Investing Terms You Need to Know

Here the Some of the Most Common Investing Terms You Should Know. Bookmark this Glossary!

It can be difficult to know what the terms of investing mean, since there are so many. Below you will find a list of all the terms related to investing and personal finance - bookmark this page as a handy reference.‌

52-week-high: the highest price of the security in the past year.

52-week-low: the lowest price of the security in the past year.

Above Par: when the market value of a bond is greater than its face value.

Absolute-return: a term used in reference to a security that doesn't have a fixed maturity date, and pays interest at regular intervals.

Active management: an investment strategy where the manager tries to pick securities that will outperform the market.

Account: An account is used as proof of ownership for stocks, bonds, commodities, and other assets.

Account certificate: An account certificate is a recorded interest in an investment trust or mutual fund, showing the number of shares owned by the investor.

Annual percentage rate (APR): The APR is how much interest you are being charged on your debt.

Ask: The ask is the lowest price a seller is willing to accept from a buyer.

Asset allocation: Asset allocation is the process of dividing an investment portfolio between the major asset classes such as stocks and bonds.

Balance: A balance is an investor's total assets minus their total liabilities.

Basis Point: A basis point is equal to one hundredth of one%, or 0.0001.

Bear market: When a market falls in value for a prolonged period of time, it is considered to be in a bear market.

Bid: The bid is the price that a buyer is willing to pay for a particular stock.

Bond: A bond is an investment of money by a corporation, government, or other organization in which the company borrows capital from an investor and agrees to repay it.

Bull market: When a market rises in value for a prolonged period of time, it is considered to be in a bull market.

Buy and Hold: A buy and hold strategy is when an investor purchases a security with the plan to keep it for a long period of time, regardless of fluctuations in price or volume. This approach avoids trying to predict short term changes in the market.

Capital gain (or loss): A capital gain (or loss) is when an owner sells a security and makes money (or loses money) on the investment.

Collateral: Collateral is something of value that the borrower offers to secure a loan.

Commercial paper: Commercial paper is short term corporate debt with minimal risk, which can be bought or sold in secondary markets such as stock exchanges.

Commodities: A commodity is raw material used in the production of goods, such as oil or gold.

Company stock: Company stock is shares of a company that are available for purchase by shareholders of the same company.

Compounding: Compounding refers to earnings on interest, which then earns more interest. Once this cycle starts it can accumulate into substantial growth.

Convertible: A convertible security is a bond, note, or preferred stock that may be converted into common stock at the option of the holder.

Coupon: The coupon is the annual interest payment on a fixed-income security such as a bond or preferred stock. It doesn't factor in the price you paid for the bond.

Credit rating: A credit rating is a form of evaluation that provides insight into the creditworthiness or ability to repay debt.

Currency risk: Currency Risk is the possibility that the value of one currency will fluctuate relative to another, which could be an issue if your investment is in foreign countries.

Debt-to-income ratio: The debt-to-income ratio is the relationship between how much an individual earns and their accumulated debts.

Deflation: Deflation is a prolonged decrease in the general level of prices for goods and services.

Diversification: Diversification is when you spread your investments into various assets that don't move with one another to minimize risk.

Dividend: A dividend is a distribution of a portion of a company's earnings paid to holders of preferred and common stock.

DRIP or DRIPS: DRIP or DRIPS stands for "Dividend Re-Investment Plan" which is a method used by companies to pay dividends directly reinvested into the purchase of more company stock.

Earnings per share:  Earnings per share is the portion of a company's profit that is allocated to each outstanding share of common stock.

EBIT or EBIDTA: EBIT or EBIDTA stands for "Earnings Before Interest and Taxes" which is the revenue left over after all operating expenses, but before interest and taxes are paid. The same as earnings before deductions.

Emergency fund: An emergency fund is money set aside to be accessed in the case of a sudden expense, such as medical bills or car repairs.

ETF: An ETF stands for "exchange-traded fund" which is a security that tracks an index, commodity, bonds, or basket of assets like an index fund but trades on an exchange like a stock.

Exchange rate risk: Exchange rate risk is the possibility that the value of one currency will fluctuate relative to another, which could be an issue if your investment is in foreign countries.

Fixed income: Fixed income is a regular payment made by an entity to individuals or organizations under a contractual agreement.

