systems, and maintaining the stability of our financial systems. To combat inflation and avoid a recession, the Fed has consistently risen interest rates ( 10 times since March 2022 ). This makes it more expensive to borrow money, but more financially beneficial to save money in an interest-bearing account.
- Risk Assessment. The market volatility in the past couple of years has left many consumers concerned about their finances, leading many to reach out to financial advisors for a comprehensive risk assessment. Financial advisors can help determine your level of risk (more on that below!), asset allocations, investment diversification, and risk management strategies.
- Recession. This word has definitely been thrown around this year and last. An official recession is typically declared after the economy is already in one, thus making it hard to predict. Recessions are marked by significantly prolonged periods of decreasing economic activity. Officially speaking, two consecutive quarters of negative gross domestic product. Recessions are typically marked by a decrease in the stock market, high unemployment rates, low consumer confidence, and general fear and apprehension. A great antidote for the uncertainty that can accompany a recession (or talks of a recession) is having a solid financial plan in place with an advisor you trust.
Credit and Loan Terminology
Loans can be a powerful provision for both individuals and businesses. Mortgages often help families buy a home, auto loans help people secure their transportation, credit cards offer flexibility and convenience, and business loans help entrepreneurs start and grow their businesses.
Unfortunately, however, the terminology surrounding credit and loans can make them feel intimidating and overwhelming. Familiarize yourself with these terms so you can be confident and empowered the next time you need to apply for a loan or chat with your credit card company.
- Annual Percentage Rate. This is simply the total annual cost of your loan (including any accompanying fees!) . This comprehensive number allows you to easily shop around for the best price and understand exactly what your annual cost will be. Coupled with the loan’s interest rate, the APR is a powerful piece of data to help you understand the total cost of your borrowed funds.
- Amortization . This is the process of repaying your loan over a period of time. An amortization schedule shows exactly how much of your payment is going toward interest, and how much is going toward the principal. There are handy amortization calculators you can use to show you the total cost of your loan, and even how making extra payments impacts your total cost throughout the loan.
- Secured vs Unsecured loans . There are different requirements for obtaining different types of credit and loans, and a large part of that depends on the type of loan. Secured loans are backed by collateral such as your home, car, or even a cash deposit. These can include personal loans, credit cards, mortgages, home equity loans, auto loans, and business loans. Secured loans typically offer lower interest rates than unsecured loans and have longer repayment terms. Unsecured loans are not backed by collateral and instead are established based on the borrower’s creditworthiness (e.g. income, credit history, and debt-to-income ratio). These can include student loans, credit cards, signature loans, personal loans, and business loans. These types of loans typically have higher interest rates and shorter repayment terms.
- Credit utilization ratio . This ratio, displayed as a percentage, refers to the amount of credit you have available to you versus the amount you actually utilize. For example, if you have a total of $50,000 in credit card limits spread amongst your credit cards, but only use $10,000 of it, your credit utilization ratio would be 20%. A lower credit utilization ratio shows that you can handle having access to a lot of credit while only utilizing a small portion. On the other hand, a high credit utilization ratio shows that you use most or all of the credit available to you (something lenders don’t like to see). Your credit utilization is periodically reported to the major credit bureaus, so it’s important to pay attention and keep your ratio as low as possible.
Investing Terminology
Investing can be an effective tool in personal finance to grow and preserve your wealth. To make wise and prudent investment decisions, you should understand these common investing terms.
- Dollar-cost averaging. This investment strategy involves regularly investing a fixed dollar amount regardless of how much the asset costs or how the markets are performing. It’s a popular strategy for long-term investments and promotes discipline and eliminates the need to continually think about your investment choices. For example, you invest $600 every month into a chosen fund, regardless of how many shares it buys you. In some months, your $600 will buy a lot of shares, and in other months, it might buy you very few. The idea of dollar-cost averaging is that over a long period, your fund purchase prices will even out. Think of it as the opposite of “timing the market”.
- Capital gains. This is the difference between what you bought an asset (real estate, stocks, cryptocurrency, etc.) for and how much you sell it for. Short-term capital gains are when you held the asset for less than a year before selling and long-term capital gains are when you held an asset for more than a year before selling. Most capital gains are subject to taxation. The amount of tax depends on the asset, the holding period (short-term versus long-term), and your tax bracket. A tax professional can help you determine your capital gains tax rate.
