Understanding Key Financial Retirement Terms

What is a Portfolio?

The collection or group of investments all owned by the same individual or organization. All of the financial “stuff” you own. 

What is Mutual Fund?

● A pool of money from many investors that a professional money manager uses to buy the stocks and/or bonds of many different organizations. 

● This helps diversify risk because if a single company experiences financial difficulties it should not impact the fund as drastically since losses by one holding can be offset or balanced by the performance of the other holdings. Mutual funds can vary from very conservative to very aggressive.

What is Compound Interest?

● "Interest on interest," and will make a deposit or loan grow at a faster rate than simple interest, which is interest calculated only on the principal amount.

● Compound interest can significantly boost investment returns over the long term. While a $100,000 deposit that receives 5% simple interest would earn $50,000 in interest over 10 years, compound interest of 5% on $10,000 would amount to $62,889.46 over the same period.

What is Dollar Cost Averaging?

● Investing the same dollar amount every month, regardless of market conditions and fluctuating prices.

● This strategy helps to reduce your risk of loss over time. Also, by investing regular amounts as opposed to a lump sum, your average cost per share could potentially be lower. It is often better to embrace volatility over time, rather than trying to avoid it by investing larger lump sums all at once.

● Dollar Cost averaging is what you’re doing when you contribute money to your 401k or 403 b….so it is an important concept to understand.

What is Asset Allocation

● Deciding how much money to place in different asset classes, or types of investments, at any given time. 

● Your investment choices should be selected from different types of asset classes, such as stocks, bonds and cash. An appropriate asset allocation helps reduce your portfolio’s exposure to volatility when the financial markets are delivering unsteady returns. 

● Selecting the right mix of investments can help you achieve your Future-Funded Ministry goals.

What is Diversification?

● The process of spreading your money among different specific investments. 

● It may also may be thought of as not putting all of your eggs in one basket.

What is Risk?

● The proportionate chance of gain or loss.

● Generally more aggressive (higher risk) investments may deliver higher average returns over time, however, this is offset by a higher potential for loss of principal compared to safer, more conservative investments. 

What is Volatility?

● The up and down price movement of stocks, bonds, and mutual funds. 

● Typically, stocks involve more risk and generally have more up and down price movement than bonds. However, bonds may have a lower overall rate of return than stocks because they do not represent ownership, only debt.

● Depending on market conditions, each type of asset, stocks or bonds, may do better over different periods of time.

What is a Bond?

● A loan to a company or government.

● These bonds represent debt of the issuer. Each bond is set to mature on a certain date, and at that time the organization will pay back the original loan amount to the bondholder plus interest. Mutual funds usually own a large number of different bonds.

What is a stock/stock market?

● As a shareholder, or stockholder, you do not get to personally make decisions about how the company is run, but you get to elect the Board of Directors who make those decisions for you.

● The return you receive from regular payments from the company is called a dividend. The return from the share price moving up or down is called capital gain or loss. 

● As a shareholder, or stockholder, you do not get to personally make decisions about how the company is run, but you get to elect the Board of Directors who make those decisions for you.

The return you receive from regular payments from the company is called a dividend. The return from the share price moving up or down is called capital gain or loss.