Podcast Episode 245: Defining Commonly-Used Financial Terms

Today’s Wisdom:

Have you ever felt out of touch when you read or listen to financial news because you don’t completely understand the jargon being used? Don’t worry if you do because you’re not alone. Today we’re going to clear up a few of the common financial terms that you’ve probably heard but might not know what they truly mean.

Want to save time? Click the timestamps below to jump ahead to specific spots in the episode.

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What You’ll Learn:

It’s easy for financial professionals to forget how just how much jargon is out there and underestimate how confusing things can be for most people.

Let’s try to tackle a few of the terms that people probably hear a lot and might even use at times but aren’t totally sure what they mean. To help us with this, we brought Eric Hogarth, CFP® onto the podcast to provide us with a little education. We’ll go through them all in a little more detail on the show but here are the financial terms we’ll define.

First up is in-service distribution. This one means you’re still working and the important thing to note here is that you can most likely roll out money from your plan at work into an IRA. The reason someone would choose to do that is to provide yourself more safe investment options than your company 401(k) likely allows. So this move would give you more flexibility without any tax obligations at the time of transfer.

The next one we want to discuss is the Roth conversion. Many people confuse this with a Roth contribution. The conversion happens when you take all that pre-tax money that you’ve been contributing to your retirement account and move it into a Roth that allows you to grow it tax-free from that point forward. Keep in mind that you can convert as little to as much as you’d like, but make it a priority to figure it out if it’s something you should take advantage in case the opportunity ever goes away.

What do you know about an ETF? The Exchange Traded Fund or ETF is another type of investment that sits in the middle of stock and mutual fund. It’s a way to get exposure to multiple companies but usually does it without as many costs and fees as you’d find in a mutual fund. But mutual funds do have an active management element to them so that’s something to consider.

Finally, let’s talk fiduciaries. Have you heard this one before from an advisor but didn’t know exactly what it meant? As a fiduciary, that person is obligated to make decisions that are in the best interest of their client regardless of what they’re getting compensated. To be clear, your advisor doesn’t haven’t be a fiduciary to do a good job for you, but it’s important to know whether they are or not. And yes, everyone in our office that would be meeting with clients are fiduciaries.

Hopefully we’ve cleared up these financial terms for you but please let us know if there are any others you’d like to have cleared up.

[0:19] – In-service distribution

[1:57] – Roth conversion

[3:20] – ETF

[6:16] – Fiduciary

[9:14] – Money Map review

Thanks for listening to this episode. We’ll be back again next week for another show.

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Final Thoughts:

“A 401(k) is a great vehicle to save money into over years and years and years, but as you get closer to retirement, sometimes they’re lacking in safe stuff.”

– Eric Hogarth

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