- Risk tolerance. All investing carries a certain level of risk and everyone has their own level of risk tolerance. Your financial ability, your mental willingness, and your time horizon (how long you plan on holding your investment) all play into your risk tolerance. A well-balanced, personalized investment plan can help you feel comfortable with the amount of risk you’re taking with your money.
- Rebalancing. When you and an advisor put together your investment strategy, you will allocate your portfolio to reflect your risk tolerance and desired returns. As the market changes, the value of your assets will increase or decrease, causing your desired allocation to become unbalanced. Periodically rebalancing your portfolio to your original allocations will help you maintain your original investment preferences.
Decipher Your Finances with Five Pine Wealth Management
At Five Pine Wealth Management , we love educating our clients so that they can feel empowered in their finances. We know that not everyone has a finance degree but that doesn’t mean you can’t know what’s going on with your portfolio.
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Your 40s arrive with a unique mix of clarity and urgency. You've likely figured out what you want from life, but suddenly retirement no longer feels like a distant concept. If you're looking at your financial situation and feeling behind, you're not alone. Many people in their 40s experience this same wake-up call. The good news is that this decade offers some of the most powerful opportunities to accelerate your wealth-building journey. Think of your 40s as your financial prime time. You're earning more than you ever have, you understand money better than in your 20s and 30s, and you still have 20-25 years to let compound growth work its magic. Instead of dwelling on what you should have done differently, let's focus on what you can do right now to make this decade count. The Reality Check: Where You Stand vs. Where You Want to Be Before exploring strategies, let's acknowledge the elephant in the room. Many financial experts recommend saving three times your annual salary by age 40. If you're reading this and thinking, "I'm nowhere near that," take a deep breath. Life happens. Maybe you started your career later, switched fields, dealt with medical expenses, helped family members, or simply prioritized other goals during your 30s. The key is to start from where you are today, not where you think you should be. Your 40s bring unique advantages: higher earning potential, greater financial discipline, and often more stable life circumstances. Many successful investors didn't hit their stride until their 40s or later. You're not behind; you're just getting started on a more intentional path. Retirement Savings Strategies That Work in Your 40s Your retirement savings strategy in your 40s should differ from someone in their 20s or 30s. You have less time but more resources, which means you need to be both aggressive and smart about your approach. First, maximize your employer's 401(k) match if you haven't already. This is free money, and missing out on it is like leaving cash on the table. Additionally, consider increasing your contribution rate by 1-2% each year, or whenever you receive a raise. This gradual approach makes the adjustment less painful while significantly boosting your long-term savings. Roth conversions become particularly powerful in your 40s. If you expect to be in a higher tax bracket in retirement or if you want to leave tax-free money to heirs, converting some traditional IRA or 401(k) funds to Roth accounts can be a smart move. The key is to do this strategically, perhaps in years when your income is temporarily lower or when you can manage the tax impact. Don't overlook the power of diversification beyond your 401(k). A taxable investment account gives you flexibility and access to your money before age 59½ without penalties. This can be crucial for achieving early retirement goals or covering major expenses that may arise before the traditional retirement age. Catch-Up Retirement Contributions: Start the Habit Now Once you reach 50, you can make catch-up contributions to your retirement accounts, which significantly increases your savings potential. For 2025, this means an additional $7,500 in 401(k) contributions (bringing your total to $31,000). However, you don't have to wait until 50 to think like someone making catch-up contributions. Start now by treating your savings rate as if you're already eligible for these higher limits. If you can save an extra $600 per month ($7,200 annually) starting at 45, you'll have built the habit by the time you're actually eligible for catch-up contributions. Retirement Milestones by Age 40: A New Perspective Traditional retirement