The Sunday Mail
Compound interest
Compound interest is interest on the amount of money you have deposited or borrowed.
When you’re investing or saving, compound interest is earned on the amount you deposited, plus any interest you’ve accumulated over time.
However, when you’re borrowing, compound interest is charged on the original amount you were loaned, as well as the interest charges that are added to your outstanding balance over time.
FICO score
FICO is an acronym for Fair Isaac Corp., the company that came up with the methodology for calculating a credit score.
Your score is based on several factors, including payment history, the length of your credit history and total amount owed.
FICO scores range from 300 to 850, and the higher the score, the better the terms you may receive on your next loan or credit card. People with scores below 620 may have a harder time securing credit at a favourable interest rate.
Net worth
Your net worth is simply the difference between your assets (what you own) and liabilities (what you owe).
You can calculate yours by adding up all of the money or investments you have, including the current market value of your home and car, as well as the balances in any checking, savings, retirement or other investment accounts.
Then subtract all of your debt, including your mortgage balance, credit card balances and any other loans or obligations.
The resulting net worth number helps you take the pulse of your overall financial health.
Asset allocation
Asset allocation is where you choose to put your money.
The three major asset classes are stocks, bonds and cash (or cash equivalents). Each of these reacts differently to conditions in the market and economy, so be sure you choose those that line up best with your personal goals, risk tolerance and time horizon.
For example, investing in stocks could give you strong growth over time, but they can also be quite volatile. Thus, one of the most common pieces of investment advice out there is to diversify your portfolio — or put your money in several buckets to make sure you’re risking as little as possible while still achieving your particular goals.
Capital gains
Capital gains are the difference between how much something is worth now versus how much it was originally purchased for.
The gain, however, is only on paper until the asset or investment is actually sold. The flipside is a capital loss, which is the decrease in the asset’s or investment’s value since you purchased it.
You pay taxes on both short-term capital gains (a year or less) and long-term capital gains (more than a year) when you sell an investment.
By contrast, a capital loss could help reduce your taxes. — CNBC.