Float (or Free float): Float (or free float) represents the number of shares available for trading in the market. This can be different than total shares outstanding, which is all of the stock issued by the company.

Forming an Investment Plan: Forming an investment plan is when you decide how much risk you're willing to take in order to meet your goals.

Growth Investing:  Growth investing is a long-term investment strategy that focuses on capital appreciation or income from invested assets.

Hedge fund: Hedge funds are private investment funds that have a small number of high net worth or institutional investors.

Holding company: A holding company is a company that owns enough voting stock in another firm to control management and operations by influencing or electing its board of directors.

Hurdle rate: The hurdle rate is the minimum return needed before adding money to an investment portfolio.

Inflation: Inflation is when prices go up because of a decrease in the overall value of money.

Initial Public Offering (IPO): An initial public offering, or IPO, occurs when a company sells its first shares to the general public.

Investing vs. Speculating: Investing is buying an asset, holding it for a long period of time in the hope that the asset will gain value over time. Speculation is when you buy an asset to cash in on short-term price movements.

Leverage: Leverage is the use of various financial instruments or borrowed capital, such as margin, to increase the potential return of an investment.

Liquidity: Liquidity is a measure of how easily you can convert your assets into cash.

Market capitalization: Market capitalization is the total dollar market value of all the shares outstanding of a publicly traded company.

Long-term savings: Long-term savings is when you put money away with the intention of not using it for a long period of time.

Mean: The mean is the average value in a data set, calculated by adding all values and then dividing by the number of values in that set.

Medium-term savings: Medium-term savings are when you put money away with the intention of using it within 5 years.

Momentum investing: Momentum investing is buying shares in a company based on recent performance, which can be risky but also rewarding if the price continues to climb.

Net worth: Your net worth is how much you'd have if you sold all of your assets and paid back all of your debts.

P/E ratio: P/E, or price to earnings ratio, is a technique used in fundamental analysis that compares the stock's current share price with its per-share earnings.

Price-to-book ratio: Price-to-book is sometimes referred to as the "book" value of a company, which is calculated by dividing the company's market capitalization (how much it's worth) by its total assets or share price.

Prospectus: A prospectus is a legal document that must be given to any investor who is considering buying shares in a private placement before the stock can be sold.

Real Estate Investment Trust: A real estate investment trust (REIT) is a corporation that owns, and in most cases, operates income-producing real estate.

Real return: The real return, or inflation-adjusted return, is the amount of money you're able to earn after adjusting for inflation.

Recession: A recession is a significant decline in economic activity that lasts more than a few months.

Return on Investment (ROI): Return on investment is how much income an investment generates and calculates the gain as a percentage of the cost of an investment.

Risk tolerance: Risk tolerance is how much risk an individual can handle before it affects their financial well-being.

Short selling: Short selling is when you borrow stock, sell it at current market price, and then buy it back to return to the owner. This is done in the hope that the stock will drop in value so you can return it at a lower price to make money.

Small-cap stocks: Small-cap stocks are companies that haven't reached the size considered large in their industry.

Speculation: When you invest money in an asset with the hope of selling it at a higher price for a profit, this is called speculation.

Stock Sector: Stock sectors are associated with specific industries, such as financial services and technology.

Stock split: A stock split is when a company issues new shares to current shareholders, usually in proportion to how many they already own.

Systematic risk: Systematic risk is the risk that affects all securities within an economy or market, caused by factors outside of an individual's control.

Technical analysis: Technical analysis involves using charts and graphs to try and predict how a stock will move. This is based on past performance, which means it doesn't always work out.

Utilities: Utilities are a sector of the stock market associated with companies whose primary business is providing basic services, such as electricity and water.

Valuation: Valuation is the process of determining a stock's worth. You can calculate its value by using various financial ratios, such as price-to-earnings.

Value investing: When you take a long-term view to choose shares based on their intrinsic value, this is called value investing.

Volatility: Volatility is the amount of uncertainty or risk about the size of changes in a security's value over time. High volatility means large, unpredictable price movements. Low volatility means small, predictable price movements.

Whole life insurance: Whole life insurance is a type of permanent life insurance that covers you until you die. The policy builds cash value over time, which you pay tax on when withdrawing it. This tends to be more expensive than term life insurance.

Yield: Yield is the rate of return an investor will receive for buying a stock. It's expressed as a percentage based on the annual dividend or interest received divided by the current price.

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