milestones can be discouraging if you're starting later or if life hasn’t gone as planned. Instead of focusing on arbitrary multiples of your salary, consider these more practical benchmarks for your 40s: The Emergency Fund Foundation : Before aggressively pursuing retirement savings, ensure you have a solid emergency fund in place. This prevents you from having to tap retirement accounts during tough times. Aim for 3-6 months of expenses, adjusted for your specific situation. The Debt Freedom Focus : High-interest debt can quickly derail retirement plans. If you're carrying credit card debt or other high-interest obligations, addressing these might be more valuable than maximizing retirement contributions beyond your employer match. The Income Replacement Goal : Rather than focusing on net worth multiples, think about what percentage of your current income you're on track to replace in retirement. A good target is 70-80% of your pre-retirement income, but this depends on your lifestyle and retirement plans. The Flexibility Buffer : Your 40s are a great time to build financial flexibility. This means having investments outside of retirement accounts that you can access without penalties, creating multiple income streams, and maintaining career skills that keep you marketable. Insurance: Life and disability insurance coverage should reflect your current income and family needs. Estate Planning : A basic will, power of attorney, and healthcare directive should be in place. Making Your Peak Earning Years Count Your 40s often represent your peak earning years, and how you manage this increased income will significantly impact your financial future. The temptation to inflate your lifestyle with every raise is real, but this decade calls for more strategic thinking. Consider implementing a "pay yourself first" approach where you immediately redirect any income increases to savings and investments. If you get a $5,000 raise, automatically increase your 401(k) contribution by $3,000 and your taxable investment account by $2,000. You'll barely notice the difference in your take-home pay, but you will thank yourself in the future. This is also the time to think seriously about additional income streams. Whether it's consulting in your field, starting a side business, or investing in rental real estate, diversifying your income sources provides security and potential for acceleration. Building Wealth Beyond Retirement Accounts While retirement accounts are crucial, they shouldn't be your only wealth-building tool. Your 40s are an excellent time to diversify your investment approach and build wealth that's accessible before traditional retirement age. Consider opening a taxable investment account if you haven't already done so. This provides flexibility and liquidity while still offering growth potential. Focus on tax-efficient investments, such as index funds, and consider holding dividend-paying stocks or REITs for their income potential. Real estate can be particularly powerful in your 40s. Whether it's paying off your primary residence early, investing in rental properties, or exploring REITs, real estate adds diversification and potential inflation protection to your portfolio. Don’t Forget the “You” Factor We’d be remiss not to mention this: life in your 40s is busy. You might be managing aging parents, teenagers, or a toddler (or all three). You may be helping your partner through a career change or navigating one yourself. It’s a lot. Which is precisely why intentional financial planning matters now more than ever. You don’t need to do it perfectly. You just need a plan that’s rooted in your real life — your values, your vision, and your goals. A good financial advisor can help you prioritize, simplify, and clarify the next best steps, even if you feel like you’ve fallen behind. Ready to Create Your Personal Financial Strategy? Feeling overwhelmed by all the options and strategies available? You don't have to navigate this journey alone. At Five Pine Wealth Management , we specialize in helping individuals and families in their 40s and beyond create comprehensive financial plans that align with their goals and circumstances. Whether you're looking to maximize your retirement savings, explore catch-up strategies, or build a diversified investment portfolio, our team can help you develop a personalized approach tailored to your situation. We work with clients at various stages of their financial journey, from those just getting serious about retirement planning to those with substantial assets seeking to optimize their strategies. Don't let another year pass wondering if you're on the right track. Schedule a conversation with our team to discuss your financial goals and explore how we can help you make the most of your financial prime time.
