Money Words: P to Z
The vocabulary Rich Sense is built from, explained the way someone would explain it to you rather than the way a bank would.
Portfolio
The full collection of investments a person or institution holds.
The word sounds grander than it is. If you own one fund in a retirement account, that is a portfolio.
Principal
The original amount borrowed or invested, separate from any interest.
On a loan, paying extra toward principal reduces the total interest you will pay over the life of it.
Recession
A significant, widespread decline in economic activity lasting more than a few months.
Usually confirmed well after it has started, which is why waiting for the announcement is not a strategy.
Return on investment
What you gained or lost on something, expressed as a percentage of what you put in.
Always ask over what period. A 20 percent return across a decade is a very different thing from 20 percent in a year.
Revenue
All the money coming into a business before any costs are taken out.
Revenue is not profit, and a business can have a great deal of the first and none of the second.
Risk tolerance
How much loss you can absorb, financially and emotionally, without changing course.
The honest measure is not what you say on a questionnaire. It is what you actually did the last time markets fell.
Sinking fund
Money saved gradually toward a specific known expense.
Christmas, car tires, insurance renewals. These are not emergencies, they are appointments, and saving monthly for them removes most financial panic from a year.
Variable cost
A cost that rises and falls with how much you produce or sell.
Materials, shipping, per unit fees. Variable costs scale with activity, which is what makes them easier to live with than fixed ones.
Volatility
How sharply and how often a price moves up and down.
Volatility is not the same as loss. It only becomes loss if you sell during the down part.
Yield
The income an investment produces, expressed as a percentage of its price.
A yield that looks unusually high compared to everything else is usually telling you something about the risk.