I wanted to (finally) give you a money dictionary that doesn’t require a dictionary to understand the word’s definition. That doesn’t exist . . . so I made my own. You know how you explain a term to a friend who doesn’t “get” it? That’s the way it’s written here. Let this glossary be your go-to guide for definitions with a practical perspective whenever you need a little cheat-sheet. Some stuff changes over the years, but these basics never go out of style.
Ratios: Wall Street loves ratios, as you already know if you read the entry on the P/E ratio. Besides the price-to-earnings ratio, there’s price/book, which measures a company’s value in the market- place relative to its book value, debt/equity, a measurement of how indebted a company is, and many more.
Rebalancing: Buying or selling securities to maintain or change your asset allocation. Let’s say you had an 80/20 allocation of 80% stocks and 20% bonds and you wanted to play it a little safer and switch to 70/30. You would sell some of your stock and invest the money in bonds . . . thereby rejiggering or “rebalancing” your portfolio.
Refinancing: The process of transferring debt from a high-rate loan to a lower-rate loan. It’s like switching from overpriced cable service to something more manageable if you have the opportunity to do so. You still have to pay but it’s not nearly as pricey. Not everyone can do it, though. You have to have a good payment and credit history. A big reason for doing this is to have a little more cash readily available by reducing your monthly bills.
Getting a company name or brand name trademarked so that you can use it exclusively, which gives you an advantage over the others in your
market and legally prevents competitors from using your name or brand without permission.
Revenue: A term for the gross amount of money a business receives before expenses are deducted. Because a profit and loss statement starts with revenue, revenue is sometimes called the “top line.” (See also: Bottom Line, Profits, P&L Statement)
Reverse Auction -
A type of auction in which sellers bid for the prices at which they are willing to sell their goods and services. So let’s say you’re a whiz at photo editing. You might go on a site like Upwork and bid on the listings from people looking for freelance photo editing services by offering the amount you are willing to be paid for doing the work. At the end of the auction, the person who’s willing to do the same work for the lowest amount typically wins.
Risk Averse -
Risk Averse: Means apprehensive about taking chances. If this is you, you’d rather take a long walk than go cliff diving, and you’re more likely to invest your money in something safe like CDs or bonds rather than in the stock of a new internet start-up.
Roadshow: If you owned a company, and you decided you wanted to start selling shares of your company to the public, you would take your “show” on the road to try and “sell the sizzle” and look for money for the company. Typically, companies engage in road shows before an initial public offering, or “IPO.” It helps to spread the word about your company and get investor support.
ROI (return on investment) -
This is the money you make back after investing in something. It’s a good indicator for whether or not the initial investment makes
good business sense. You want this number to be as high as possible, because that means you’re getting the maximum bang for your investment buck. But the “return” part doesn’t always have to be tangible. If you invest in a kick- ass web developer who creates a site that helps to successfully launch your business, you can consider the investment in that person a great ROI (even if there isn’t an exact value to assign to the website just yet). Your favorite LBD (little black dress, duh) might also have a good ROI; if you wear it once per week and it makes you feel like a boss, then you’re likely getting a pretty solid return on that $150 you shelled out for it.
Rollover: If you leave a job where you have a 401(k), you can take the money with you—that’s right, “roll it over”—either to a 401(k) at your new job, or to an IRA. [See also: 401(k), IRA]
Roth 401(k) -
Roth 401(k): It’s just like a normal 401(k) in that it’s a retirement plan offered by your employer, but you pay tax on the contributions when they go in so you don’t pay taxes when you take the money out. [See also: 401(k)]
Roth IRA -
Roth IRA: Like a regular IRA, it stands for “individual retirement account.” But, unlike traditional IRAs where you are taxed only when you take your money out, Roth contributions are taxed up front but not later on. It’s a great deal if you qualify. The catch is that if you are lucky enough to make $125,000 if you’re single, or $183,000 if you’re married, it’s too much money to play the “Roth” game. (See also: IRA)
Money for your brainchild: If you write a book or an article or a piece of music, you will get a royalty for every purchase or download of your product for a set amount of time (depending on the way your contract is set up). So those car commercials featuring catchy tunes? Yep— they’re shelling out beaucoup bucks to those performers and the songwriters every time they air.
Rule of 72 -
Rule of 72: A nifty party trick and a good way to get a feel for com- pounded returns. Divide your expected return into 72 and you’ll get the approximate number of years it will take your money to double. Going to get an 8% return? Expect to double your money in 9 years (72 divided by 8). It’s a simple trick.
Russell 2000 Index -
Russell 2000 Index: An index measuring the performance of around 2,000 smaller companies in the Russell 3000 Index, which is made up of 3,000 of the biggest US stocks. Because it reps the “little” guys (who actually aren’t so little: the average market capitalization for Russell 2000 companies is between $300 million and $2 billion), the Russell 2000 serves as a benchmark for small, or “small-cap,” stocks in the United States.