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9 Commonly Misunderstood and Misused Financial Terms

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9 Commonly Misunderstood and Misused Financial Terms

Financial Literacy Month is the perfect time to master commonly misused financial terms.


Tax season has come to an end, but that doesn’t mean you should turn a blind eye to all things finance until next year. We’re not asking you to become financial experts (that’s our job!), but we are encouraging you to be more aware of how your money works and there is no better time to get started than Financial Literacy Month.

Let’s start by mastering these 9 commonly misused terms in the world of finance: 

1.       An investment is an asset which has the potential to grow in value. More commonly known investments are real estate, stocks, and bonds. Whereas cars, unless antique and a collectible, are not investments because they depreciate. 

2.       Interest is the cost of borrowing money. When you borrow money, you pay interest. When you “lend” your money to the bank, you earn interest – even if it’s just a measly few pennies.  

3.       Dividends are a portion of a company’s profits which are distributed to the company’s shareholders. In simpler terms, when you own a share of a company’s stock, you get paid some cash depending on whether that company decides to issue a dividend. FYI: Not every company pays dividends.

If you’re looking for companies that have raised dividends in the last 25 years, checkout the Dividend Aristocrats.

4.       Equity and stock are often used interchangeably to represent partial ownership in a company. If you own a house for example, you may often hear phrases like “I have 20% equity in the home.” This means that you have paid off 20% of the home value but still owe 80%.

5.       Various entities, such as the U.S. government, municipalities, and corporations, may issue bonds to raise money. By purchasing bonds in your accounts, you are essentially lending your money to these organizations in exchange for interest payments until the bond reaches maturity, at which point the principal is repaid to you.

6.       Fixed Income is generally interest that is predictable and paid in regular frequencies. Bonds and certificates of deposit (CDs) are examples of fixed income investments.

7.       Tax-deferred implies that money in an account will be taxed later when you take the money out. For example, funds going into your traditional 401(k) are not taxed at the time of contribution, but it will be taxed as you withdraw from it during retirement.

8.       Tax-free status implies that money in an account can grow and be withdrawn later without being taxed. For example, contributions to your Roth IRA or 529 account are made with after-tax money; so, when you withdraw from it later, you will not be taxed.

9.       Taxable status indicates that money in an account is taxed each year. These are your investment, checking, and money market accounts. Typically, you will get a 1099 for any interest or dividends earned.

Are there any financial terms or concepts that leave you scratching your head? Let us know and we’d be happy to provide a simple explanation!

Or better yet, attend a future investment workshop where I teach these concepts in greater depth. The next one is June 8, 2019! Register Here for an early bird discount.

The Bottom Line: 

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Americans are woefully behind in financial literacy, but this should come as no surprise considering it’s not something we are exposed to in a classroom growing up. However, we are on a mission to change that. Being financially literate is an important part of planning your future and making well-informed decisions on money matters.


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This data is for informational purposes only and Capital Benchmark Partners, LLC ("CBP") is not affiliated with any of the businesses mentioned nor endorses them. CBP is not endorsed by any third party entities for their inclusion in this article nor is compensated for mentioning them. Past performance is not a guarantee of future results. The information contained herein has been obtained from sources believed to be reliable but the accuracy of the information cannot be guaranteed.

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