Category

Financial Dictionary

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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Net Worth

Financial Dictionary
What is Net Worth? Net worth is the total value of a company’s or individual’s assets, minus the liabilities, or anything that the company or individual owes. What is My Net Worth? To find your net worth, simply add together the value of all of your assets and subtract the amount you owe in liabilities. This total will give you your net worth. What is an Example of Net Worth? Calculating net worth is done by subtracting what you owe from what you own. For example, if the value of your house, car, and investments adds up to $500,000, and…
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Beneficiary

Financial Dictionary
What Is a Beneficiary? A beneficiary is the person or entity who will receive benefits from a life insurance policy, qualified retirement plan, annuity, trust, or will upon the death of an individual. What Does it Mean When Someone Is the Beneficiary? The beneficiary of a life insurance policy, qualified retirement plan, annuity, trust, or a will is the person or charity that receives the death benefit. A beneficiary can be one person or two or more people or charities. Learn more about what to do if you inherit an IRA. Who Gets Money if There Is No Beneficiary? Generally,…
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Benchmark

Financial Dictionary
What Is a Benchmark in Finance? Financial benchmarking involves running financial analyses in order to compare business practices and the standards of a firm to other firms within the same industry. A benchmark is a standard, or a baseline, that’s used for comparative purposes when assessing a portfolio or mutual fund. What is a Benchmark in a Portfolio? Benchmarks are used to analyze and manage allocation, risk, and the given returns of a portfolio. They can also be used to assess how a portfolio is performing against different market segments. To track the performance of an asset group, companies use…
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Dividend

Financial Dictionary
Dividend Definition A dividend is a portion of a company’s profit paid to common and preferred shareholders. They provide an incentive to own stock in stable companies even if they are not experiencing much growth. Companies are not required to pay dividends. How do Dividends Work? Dividends are payments a company makes to its shareholders to share its earnings and can be thought of as rewards paid to shareholders for their investments. There are many reasons why companies pay dividends, including the intent to increase investors’ faith in the company and signal optimism about future growth and earnings. Dividends are…
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Yield Curve

Financial Dictionary
What Is a Yield Curve? A yield curve is the relationship between interest rates and time, and is determined by plotting the yields of bonds with equal credit quality against their maturities. What Does the Yield Curve Tell You? By looking at the yield curve of bonds having equal credit quality but differing maturity dates, the slope of the curve will give you a good idea of the future interest rate changes and economic activity. Yield curves can take the form of three shapes: normal (upward sloping curve), inverted (downward sloping curve), and flat. A normal yield curve shows yields…
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Living Will

Financial Dictionary
What is a Living Will? A living will provides instructions to your healthcare provider in the event that you are unable to communicate. A living will dictates whether or not you wish to receive medical treatment to prolong your life if you suffer irreversible or terminal injury. Why is it Important to Have a Living Will? Having a living will cuts down on the uncertainty of your wishes by spelling out how you would like to proceed with the use of life-saving measures if the situation arises. A living will should always be a part of your estate plan. If…
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Mutual Funds

Financial Dictionary
What Is a Mutual Fund? A mutual fund is a fund operated by an investment company that raises money from shareholders and invests it in stocks, bonds, options, commodities, or money market securities. What Types of Mutual Funds Are There? Equity Fund Bond Fund Money Market Fund Balanced Funds Specialty Funds How Do Mutual Funds Work? Mutual funds use a pool of investors’ money to purchase a mix of stocks, bonds, other securities, etc. The value of the mutual fund depends on how well the purchased securities are performing. This means when you purchase a share of a mutual fund,…
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