Unless you’re highly trained in personal finance or wealth management, one of the things that can be most difficult in the investment process is remembering and understanding all of the different investment options that exist. Simply put, there are a lot of different kinds of investments and strategies that work in a lot of different ways. It’s more difficult to advance without getting a basic understanding of the field, in this case that includes the basic terms of the trade (pun intended)! We have taken the guess work out and compiled a “cheat sheet” to help with those frequently used investment/finance terms.
- Market: refers to the “stock market,” or a market in which shares of publically held companies are issued and traded
- Stock: a type of security that signifies ownership in a corporation
- Share: one unit of ownership in a company, which then pays an equal distribution of the company’s profits to its shareholders
- Shareholders: any person (including investors like yourself), company, or other entity that buys and owns at least one share of stock in a corporation
- Security: refers to a broad range of financial assets such as stock shares, bonds, and options
- Bond: an investment in which an investor loans money to an entity (usually a corporation or the government) and receives interest payments in return
- Option: a type of security in which a company gives an investor the option to buy the company’s stock at a fixed price during a given period of time
- Equity: (used synonymously with the term “stock”) a security that represents an ownership interest in a company (includes ownership in private companies, where shares are not publically traded)
- Portfolio: a range of investments held by one person or entity
- Trade: refers to the buying and selling of securities
- Asset Class: a group of securities that behave similarly in the marketplace and maintain similar legal regulations and characteristics – examples include: stocks, bonds, and commodities
- Asset Allocation: the goal of distributing your investments between several different asset classes so as to minimize risk (a strategy that follows the phrase “don’t put all your eggs in one basket”)
- Mutual Fund: a fund made up of money from many investors, where money managers invest the money in a variety of securities like stocks, bonds, and other assets
- ETF: a mutual fund that is traded on a stock exchange
- Volatile: the trait of an investment that fluctuates in value commonly and unpredictably
- Return: the gain or loss of a security in a particular period of time (oftentimes shown in the form of a percentage)
- Risk: the probability of yielding losses on an investment; a measure of uncertainty in an investment’s ability to making its predicted gains
- Compounding: the process where the value of an investment increases because the initial value of the investment generates more and more interest over time
- Dividend: money paid regularly to shareholders from a company’s profits
The best tip we can give you is to keep educating yourself – read up, listen up, and watch – stay informed! We hope these few financial terms can act as a solid first guide – or a solid vocab brush up – to help you in your investment planning process.
Disclaimer: Depending on the context, and jurisdiction the above terms are used in, the definitions or meaning may vary.