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1. Inflation
The value of the dollar decreases. This is a hot topic right now- and for good reason. The Consumer Price Index (CPI), an index that tracks consumer goods pricing, rose by 8.5% in the last 12 months. This is the most significant 1 year growth since 1981! When prices increase your $ now buys less than it used to, and your dollar is effectively worth less. Investing in appreciating assets is a great way to keep up and reduce the effects of inflation on your lifestyle.
2. Asset
An asset is any item you own that earns you money. These gains come in many forms, such as property appreciation, stock gains, and stock dividends. Asset ownership is how you build and elevate wealth for long-term success.
3. Liability
Anything that costs you money. A liability is the exact opposite of an asset, but they’re not necessarily bad. A few common liabilities are cars, dependents, pets, and home ownership. Each of these items consistently take money from your pocket. The key is not having more liabilities than you can afford.
4. Asset Allocation
The distribution of your assets across different investments and strategies. Asset allocation is arguably the most crucial piece of any portfolio; without it your wealth could be at a higher risk than necessary. If your portfolio is heavily concentrated in one area and there is a crash in that market, your portfolio could lose a lot of money.
If you understand these terms and build your financial plan with these key concepts in mind, you’ll go further than you knew possible.