Do you find personal finance forums confusing? Do you feel the need to get acquainted with the basics of finance? If so, it's time to learn a new language - the language of investing.

Personal finance solutions don’t need to be confusing. Let’s take a look at some of the terminology that is used to describe the various types of investment strategies.

Every profession has its own vocabulary, and personal finance is no exception. In order to fully understand your investment portfolio and find the best personal finance solutions, you first need to understand the technical vocabulary your financial advisor uses.

If you follow the personal finance forums, you have probably heard of “equities,” “fixed income,” and “asset allocation.”  These phrases translate to, “stocks,” “bonds,”
and “diversification.”

Another term, “dollar cost averaging,” refers to setting up an automatic periodic investment plan. For example, you might put $1000 every month into a specific mutual fund that you like. The rational behind this is twofold: if you put your savings on autopilot, it won’t be forgotten; and if you invest a set amount of money in buying a fund, over time you will buy more shares when the fund is at a lower price and fewer shares when it is at a higher price. Dollar-cost averaging smoothes out the risk of putting all your money into the market when it might be at the high point.

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Plain English

“Financial freedom” used to be the catchphrase for being able to live out the retirement of your dreams.  However, more recently “financial security” is the terminology of choice as retirees realize that actualizing their dreams may not be as realistic as achieving a certain level of comfort.  With traditional pension payments on the decline and costs of living rising, many retirees find that their retirement savings may not be sufficient. While there are no magic formulas to increasing one’s nest egg, there are savings and withdrawal strategies that can be used to optimize existing assets.

Language is personal

If you are told the average return of an investment, be aware that your returns may be below the quoted average, as “average” does not mean “guaranteed.” Moreover, past performance is no guarantee of future returns.  All investments carry some risk, including “conservative” programs. Conservative investments tend to have a lower amount of risk, but this means that they might not increase enough to beat inflation.  In other words, over time, the purchasing power of your money may decrease, and this risk is probably the greatest personal finance test of all.

You also need to understand all of the information that you read, and not to overload yourself with too much. (To understand why too much confusing information is not good for you, read my article:

There are many factors to take into consideration before investing. The first thing to do, though, is to make sure you understand the language and concepts of your investments, and once you do you can find the best personal finance solutions for you.  

Disclaimer: This article is for educational purposes and is not a substitute for investment advice that takes into account each individual’s special position and needs. Past performance is no guarantee of future returns.