FIRE Dictionary

A bear market is a market that is in a coward trend, doesn’t respond much to positive news, and the general outlook it poor. often times investors sell in panic during a bear market. The saying is be fearful when others are greedy and greedy when others are fearful. when you see blood in the streets it’s normally a good time to buy if you have the stomach for it. Item description

Apricating Assets are assets that increase in value over time. Many people consider Real-Estate (homes) an apricating asset.

A large stable company operating within an established industry usually referred to when talking about investment into one of the top 500 companies listed in the S&P500 (largest 500 publicly traded companies). these companies tend to be boring but predictable and include sectors from big oil, aerospace, pharmaceuticals etc.

A bond is the note that investors can buy to loan money to large institutions and governments for a given return or right. I’ll do a future post since these come in many forms and can get somewhat complex. but in the simplest terms if you buy a bond you have loaned money to the bond issuer and are entitled to repayment plus the interest promised.

A bond fund would be a fund or etf that buys and holds a collection of bonds to provide the investor diversification of risks or more regular dividends than a single bond would typically provide.

A bull market is a market that is in a strong upward trend, in normally resistant to negative or pessimistic news and assets are rising in value. a word of cation is everyone looks like a genius investor in a bull market as it’s often hard to pick a “losing investment” when everything is going up

Call contracts are an option contract that is an agreement to buy a given security as a specific strike price in the future. You can buy or sell call contracts.

This is an annual adjustment the US government makes every year for social security benefits. If someone says the COLA is 5% for next year. They mean that individuals on social payment programs can expect to see a 5% increase in their monthly checks from the government.

A deposit into an account. The term contribution is typically used when discussing monthly “contribution” into a tax advantaged retirement account such as a 401K or IRA.

Some accounts such as 401K’s and IRA’s have an annual contribution limit that cannot be exceed without penalty. These limits are typically increased a little every year.

you might tell your friend to stop being so much CPJ so he’ll be able to invest more.

Covered calls refer to a call contract that you sell on shares you currently own as collateral.

Depreciating assets are assets that decline in value over time. A classic example of a depreciating asset is a car. Typically a car is worth less tomorrow than a car today. Exceptions would be collectable cars which may increase in value over time.

Diversification is the act of spreading your investments across many investment types to hedge ageist the chance that a company, industry, or country could underperform or fail leading to investment losses. Diversification typically provides more consistent performance with less down side risk than concentrating your investments into one area. The flip side is you may be leaving upside potential on the table by not putting more money into an investment that performs above average. Many long-term investors prioritize surviving the down turns over eye watering profits more risky less diversified strategies may offer.

A properly diversified portfolio should look to spread investments across many industries, investment types, and even governments/ geographies.

A dividend is a cash payment from a company in which you own stock. It is different from interest in that the company decides how much profit it wants to share with its investors. It may vary depending on how the company is performing. If a stock cost $100 and pays a dividend of $5 per share per year. Then the company is said to have a dividend yield of 5%

Dollar Cost Averaging refers to the practice of investing a similar amount of money into markets at a regular interval. By using a similar amount of money you are able to purchase more shares at a lower price than you are able to purchase at a higher price. This means your average purchase price over a long period of time will be lower than the historical mean price of an equities

An ETF is a fund created by a financial institution that is actively traded on the stock market similar to a stock, the price is dynamically tracked and you typically can buy as much or as little of it as you want. also there normally are not any fund fees charged at the time of transaction. You can find ETF’s that track the price of a large Index of companies such as the S&P500 (SPY for example) or a fund that tracks a smaller group or sector of companies (XLE for example tracks the energy sector)

This is the additional value of an asset outside of it’s current value such as precieved future earnings growth or value of a new technology.

An example of extrinsic value would be a drug company working on a promising new cure for cancer. Their stock might be trading well above what the company is currently worth with anticipation of large future profits from the new treatment. Crypto currencies are another asset that are high in extrinsic value where traders hope to sell them in the future for significantly more than they originally paid.

FDIC is short for Federal Deposit Insurance Corporation and protest depositors in the event of theft or bank failure up to to $250,000

The Federal Reserve Bank is the central bank of united states. It is responsible for regulating the US money supply, regulating banks and setting policies such as the base interest rate, quantitative easing, bond buys from the US treasury and more.

To be FI is when you reach the point money is no longer the primary factor in your decision-making process. Your needs are met, and you’ve structured your life in such a way that your net worth continues to grow, you’re confident that you can handle the events that life throws at you. Most importantly your stress levels go way down!

