Did you know that compound interest is the interest calculated on the initial principal and also on the accumulated interest from previous periods? Its effect can either work for you or against you, depending on whether you are saving or borrowing money. Another important financial term is diversification, which involves spreading your investments across different assets to reduce risk. It's like not putting all your eggs in one basket! When it comes to building wealth, the term asset allocation is crucial. This refers to dividing your investments among different asset classes, such as stocks, bonds, and real estate, to achieve your financial goals while managing risks. Have you ever heard of the rule of 72? This rule is a quick way to estimate how long an investment will take to double, given a fixed annual rate of return. Simply divide 72 by the annual rate of return to get the approximate number of years it will take for your investment to double in value. Understanding these common financial terms can help you make informed decisions and take control of your financial future. Remember, financial literacy is key to building a secure financial foundation and achieving your long-term goals.