4 Must Know Financial Terms
Check out these 4 must know financial terms:
This is the most widely utilized investment strategy and is a crucial step when developing a financial plan. Asset allocation aims to balance risk and is built based off an individual’s financial goals, risk tolerance, and investment horizon. There are three main asset classes-equities, as well as fixed-income, and cash and equivalents; which all have different levels of risk and return, so each will behave differently over time. Since everyone’s finances are different, there is no simply formula to find the right asset allocation. Meet with a financial professional to see what allocation method would be best for your unique financial situation.
An investment strategy that allows you to closely mimic the performance of the index you’re invested in. This strategy allows you to participate in a percentage of upside potential and have little to no participation to the downside risk that you would normally see in the stock market. While there are several different Indexing Strategies out there, consult with a financial professional to find the best one for your financial goals.
In short, Tax deferral is a legally acceptable way of putting off taxes. When you invest, the goal is to make a return on your money, and depending on tax brackets, you may have more opportunity for growth if you choose a Tax deferred account like a Roth 401(k). Tax deferral is all about long-term income and long-term planning. Tax deferral is a great way to maximize your hard-earned money but has many variables to consider like tax bracket and where you are on your financial journey.
There are two main types of Roth’s, a Roth IRA and a Roth 401(k). The main difference between a Roth account and traditional account is how they’re taxed. With a traditional IRA for example, you pay income tax when you withdraw the money, where as a Roth IRA, you would pay taxes up front and receive qualified distributions tax free. Depending on where you are on your financial journey, Roth accounts are a great way to minimize tax reductions on income in qualified plans.
There are thousands of financial terms, some more important than others. While this is only a short list of some prominent terms, it is best you consult a financial professional to better understand what these mean, and how they can be utilized to help you on your financial journey.
*Content derived from Investopedia.com and Wealthpilgrim.com
Disclosure: This information is provided as general information and is not intended to be specific financial guidance. Before you make any decisions regarding your personal financial situation, you should consult a financial or tax professional to discuss your individual circumstances and objectives.
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4 Must Know Financial Terms