Some people argue that you’re not truly financially independent (FI) until you have reached the point that you can retire early (RE). I think this is a little bit of a hard-line view but I can’t argue the point if you are able to quit your job and peruse other activities with your time you’ve certainly reached Financial Independence.

The fractional reserve system is where banks are only required to keep a fraction of total deposits in cash. The idea is the bank can lend out the rest to earn a return. This is generally supported because it helps expand the economy and provides the saver a return on savings in the form of an interest payment.

A hedge is a tool to hedge against a risk. A common example is a hedge fund owned by many pensions, nonprofits, universities ect. It is not always necessary or desirable to maximize profits but more important to minimize losses in times of market volatility or down turns.

A simple example would you buy extra water to keep in your home to hedge ageist the risk that thee water in your home stops working.

Hedge funds can be quite complicate in their structure and strategies but their primary function is to protect the investors money in times of uncertainty. They are sometimes criticized for not making as much money as the S&P500 but that was never their goal.

I-Bonds are bonds issued by the US Treasury that have an interest rate pegged to the publicly published inflation index. Investors may buy these as a way to minimize the impact inflation may have at eroding their moneys spending power over time. I bonds reset their rate every 6 months. Unlike normal bonds I-Bonds cannot be traded on the market and must be sold back to the US Treasury.

Intrinsic value is the value or utility of an underlying asset. For example a homes intrinsic value is the value it brings to it’s occupants. Current market price of the home may be higher or lower than the intrinsic value based on additional factors.

Another example is a startup company with no current product may have no intrinsic value but still trade for a lot of money, while a more established company with little growth prospects may trade at prices very closely reflecting it’s current intrinsic value.

An illiquid asset is one that cannot be readily turned into cash, such as a home or business. It has value but it may take months or even years to find the right buyer.

an index fund is a fund normally and ETF or Mutual fund, that attempts to track a common stock index. such as the S&P500, Dow Jones 30, Nasdaq, or Russell 2000) many investors like to use these funds because it offers an easy way to buy into many different companies to diversify your investments which lowers overall risks. This service is offered at a small fee. Other types of funds are sometimes incorrectly referred to as index funds such as a total market fund, or a market sector, while these types of funds offer similar diversification benefits they are not considered and index fund if they don’t seek to match the performance of a standard index.

An illness the affects many first world counties. instead of doing things for themselves like cooking, mowing the yard, simple home repairs, changing the oil people increasingly find they just can’t be bothered with it and JWAC it so someone else can do it on their behalf. Sometimes this is ok such as replacing but often times if we’re honest with ourselves we can perform many of the services we pay fore ourselves.

Liquidity represents a company or persons ability to make payments. For example a company can be profitable with lots of orders but unable to make payments to suppliers or employees because of a cash shortage as they wait for customers to pay them. This would be called a liquidity issue. Similarly an individual with car trouble may not have enough cash on hand to fix their car even though they have a high net worth on paper.

In a liquidity crisis banks may be seeking to borrow more short term cash than is currently available on the market. This can cause issues ensuring companies can make payments on time leading to wide spread disruption. 2007 – 2008 housing crisis was a good example of the United States going thru a liquidity crisis that took dramatic steps from the government to get under control.

Liquid assets are assets that are easily converted into cash such as stocks, bonds, precious metals etc. generally, if you can sell the item that day to meet an immediate cash need it is considered a liquid asset.

This is the physical currency such as dollar bills and coins currently in the public available to spend. It is the simplest to understand and is typically the first thing people think of when we talk about money.

This represents all M0 money and physical cash in banks as cash reserves also known as “Vault Money”

This is M1 Money plus money currently in savings and checking accounts and other simple time deposits such as CD’s

Defined as M2 and Large Time Deposits, Money Market Funds, and other large liquid assets)

This is the amount of money currently in circulation or in public hands at any given point in time.

A Mutual Fund is similar to an ETF as in it’s created by a finical institution but instead of being traded on the stock market you typically buy then directly from the financial institution that created them. (or your broker does on your behalf). Similar to ETF’s they hold many companies or assets so you can easily buy them in one transaction, sometimes these funds have a purchase minimum where you have to buy to enter funds. there also may be a transaction free if you are buying a fund not offered directly by your broker so it is typically most cost effective to buy a mutual Fund offered directly by the company you are working with (Ie. buy a Fidelity Fund if you are with Fidelity, a Vanguard Fund if you invest with Vanguard etc.).

