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Financial Dictionary

price earnings ratio

Price/Earnings Ratio (P/E Ratio)

Financial Dictionary
P/E Ratio Meaning The Price/Earnings Ratio (P/E Ratio) is a ratio used by investors to help evaluate how cheap or expensive a company’s stock is.  P/E ratios are used by investors and analysts to determine the relative value of a company's shares in an apples-to-apples comparison. It can also be used to compare a company against its own historical record or to compare aggregate markets against one another or over time. Price Earnings Ratio Formula The P/E Ratio is calculated by dividing a stock’s price by its earnings per share. As an example, a stock with a price of $90…
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real estate investment trust

Real Estate Investment Trust (REIT)

Financial Dictionary
What is a REIT? A Real Estate Investment Trust, or REIT, is a pooled investment that invests primarily in income-producing real estate. The majority of REITs trade like stocks on the major exchanges, but there are other REITs that are available only in private markets. REIT investors earn a share of the income produced by the underlying properties – without actually having to go out and buy, manage or finance property themselves. Are REITs a Good Investment? Like all investments, REITs should be evaluated through the lens of an investor’s unique needs and tolerance for risk. REITs can be an…
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health savings account

Health Savings Account

Financial Dictionary
What Is a Health Savings Account? A Health Savings Account, or HSA, is an account that offers individuals covered by high-deductible health plans a tax-advantaged means to save for qualified medical expenses. Within certain limits, funds contributed to the account are not subject to federal income taxes. What Is an FSA? A Flexible Spending Account, or FSA, is an account that you can put money into that you use to pay for certain out-of-pocket healthcare expenses. This money is put into the FSA account tax-free, which means you’ll save money on healthcare expenses you’d usually have to pay taxes on.…
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initial public offering IPO

Initial Public Offering (IPO)

Financial Dictionary
What Is an IPO? An Initial Public Offering (IPO) is a company’s first public offering of stock. In an IPO, investment banks buy a private company’s shares and then offer them to the public at a certain offering price. This allows the company to raise capital from public investors. As the stock is traded, the market price may fluctuate from the offering price. Keep in mind that the return and principal value of stock prices will fluctuate as market conditions change. When sold, shares may be worth more or less than their original cost. IPO Process The IPO process is…
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adjusted gross income

Adjusted Gross Income (AGI)

Financial Dictionary
What Is Adjusted Gross Income? Adjusted gross income (AGI) is one figure used in the calculation of income tax liability. It is determined by subtracting allowable adjustments from gross income. Adjusted Gross Income Calculator Your adjusted gross income is your total income, or gross, minus any eligible deductions. To find your AGI, add all forms of income together, then tax and subtract deductions from that amount. Your AGI can be zero or even negative. Use an AGI calculator to see eligible deductions and help you figure out your Adjusted Gross Income. Adjusted Gross Income Example Examples of forms of income…
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municipal bonds

Municipal Bond

Financial Dictionary
What Are Municipal Bonds? A municipal bond, sometimes called a muni bond, is a debt security issued by a state, county, city, or other political entity (such as a school district) to raise public funds for special projects. The income from municipal bonds is normally exempt from federal income taxes. It may also be exempt from state income taxes in the state in which the municipal bond is issued. Municipal bonds are generally a low-risk investment, but still are subject to a variety of risks, including default risk, market risk (adjustments in interest rates), and call risk. If you buy…
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risk tolerance

Risk Tolerance

Financial Dictionary
Risk Tolerance Definition Risk tolerance is a measurement of the degree of variability in investment returns that an investor is willing to withstand. In other words, it measures an investor’s willingness or ability to handle investment losses and still achieve goals. Why Is Risk Tolerance Important? Knowing your risk tolerance is important when building a financial plan so that you can grow your money comfortably and avoid the stressors of investing beyond your means. Lower-risk investments should be considered if you can’t afford or don’t want to risk losing any money (even temporarily), or if you would accept generally lower…
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Probate

Financial Dictionary
What is Probate? Probate is the court proceeding in which a deceased person’s Will is filed with the court, and the court confirms the Will is valid and if so, formally appoints the person named in Will as the executor of the deceased person’s estate. Do All Wills Go Through Probate? Not all wills and estates have to go through probate. Even if a Will does need to be filed with the probate courts, this may be a simple procedure with little court oversight. Whether a will has to go through probate or not depends mostly on the type of…
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Rate of Return

Financial Dictionary
What Is Rate of Return? The rate of return measures the performance of an investment. Rate of return is calculated by dividing any gain or loss by an investment’s initial cost, or the percentage change of the investment’s value in a given period. Rates of return usually account for any income received from the investment in addition to any realized capital gains. What Is the Internal Rate of Return (IRR)? The internal rate of return is used to estimate the profitability of potential investments. More specifically, IRR is the exact discount rate that makes the net present value (NPV) of…
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Liquidity

Financial Dictionary
What is Liquidity? Liquidity is the ease and speed with which an asset or security can be bought or sold. What Does Liquidity Mean in Finance? Financial liquidity refers to how easily assets can be converted to ready cash without affecting its market price. Assets like stocks and bonds are very liquid and can be converted into cash within days. Larger assets and tangible items such as property and equipment are often not as liquid since they need to be sold before you can use and spend the cash that they are worth, which can take weeks or months. Cash…
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