Yeske Buie’s Glossary of Finance Terms

Risk tolerance refers to the trade-offs that an individual is willing to make when faced with uncertain outcomes. Factors such as a time horizon, financial goals, age, portfolio size, and investor knowledge all contribute to whether you have an aggressive, moderate, or conservative risk tolerance. Understanding your risk tolerance can help you and your financial planning team make investment decisions that you’re comfortable with.

An emergency fund is a cash reserve set aside for unplanned expenses or financial emergencies. Think of it as a financial safety net to help you get through difficult times – a job loss, a medical emergency, or even a recession. The most common question we hear when it comes to establishing an emergency fund is, “how much do I need?” As with most financial questions, the answer is, “it depends!”

ARM stands for adjustable rate mortgage. A 5/1 ARM is a mortgage loan with a fixed interest rate for the first 5 years, and an adjustable interest rate for the remainder. You can typically get a lower rate on the 5/1 ARM relative to a longer term fixed-rate mortgage, and then, if it works for you, refinance within the fixed rate period.

A data breach is the intentional or unintentional release of secure information to an untrusted environment – it is typically an event where attackers actively compromise data. This is different from a data exposure or a data leak where private information is accidently made public. Check out this tip sheet from our colleagues at Schwab.

As with any skill, practice make progress. By practicing your financial literacy skills, you may find that you have less financial stress, more control and confidence over your finances, an increased likelihood of setting and reaching goals, and a feeling of financial independence, which everyone defines differently. Start defining financial independence for yourself here.

Today’s articles highlight the importance of prioritizing your personal values. Values are the guiding principles that shape our lives. They help us identify what is most important to us, and often serve as motivators for the ways we think and act. They are so integral to who we are that when there’s a disconnect between our values and how we spend our resources (time, energy, skills, and money) inner conflict or dissatisfaction will result. Start defining your personal values through this explorative worksheet.

As we focus on challenging ourselves to embrace personal growth and development, it feels appropriate for gratitude to be our word of the week. Gratitude is the expression of appreciation for what you have. It is a positive emotion that can allow you to feel happier, and more satisfied, with life. Having gratitude may be easier said than done, but taking time to pause and express thanks for what you have and appreciate in your life can be the key to feeling gratitude. We offer an opportunity to practice this via TheLiveBigWay Gratitude Wall.

When it comes to your finances, we think it’s better to rely on a grounded wisdom than on lady luck. At Yeske Buie, we believe in coming up with creative strategies while staying grounded in the best available research. Learn more about our take on grounded investing and how you can stay financial grounded.

A Google search for the definition of ‘financial planning’ turns up mixed results that includes words like investments, financial circumstances, and advice. We think all these pieces matter, but only if they’re applied through a lens that is personal, relatable, and aligned with who you are and what matters to you. Learn more about our process of financial planning.

We are currently experiencing what’s known as an inverted yield curve – the yield, or return, on shorter term bonds is higher than longer term bonds (when the curve is NOT inverted, the opposite is true). The shape of the yield curve contains information about expectations for the future. One of the things the inverted curve tells us is that bond investors are predicting that, in the future, interest rates will be lower than they are now (which also implies that inflation is going to be lower).

Clients often ask us what benchmark they should be comparing against their portfolio’s performance to see where they stand. We use The Morgan Stanley Capital International All Country World Index (or MSCI ACWI) to compare the performance of the stock portion of our Clients’ portfolios to that of the global market, because it provides an accurate measure of global stock performance, and because it is geographically neutral, just like our portfolios. Learn more about our thoughts on performance benchmarking here.

Those who have or any type of loans are likely familiar with the term APR. APR stands for annual percentage rate and represents the cost you pay per year to borrow money including interest rates and additional fees. Knowing the APR for your credit cards, auto loans, mortgages, and student loans can give you a good idea of how much you’ll pay to take out a loan and empower you to make grounded financial decisions.