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Saving and investing basics

The plain meaning of saving and investing words, from index funds to the rule of 72.

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401(k)A retirement plan run through an employer that lets you put part of each paycheck into investments, before tax or as Roth, up to a yearly IRS limit.
52-week savings challengeA year-long saving plan where you put away $1 in week one, $2 in week two and so on up to $52, for a total of $1,378.
529 planA state-sponsored, tax-advantaged account for education costs, where growth is free of federal income tax when spent on qualified expenses.

A

Automatic savingsSaving that happens on a schedule without a decision each time, through a split direct deposit or a recurring transfer from checking to savings.

B

Baby bondsPublicly funded trust accounts a government opens for children, often those born on Medicaid, that they can claim as young adults for set uses like school or a home.
Brokerage accountAn account at a brokerage firm that holds your cash and the stocks, bonds, funds and ETFs you buy and sell through that firm.

C

Capital gainsThe profit when you sell an investment or other capital asset for more than you paid; the tax depends on whether you held it more than one year.
CD ladderSplitting savings across several CDs with staggered maturity dates, so part of the money comes due at regular intervals instead of all at once.
Contribution limitThe most the IRS lets you put into a tax-advantaged account in a year, such as a 401(k), IRA or HSA, often with a higher catch-up amount at older ages.
Coverdell ESAA tax-advantaged education savings account that can take up to $2,000 a year per child, for school costs from kindergarten through college.
Custodial accountAn account an adult manages for a minor, usually under state UGMA or UTMA law, where the money legally belongs to the child from the day it goes in.
Custodial Roth IRAA Roth IRA opened by a parent or other adult for a minor who has earned income, managed by the adult until the child comes of age.

D

Dollar-cost averagingInvesting the same dollar amount at regular intervals no matter what prices do, so each payment buys more shares when prices are low and fewer when high.

E

Early withdrawal penaltyThe IRS 10% additional tax on money taken from a 401(k), IRA or similar account before age 59½, unless an exception applies.
ETFAn exchange-traded fund: a pooled investment fund whose shares trade on stock exchanges throughout the day at market prices.
Expense ratioThe yearly share of a fund's assets used to pay its running costs, so a 0.40% expense ratio costs $40 a year for every $10,000 invested.

F

Fee-only advisorAn advisor paid only by the client, through hourly, flat, retainer or asset-based fees, who takes no commissions on the products they recommend.
FiduciaryA person or firm with a legal duty to act in someone else's best interest; investment advisers owe this duty to the clients they advise.
Financial advisorA general job title for someone who helps with money and investment decisions; the title alone says nothing about their license, training or duty to you.

G

Generational wealthMoney, property and other assets passed from one generation of a family to the next, through inheritances, gifts during life or help such as paying for school.

H

Health savings accountA tax-advantaged account for medical costs, open to people with an HSA-eligible health plan, where money goes in, grows and comes out for care without federal income tax.

I

I bondA US Treasury savings bond whose rate combines a fixed rate with an inflation rate reset every six months; 4.26% for bonds issued May to October 2026.
Index fundA mutual fund or ETF that aims to track the return of a market index, such as the S&P 500, instead of picking investments to beat it.

K

Kids savings accountA bank or credit union savings account opened for a child, usually jointly with a parent or as a custodial account, where the child's money earns interest.

M

Micro-investingInvesting small amounts regularly, often a few dollars at a time through an app, usually by buying fractions of shares.
Money market fundA type of mutual fund that invests in cash and short-term, high-quality debt, often aiming for a steady $1.00 share price, with no FDIC insurance.
Mutual fundAn SEC-registered fund that pools money from many investors to buy stocks, bonds or other securities, with shares you can sell back to the fund each business day.

R

Robo-advisorAn online investment adviser that uses computer algorithms to build and manage a portfolio for you from your answers to a questionnaire.
Rollover IRAAn IRA opened to receive money moved out of a workplace retirement plan such as a 401(k), usually after leaving a job.
Roth 401(k)The Roth option inside a 401(k): you contribute after tax, and qualified withdrawals, earnings included, come out tax-free.
Roth IRAAn individual retirement account funded with after-tax money, where qualified withdrawals, earnings included, come out tax-free.
Round-up savingsA banking or app feature that rounds each card purchase up to the next dollar and moves the spare change into savings or an investment account.
Rule of 72A shortcut for how many years money takes to double at a steady compound rate: divide 72 by the yearly rate, so 6% doubles in about 12 years.

S

Safe withdrawal rateThe share of a retirement portfolio you can withdraw in the first year, then raise with inflation, with a high chance the money lasts a set number of years.
Save More TomorrowA savings plan by Richard Thaler and Shlomo Benartzi in which you agree now to raise your retirement contribution each time you get a pay raise.
Savings bondA US Treasury savings bond, sold today as EE or I bonds through TreasuryDirect, that earns interest for up to 30 years and can be cashed after one.
Savings challengeA set of simple saving rules followed for a fixed stretch, such as a rising amount each week, to build a savings habit and a balance by the end.
Savings goalA specific amount you plan to save by a set date for one purpose, which turns into a monthly or per-paycheck amount to set aside.
Sinking fund vs emergency fundA sinking fund saves for costs you can put on a calendar; an emergency fund covers costs you can't predict, like a job loss or an urgent repair.
Spousal IRAAn IRA for a married person with little or no pay of their own, funded on a joint return using the working spouse's income.

T

Target-date fundA mutual fund or ETF that shifts its mix of investments toward more conservative ones as the year in its name, usually a retirement year, gets closer.
Tax-advantaged accountAn account the tax code rewards, such as a 401(k), IRA, HSA or 529 plan, where taxes are cut, delayed or skipped if you follow its rules.
Traditional IRAAn individual retirement account where contributions may be tax-deductible, growth is tax-deferred, and withdrawals are taxed as income.

U

UGMA accountA custodial account under a state's Uniform Gifts to Minors Act, holding cash, securities or insurance policies for a child until they come of age.
UTMA accountA custodial account set up under a state's Uniform Transfers to Minors Act, which can hold almost any kind of asset for a child, including real estate.

V

VestingHow much of the money an employer puts in your retirement plan is yours to keep, which usually grows with your years of service.