Elon Musk is a controversial figure in our modern world. His personal and business philosophies are constantly in question. No matter how you feel about him, I’m guessing you can agree with one practice he preaches, “Acronyms Seriously Suck”. Musk states, “No one can actually remember all these acronyms, and people don’t want to seem dumb in a meeting, so they just sit there in ignorance.”
Every time I hear someone reference an acronym I cringe, even if I know what it stands for. Our world is immune to the complex, especially in our industry. Finance is already complicated and intimidating. One main reason we started our business was to prove that managing your personal finances can be simplified and something you understand. But, if we say things like, “Your CAGR may allow you to make larger SRI contributions to your JTWROS account improving your overall ROR!”, we inevitably shut people out. And yes, we’ve heard financial advisors talk to other professionals, and their clients, in this manner.
Let’s call it out, acronyms hinder conversation and personal development. To help break down another barrier, here are some common acronyms used in the world of finance. So the next time your colleague or [even worse] your financial planner uses unnecessary jargon, bust out our list and own the conversation!
*BONUS - we’ve linked our blogs to some of the acronyms below to provide further context*
Common Financial Terms
401(k) A tax-advantaged defined contribution plan offered by employers to their employees. 401(k) is the section of the United States Internal Revenue Code in which the plan is laid out. Employees can contribute through payroll and employers match on the contribution made up to a certain amount. 401(k)s can offer pre tax contributions or Roth depending on the plan.
403(b) A retirement plan for employees of public schools and tax-exempt organizations including teachers, school workers, professors, government employees, nurses and doctors. The plan works similar to a 401(k). Named after the section of the United States Internal Revenue Code in which the plan is laid out.
457(b) A tax-advantaged, deferred compensation retirement plan that is offered to state governments, local governments and nonprofit employers. Named after the section of the United States Internal Revenue Code in which the plan is laid out.
529 Account A tax-advantaged investment vehicle designed to encourage saving for higher education. Plans may also be used for K-12 tuition up to $10,000.
ACH (Automated Clearing House) This is a type of electronic transfer using the Automated Clearing House. The Automated Clearing House is a secure network in the United States that banks and financial institutions use for electronic transactions.
APR (Annual Percentage Rate) The annual rate charged for borrowing or earning through an investment.
CAGR (Compound Annual Growth Rate) The rate of return that is required for an investment to grow from its beginning balance to its ending balance.
CD (Certificate of Deposit) A product offered by banks and credit unions that provides a premium interest rate in exchange to leave the money deposited for a set time period (i.e. 6 months).
CFP (Certified Financial Planner) A formal recognition of expertise in the areas of financial planning, taxes, insurance, estate planning, and retirement planning.
DINK (Dual Income, No Kids) Phrase for partners that have two income sources and no kids. Typically have a higher disposable income because of not having the added cost of children.
DJIA ( Dow Jones Industrial Average) A stock market index that tracks 30 US blue-chip stocks.
EFT (Electronic Funds Transfer) The act of transferring funds to and from your investment account from another account such as your bank account.
ESG (Environmental, Social, Governance) A criteria used to screen investments such as employee and community relationships, internal controls, and impact on the environment.
ETF (Exchange Traded Fund) An exchange traded fund is a security that tracks an underlying index such as the S&P 500. It is a collection of securities, structured similarly to a mutual fund, however it can be traded during the day such as an individual stock.
FDIC (Federal Deposit Insurance Corporation)
An independent federal agency that insures deposits is US banks in the event of a failure. FDIC insures deposits up to $250,000 per depositor so long as the bank is a member firm.
FIRE (Financially Independent, Retire Early) A lifestyle movement in which someone has a goal of retiring early and achieving financial freedom and flexibility.
HENRY (High Earners, Not Rich Yet) An individual that has high discretionary income putting them in top tax brackets, however, have not accumulated a large net worth.
IPO (Initial Public Offering) An IPO refers to the process in which a private company offers new stock to the public.
IRA (Individual Retirement Account) A tax-advantaged investment account that individuals can use to earmark funds for future use (i.e. retirement). The two basic forms of IRAs include a Traditional IRA or Roth IRA.
IRR (Internal Rate of Return) The internal rate of return is the expected growth of an investment.
ISO (Incentive Stock Option) An incentive stock option is a company benefit that gives an employee the right to buy stock at a discounted price with the added benefit of a tax break on the profit. The profit is taxed at capital gains tax rate, rather than ordinary income assuming specific holding periods are met.
