Questions about IRAs? Just ask your IAR who works at an RIA.

Hi everyone! I hope you all had a relaxing 4th of July! This week I wanted to do an overview of a bunch of acronyms the finance industry has come up with to make what we do sound interesting and complex.

Spoiler alert, it is not nearly as complex as one would think, but if you are an “outsider” some of the acronyms can be intimidating. Ease your intimidation as I dive into some acronyms across the industry and their true meaning.

RIA: Registered Investment Advisor

This is a firm that advises clients on their investments, manages client portfolios, and offers financial and investment advice. Fun fact, all RIAs are held to a fiduciary standard!

IAR: Investment Advisor Representative

This is me. An IAR is someone who works for an RIA. They are licensed and permitted to give financial and investment advice. Just a little switch between the two letters and bam, you have something completely different… No wonder people get confused.

IRA: Individual Retirement Account

Sticking with those 3 letters, I promise some acronyms do not use only these three letters. This is a type of investment account. Usually, this is a Traditional IRA or Roth IRA. However, there are even SIMPLE IRAs and SEP IRAs. We will not get into the world of IRAs right now, rather we’ll just understand that this is an account that is individually maintained, with some tax-advantaged nature. This is not to be confused with a 401(k), which is an employer-sponsored retirement plan.

RMD: Required Minimum Distribution

I am pretty sure no one who is reading this needs to worry about RMDs at this point in time. This is a required distribution from an IRA or retirement plan that must be satisfied each year upon reaching age 73. That is tentative and they change the age constantly. (Super annoying)

ETF: Exchange Traded Fund

This is a basket of stocks, sometimes these funds track an index such as the S&P 500. You can purchase an ETF just as you would purchase any stock. They trade on securities exchanges with a ticker symbol, just like stocks! They can serve as an easy way to diversify your portfolio compared to buying individual stocks!

EFT: Electronic Funds Transfer

You have probably done an EFT in your life without realizing it. This is just an electronic transfer of funds from one institution, account, or bank to another!

PITI: Principal, Interest, Taxes, Insurance

This is usually used in reference to a mortgage and someone’s housing expense. It is the total expense… Remember your mortgage payment is just P&I, this brings in taxes and insurance for a more holistic view.

APY: Annual Percentage Yield

This is the rate of interest you will earn from something. This is expressed as a percent. This is usually associated with your assets.

APR: Annual Percentage Rate

This is the rate of interest charged on something. This is also expressed as a percent. This is usually associated with your liabilities or loans.

ROI: Return on Investment

This is commonly used even outside of finance in an informal manner. This essentially is comparing the cost of something to the gain or loss it generates.

CD: Certificate of Deposit

This is more of a hot topic right now as rates are generally higher. This is a cash equivalent account that locks money up for a specified amount of time at a specified interest rate. Withdrawing from a CD before the set redemption date can lead to penalties… Not very nice of the banks.

HELOC: Home Equity Line of Credit

This is a revolving line of credit against the equity built up in your home. While you pay your mortgage, you begin to own more and more of your house. This allows you to access that equity at a certain rate.

LIFO: Last in, First out

This is more of an accounting term; however, it is relevant in personal finance when going to sell a position. As someone sells stock, they may want to specify that they want to sell their most recent purchases rather than the earliest purchases.

FIFO: First in, First out

The opposite of LIFO! In personal finance, this would be specifying that someone wishes to sell their shares from the earliest purchases and not the latest purchases.

EPS: Earnings per Share

This is a measurement of a company’s profitability. It breaks out the earnings of a company on a per-share basis. High earnings per share is a good thing!

P/E: Price-to-Earnings (a ratio)

This divides the current share price by the earnings per share. Many will use this to get a basic idea of the valuation of a company. If a company’s share price is $50 and their EPS is $5, their P/E ratio is 10!

DCA: Dollar-Cost Averaging

This is an investment strategy in which someone invests an equal amount on a systematic basis. If I am contributing $100 per month to my portfolio and I do this every month, I am dollar-cost averaging. Contributing to a 401(k) is dollar-cost averaging!

RSU: Restricted Stock Unit

This is a common form of equity compensation at publicly traded companies. Usually, this type of equity grant will be subject to a vesting schedule, which incentivizes employees to stay at their jobs.

ESPP: Employee Stock Purchase Plan:

This is usually offered to employees by publicly traded companies. It allows employees to purchase stock in the company. They can usually do so at a discount to the current price!

There are many more acronyms in the financial world, but this is a great starting point as far as personal finance is concerned. Sometimes these acronyms and the jargon used in the industry can be intimidating and confusing. I hope this list offers some clarity!

Check me out on X/Twitter, whatever we want to call it now:

Have a more specific question or want to get your finances in order? Feel free to reach out to [email protected] for a free consultation!