Glossary Term Finance

The process of distributing investments among various asset classes like stocks, bonds, and real estate to balance risk and return according to an individual’s financial goals and risk tolerance.

Interest calculated on the initial principal and the accumulated interest from previous periods. It’s a powerful tool for growing wealth over time.

A numerical expression that represents an individual’s creditworthiness based on their credit history. It affects loan approvals and interest rates offered by lenders.

A risk management strategy that involves spreading investments across different financial instruments, industries, or geographical regions to reduce the impact of a poor-performing asset.

The ease with which an asset can be converted into cash without affecting its market price. Examples of highly liquid assets include cash and stocks.