JTWROS (Joint Tenants with Rights of Survivorship) An ownership type for an account in which both owners are joint and have equal share to the account. If one should pass away the other owner listed will receive the balance.
k (Kilo) Used to represent 1,000 units of something. For example, if you see $1k, this represents 1x$1,000 = $1,000.
LLC (Limited Liability Company) A business structure in which the owners are not personally liable for the company’s obligations.
NASDAQ (National Association of Securities Dealers Automated Quotation) A global electronic marketplace for buying and selling stocks. The NASDAQ is typically associated with larger technology companies such as Apple and Google.
NSO (Nonqualified Stock Option) A nonqualified stock option is an option where you pay ordinary income tax on the difference between the grant price and the price at which you exercise the option.
NYSE (New York Stock Exchange) An American stock exchange that is the largest equities exchange in the world.
P/E (Price-to-earnings ratio) The ratio of a company’s share price to the earnings per shares. It is used to find out if a company is overvalued or undervalued.
POD (Payable on Death) Payable on death is another way to say transfer on death. It also allows beneficiaries listed to receive assets that would typically go through probate such as a single taxable account.
PSP (Profit Sharing Plan) A defined contribution plan that allows employees to save for retirement. Contributions are considered discretionary.
REIT (Real Estate Investment Trust) A company that owns and operates income producing real estate such as commercial real estate, shopping malls, and hotels.
RMD (Required Minimum Distribution) The required minimum distribution is the money that must be withdrawn from your pre-tax retirement account such as a Traditional IRA, SEP IRA, or SIMPLE IRA at a specific age. As of 2020, the age for distributing funds is April 1 following the year the individual turns 72. The annual amount for distribution is determined by dividing the prior year end account balance by the remaining life expectancy.
ROI (Return on Investment) A performance metric used to evaluate the return on a specific investment relative to its cost.
RSU (Restricted Stock Units) A form of employer compensation issued to an employee in form of company stock. Shares are typically issued through a vesting plan. Upon vesting, the event is considered taxable income.
S&P 500 A stock market index that measures the performance of the 500 largest companies on exchanges in the United States.
SEC (Securities and Exchange Commission The SEC is a regulatory group that protects investors and promotes fairness in stock markets.
SEP IRA (Simplified Employee Pension IRA) A retirement plan that an employer or self-employed person can establish. The employer receives a tax deduction for contributions made.
SIMPLE IRA (Savings Incentive Match Plan for Employees IRA) A retirement plan that small businesses with fewer than 100 employees can use. Employers can make a non-elective contribution of 2% of the employee’s salary or dollar for dollar matching up to 3% the employee’s salary.
SRI (Socially Responsible Investment) An investment within a company or companies that have positive social impacts.
TOD (Transfer on Death) Transfer on death allows beneficiaries listed to receive assets that would typically go through probate such as a single taxable account.
UGMA (Uniform Gift to Minors Act) An UGMA account allows an appointed custodian to manage assets within the account until a minor reaches a specific age. UGMA accounts can only be funded with cash, stocks, bonds and insurance products.
UTMA (Uniform Transfers to Minors Act) An UTMA account allows an appointed custodian to manage assets within the account until the minor reaches a specific age (defined by state, typically 18 or 21). UTMAs can be funded with cash, stocks, bonds, insurance products, real estate, art and intellectual property.
YTD (Year to Date) Year to date is a common performance time period when reviewing investment performance.
I hope this list helps you feel more comfortable when discussing money. If you find your friends, colleagues, or [even worse] your financial planner constantly using acronyms or language above your head, ask them to stop and explain. After all, it’s your money and it’s your life.
Do you have a financial acronym you're sick of hearing? Email us and we’ll add it to the list above!
- Dan
Disclaimer: This article is for informational purposes only and is not a recommendation of Fyooz Financial Planning, Natalie Slagle CFP®, or Daniel Slagle CFP®. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future. Therefore, it should not be assumed that future performance of any specific security, investment product or investment strategy referenced in the article, either directly or indirectly, will be profitable or equal to the corresponding indicated performance level(s). No portion of the article shall be construed as a solicitation to buy or sell any specific security or investment product or to engage in any particular investment or financial planning strategy. Any reference to a market index is included for illustrative purposes only, as it is not possible to directly invest in an index. Indices are unmanaged, hypothetical vehicles that serve as market indicators and do not account for the deduction of management fees or transaction costs generally associated with investable products, which otherwise have the effect of reducing the performance of an actual investment portfolio.
