Investing Series: Terms to Know

I should probably warn you before you dive into this comprehensive list – it is going to look daunting. But, don’t fret. Sometimes getting to know the terminology can actually be the better start mark. If you’ve already read the first part of the Investing Series: What You Should Know Before You Start Investing, continue below for some of the most used words you should know before you start investing:

Bet You Didn’t Know That Word

401k: refers to line number 401(k) in the IRS tax code that allows employers to establish a company-sponsored retirement plan; companies establish these plans with rules that may be stricter than the IRS rules; a company’s fiduciaries determine which investment options the plan will offer

Aggressive: a descriptive term applied to investors, fund managers or investments; associated with higher levels of investment risk and more volatility; more risk in exchange for the opportunity for a greater return; the opposite of conservative

Asset Allocation: This is just a fancy phrase for your investment strategy. There are three general categories where you’re going to put your money: cash, bonds and stocks, says Kemberley Washington, an accounting professor at Dillard University in New Orleans and a certified public accountant. “Cash,” she says, “is the least risky and would provide the least amount of return … Bonds are generally riskier than cash but less risky than stocks.”

Blue Chip StocksThe best stocks are usually referred to as blue-chip stocks.

Capital Gain: earnings on investments

Conservative: a descriptive term applied to investors, fund managers or investments; associated with lower levels of investment risk and less volatility; less risk and lower returns in exchange for a greater level of asset protection; the opposite of aggressive

Diversity: A portfolio characteristic that ensures you have more than one type of asset. It also means choosing to buy investments in different sectors, industries, or geographic locations.

Dow Jones Industrial Average: This average includes a price-weighted list of 30 blue chip stocks. While there are only 30 companies included on the list, many people think of the Dow when they here that “the stock market” gained or lost. The Dow is often used as a gauge of the health of the stock market as a whole, even though it is only a very small portion.

Index FundsAn index fund is a mutual fund, sometimes trading as an ETF, that allows an individual to “invest” in an index, such as the S&P 500. Index funds are designed to give investors returns that are in line with the index.

Market CapitalizationThe market cap of a company is figured by multiplying its current share price by the number of shares outstanding. The largest companies have market caps in the billions.

Mutual Funds: In layman’s terms, this is a pile of money that comes from a lot of investors like you and is then invested in assets like stocks and bonds. A mutual fund may hold hundreds of stocks, with the purpose of spreading the risk. In most cases, money managers make buy and sell decisions for mutual funds, which brings us to our next definition.

NASDAQThis is a stock exchange that focuses on trading the stocks of technology companies.

StockWhen you buy stock in a company, you’re purchasing a tiny bit of ownership in the firm. Generally, the better the company performs, the more your share of stock is worth. If the company doesn’t do so well, your stock may be worth less.

Stock Exchange: A stock exchange is an institution, organization, or association that hosts a market for buyers and sellers of equities to come together during certain business hours and trade with one another.

YieldThis is associated with dividend investing. Your yield represents the ratio between the stock price paid and the dividend paid. A stock trading at $100 per share, with a dividend that amounts to $5 per year, you divide the $5 by $100 and turn it into a percentage. In this case, the yield would be 5%.

 

Click on each word to get more information from the source. Below are a few more sites that could give you further words to know:

And don’t forget to check out last week’s article to get more information on What You Should Know Before You Start Investing.

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