A contribution is money that you put into your Roth IRA.

Think of it like putting money into a jar.

If you transfer $50 from your checking account into your Roth IRA, that $50 is your contribution.

Example

You contribute:

$25 in January
$25 in February
$50 in March

You have contributed a total of:

$100

Your contribution is the money you personally added to the account.

Earnings are money your investments may generate or gain after your money has been invested.

This is different from your contributions.

Think of it this way:

You plant a seed.

The seed is your contribution.

Anything that grows from that seed represents potential earnings or investment growth.

For example:

You contribute $500.

Over time, the investments inside your Roth IRA grow and your account becomes worth $575.

Your:

Contribution = $500

Growth/Earnings = $75

Remember: investment earnings are not guaranteed. Investments can also decrease in value.

An investment is something you purchase with the goal of potentially growing your money over time.

Examples can include:

• Stocks

• Bonds

• Mutual funds

• ETFs

Remember what we learned in Module 1:

The Roth IRA is the account.

The investments are what you may choose to put inside the account.

Think of a shopping bag.

The Roth IRA is the bag.

The investments are the items you put inside the bag.

Simply owning the bag does not mean there is anything inside it.

A stock represents ownership in a company.

When you buy a share of stock, you are purchasing a very small ownership interest in that company.

Example

Imagine a giant pizza represents an entire company.

One small slice of that pizza represents one small piece of ownership.

Buying stock is somewhat like owning one of those small slices.

If the company becomes more valuable, the value of your shares may increase.

If the company performs poorly, the value of your shares may decrease.

A bond works differently from a stock.

Instead of buying ownership in a company or government, you are essentially lending money to the organization that issued the bond.

In return, the issuer generally promises to repay the money according to the bond's terms and may pay interest.

Think of it like this:

Your friend borrows $100 from you and promises:

“I’ll give you your $100 back later, plus a little extra for letting me borrow it.”

That is a simplified way to think about how a bond works.

Bonds still carry risks, including the possibility that the issuer may have difficulty repaying what it owes.

ETF stands for Exchange-Traded Fund.

Instead of buying only one company, an ETF may allow you to invest in a collection of different investments at once.

Think of a fruit basket.

Buying one individual stock might be like buying one apple.

Buying a diversified ETF might be more like buying a basket containing apples, oranges, bananas, grapes, and strawberries.

If one piece of fruit isn't doing well, you still have the others.

Some ETFs hold hundreds or even thousands of investments. Others can be much more concentrated, so you should always understand what an ETF actually contains.

A mutual fund also pools money from many investors and uses that money to purchase a collection of investments.

Mutual funds and ETFs can both contain many different stocks, bonds, or other investments.

You do not need to understand every difference between them yet.

For this course, remember:

ETF or Mutual Fund = a collection of investments.

We'll discuss investment choices more later.

Diversification means spreading your money across different investments instead of putting everything into one place.

You've probably heard:

“Don't put all your eggs in one basket.”

That is diversification.

Imagine you had $1,000 invested entirely in one company.

If something terrible happened to that company, your entire investment could be affected.

Instead, someone might choose investments that spread money across many companies, industries, or types of assets.

Diversification does not guarantee that you won't lose money, but it can help reduce the risk of depending completely on one investment.

Your return is how much money an investment gains or loses over a period of time.

Example

You invest:

$100

Later, the investment is worth:

$110

Your investment increased by $10.

That is a positive return.

But imagine your $100 investment becomes worth:

$90.

You experienced a negative return, or loss.

Investments can go both directions.

Compound growth happens when your money has the opportunity to earn returns, and then those returns can potentially earn additional returns over time.

Imagine rolling a snowball down a hill.

At first, the snowball is small.

As it keeps rolling, it picks up more snow.

Then that larger snowball can pick up even more snow.

That is similar to the idea behind compound growth.

Your original money has the opportunity to grow, and then the growth itself has the opportunity to grow.

This is one reason time can be such an important part of long-term investing.

We'll explore compound growth much more in Module 3.

Your principal is the original amount of money you put into an investment.

Example

You invest $1,000.

Your investment later becomes worth $1,100.

Your:

Principal = $1,000

Growth = $100

The principal is your starting money.

Your portfolio is simply the collection of investments that you own.

Think of your closet.

Your closet might contain:

• shirts,

• pants,

• shoes,

• jackets.

Together, those items make up your wardrobe.

Similarly, all of your investments together make up your investment portfolio.

A brokerage firm is a company that provides investment accounts and allows customers to buy and sell investments.

A brokerage firm may offer Roth IRAs.

You might use its website or app to:

1. Open a Roth IRA.

2. Transfer money into the account.

3. Choose investments.

4. Monitor your account.

We will talk about what to look for when choosing a provider in Module 6.

A contribution limit is the maximum amount the IRS allows someone to contribute to certain retirement accounts during a particular year.

Think of it like a cup with a maximum fill line.

You may contribute less than the maximum, but you generally cannot simply continue adding unlimited amounts.

For 2026, the combined annual contribution limit across a person's Traditional and Roth IRAs is generally $7,500, or $8,600 for someone age 50 or older, subject to other IRS rules.

These limits can change, so always check the current IRS guidance.