When markets are calm, investing can feel easy. You contribute regularly, watch your portfolio grow, and start picturing that future vacation home or early retirement. But when markets get volatile, everything changes. Suddenly, headlines are full of dire warnings. Account balances fluctuate. And the urge to do something can feel overwhelming. At Five Pine Wealth Management , we understand how emotional investing can become during periods of market uncertainty. One of the most important things we do as fiduciary financial planners is to help our clients stay grounded when the market gets choppy. Let’s walk you through how we approach investment risk management and why having a clear, disciplined philosophy matters most when volatility strikes. Our Philosophy: Think Long-Term, Not Next Week When markets are moving fast, it is easy to think that the “best long-term investment strategy” must involve taking action to avoid losses or chase gains. The reality is usually the opposite. Reacting to market noise can often do more harm than good. In fact, one of the greatest risks to long-term returns is making emotional decisions in response to short-term events. We coach our clients to stay focused on their long-term financial plans and goals. Volatility is a feature of markets, not a flaw. By designing portfolios with realistic expectations for ups and downs, we help clients stay invested through all market environments. Here is what this looks like in practice: We use broadly diversified portfolios built around low-cost ETFs. We focus on asset allocation aligned with your time horizon, goals, and risk tolerance. We do not chase trends or attempt to time the market. We regularly review and rebalance portfolios based on your financial plan, not headlines. In short, your portfolio is designed to ride out volatility, not avoid it entirely. Fiduciary Financial Planning: Advice in Your Best Interest There is a great deal of noise in the financial world, particularly during turbulent market conditions. One of the most significant ways we help cut through it is by being fiduciary financial planners. That means we are legally and ethically obligated to act in your best interest at all times. We are also fee-only advisors. We do not receive commissions for recommending one investment over another. Our primary agenda is to help you reach your goals. During market volatility, this matters more than ever. Too many investors fall prey to sales pitches disguised as “solutions” to market risk. We focus on education and long-term planning rather than quick fixes. Being a fiduciary allows us to focus on what serves you best: Keeping you aligned with your personal goals and values Helping you tune out market noise and media hype Offering sound, research-backed guidance without conflicts of interest Your Coach Through Emotional Market Cycles One of our most important roles as financial planners is helping clients manage the psychological side of investing. It is one thing to know, intellectually, that markets will recover over time. It is another thing to watch your portfolio drop 15% and not feel anxious. Market downturns create powerful emotions. Fear. Doubt. Sometimes, even panic. As humans, our instinct is to take action to relieve those feelings, even when the logical course is to stay invested. That is where we come in. We help coach clients through these moments so they can avoid costly mistakes like: Selling during a downturn and locking in losses Chasing the next hot trend during a rebound Over-concentration in “safe” assets out of fear We remind clients that volatility is a normal part of the market. Markets have experienced recessions, wars, pandemics, and political turmoil before. They will again. Over time, markets have historically rewarded patient investors who stayed the course. When you work with us, you gain a trusted partner who is here to talk through your concerns, offer perspective, and help you make decisions that serve your long-term goals. Why Staying the Course Actually Works It may seem counterintuitive, but reducing activity during market volatility often yields better outcomes. Consider this: From 1999 through 2018, if an investor missed just the 10 best days in the S&P 500, their overall return would have been cut nearly in half . Many of the best market days happen very close to the worst ones. Trying to time the market is a challenging task, even for seasoned professionals. By maintaining a disciplined investment approach and staying fully invested, you ensure that you are there for both the recoveries and the long-term growth that markets provide. Our role is to help you build a portfolio designed for precisely this kind of staying power. We structure your investment mix to help you weather market cycles without having to guess what will happen next. Educating Clients About Normal Market Cycles Another key aspect of fiduciary financial planning is helping clients understand what is “normal” in the market. Volatility is not a sign that something is broken. It is a natural part of how markets function. In fact, without volatility, markets would not offer the returns that make long-term investing so powerful. We work with clients to help them see: Why some years will be down, but others will be very strong Why trying to avoid all losses is neither realistic nor necessary How staying invested through cycles often leads to far better outcomes than jumping in and out of the market Perspective is everything . The more you understand market behavior, the less likely you are to make emotional decisions during downturns. Different Stages, Same Principles Our approach also adapts to the varying needs of clients at different stages of their financial journey. For clients in their 40s to 60s: We may focus on prudently preserving and growing wealth. We help manage sequence-of-returns risk as you approach retirement. We may emphasize income planning and portfolio sustainability. We ensure that your investment mix aligns with your evolving goals and risk tolerance. For clients in their 30s: We provide education about typical market cycles (especially if this is their first experience with volatility). We coach clients to take advantage of their longer time horizons. We help younger investors see downturns as buying opportunities, not threats. In all cases, we are committed to helping clients invest with confidence, regardless of the headlines. Ready to Build a More Resilient Investment Strategy? Market volatility will always be part of investing, but it doesn't have to derail your financial goals. As your trusted financial advisor Coeur d'Alene team, we're here to help you navigate market uncertainty with confidence through our comprehensive financial planning approach. Contact Five Pine Wealth Management today to discuss how our investment philosophy and comprehensive financial planning approach can help you navigate market uncertainty with confidence. To see how we can help you support your financial goals, send us an email or call us at 877.333.1015. Whether you're looking to preserve the wealth you've already accumulated or build a foundation for long-term growth, our team has the experience and commitment to help you stay focused on what matters most: achieving your financial goals.