This is the value of all your assets (stocks, bonds, retirement accounts, cash, etc) minus any debts you may have. I personally don’t include the home you live in as part of NW calculations because you can’t access that equity without selling the home (they you’d have to pay for another place to live) or committing to payments ageist your future income, which doesn’t help you FIRE. If you want to use your homes equity to help you FIRE you’ll need to down size to a place that costs less to live in.

Options are contracts to buy or sell securities at specific price in the future at a specific date. The price you agree to is called the strike price while the amount the contract is bought or sold for is called the option premium.

This is the original money you’ve invested. Individuals like to know how much principle they have invested vs the total amount a portfolio is currently worth

Put contracts are an option contract that is an agreement that gives the buyer the right to sell a given security at a specific strike price in the future.

Retiring early is the end goal for many people joining the FIRE movement, they are tiered of their time being controlled by the needs of others and want to escape the rat rase, I consider anything before age 55 an early retirement, Ideally you’d reach this goal in your 30’s but shaving 10 years off normal retirement age is still a worthy goal once you’ve retired you no longer need to work a traditional 9-5 job if you don’t want to. (side note many FIRE people find enjoyment is side hustles or passion projects) the key thing is you have the freedom to do what makes you happy.

Return On Investment. This is the amount of money you have earned on an investment after the initial principle has been paid back. if you invested $100 and one year later it is worth $150 the ROI would be $50 or 50%. this is generally expressed as a total number or percentage.

This is the amount of money you save in comparison to your take home pay (after tax) expressed as a %.

For example if you save $20,000 per year and bring home $80,000 per year your savings rate would be 20,000/80000=25%. The higher your savings rate the earlier you’ll be able to retire!

SPIC is short for Securities Investor Protection Corporation is a government program that protects your investments in the event that your stock broker or dealer fails. Holdings in cash and securities are insured by the US government up to $500,000 in value.

A share of a publicly traded company. Typically purchased on a stock exchange such as NYSE (New York Stock Exchange) however non public companies can also have shares that stakeholders/owners hold.

This is a tool used to measure the markets performance or the performance of a given sector. think of it like a thermometer. it’s a way for you to see if the markets are going up or down, and how they are doing compared to past performance. common indexes are

S&P500 - 500 largest publicly traded companies in US

Dow Jones 30 - this is a collection of 30 large blue chip companies that are traded on the New York Stock Exchange. they are selected based on their size and constant earnings performance. names such as Microsoft, Walmart, and McDonalds are currently part of the DOW

NASDAQ 100 - Top 100 companies on the NASDAQ Exchange (Mostly tech companies)

Russell 3000 - Top 3000 largest companies in the stock market (about 98% of the total market value)

This is what you consider a safe amount to withdraw from your total investments (NW) in a given year. It’s often referred to as the 4% rule: This is a generally accepted good starting place for calculating what you can safely live off of in retirement. It comes from the Trinity Study which back test market performance over the past 80 years. of course past performance doesn't guarantee future performance. But it’s the best information we have to work from.

A synthetic asset is when a man made idea can create or transfer value. The asset itself has no real value other than as a vehicle to reallocate money.

Examples of synthetic assets are options contracts, crypto currencies, etc. these items typically have little real world use but can be used to leverage or speculate with.

Tax Advantaged accounts is a general term used to categorized accounts that have a tax benefit of some kind. Examples of tax advantaged accounts are IRA’s, 401K, and ROTH accounts. These accounts allow your money to grow free of tax burden. Some accounts such as ROTH IRA’s are taxed before you invest but you can withdraw at a later date tax free. Other accounts such as 401K’s allow you to invest money today to grow tax free however you will pay taxes at the time of withdraw (Hopefully at a lower tax rate)

This is a Mutual Fund or ETF that has purchased a weighted share of all stocks in a given market in an effort to give the investor a broad diversification over many industries, company sizes, and potential growth. many people who plan to retire early use total market funds because no one company or industry can wipe out your investment. this follows the idea of in raising water all ships rise. you don’t have to pick the ship. My favorite is VTI by vanguard, it seeks to represent the entire US stock market.

A common time frame used in measuring performance, of stocks, bonds, and portfolios. This time frame looks at the change in price or the performance of an asset in the current calendar year from the January 1st to the current date of a calendar year