Glossary of Investment Terms

 

Glossary of Investment Terms

General Terms:

Asset: Something of value you own that can generate income or appreciate in price (e.g., stocks, bonds, real estate).

Asset Allocation: Dividing your investments among different asset classes to manage risk and return.

Bear Market: A market where stock prices are generally declining.

Bond: A loan you make to a company or government, receiving interest and principal repayment at maturity.

Capital Gain: Profit made by selling an investment for more than you paid for it.

Capital Loss: Loss incurred by selling an investment for less than you paid for it.

Cash Equivalent: Investments with very low risk and high liquidity, like money market accounts.

Diversification: Spreading investments across asset classes and sectors to reduce risk.

Dividend: A portion of a company's profits paid to its shareholders.

Exchange-Traded Fund (ETF): A basket of securities that trades like a stock on an exchange.

Investment Vehicles:

 

Exchange: A marketplace where securities like stocks and bonds are traded.

Hedge Fund: An actively managed investment pool with high fees and potentially high returns (and risks).

Index: A statistical measure that tracks a segment of the market (e.g., S&P 500).

Index Fund: A mutual fund or ETF that tracks a specific market index.

Initial Public Offering (IPO): The first sale of a company's stock to the public.

Investment Account: An account you open with a brokerage or financial institution to hold your investments.

Mutual Fund: A professionally managed pool of money that invests in various securities.

Option: A contract giving the right, but not the obligation, to buy or sell a security at a certain price by a certain time.

Real Estate Investment Trust (REIT): A company that owns and operates income-producing real estate.

Stock: A share of ownership in a company.

 

Investment Strategies:

 

Active Management: Selecting specific securities to try to outperform a benchmark index.

Dollar-Cost Averaging (DCA): Investing a fixed amount of money into a particular investment at regular intervals.

Growth Investing: Investing in companies with high growth potential, even if they don't pay dividends.

Income Investing: Investing in assets that generate regular income payments (bonds, dividend stocks).

Passive Management: Tracking a market index and aiming to match its performance.

Rebalancing: Adjusting your portfolio allocation to maintain your desired risk profile.

Risk Tolerance: Your ability to stomach investment losses.

Sector Investing: Focusing investments on a specific industry or sector of the economy.

Value Investing: Investing in stocks that appear to be undervalued by the market.

 

Market Conditions:

 

Bull Market: A market where stock prices are generally rising.

Market Correction: A temporary decline in stock prices (usually 10% or more).

Market Volatility: The degree to which the price of an investment fluctuates.

 

Investment Terminology:

 

Bearish: A negative outlook on the stock market.

Beta: A measure of a stock's volatility compared to the market.

Blue-Chip Stock: A well-established, financially sound company with a long history of paying dividends.

Book Value: The net value of a company's assets minus its liabilities.

Bullish: A positive outlook on the stock market.

Commission: Fee charged by a broker to execute a trade.

Compound Interest: Interest earned on both the initial principal amount and the accumulated interest.

Coupon: The interest rate paid on a bond.

Credit Risk: The risk that an issuer of a debt security defaults on its repayment obligations.

Earnings Per Share (EPS): A company's profit divided by the number of outstanding shares.

Expense Ratio: The annual fee charged by a mutual fund or ETF to cover its operating expenses.

Fair Market Value (FMV): The price at which a willing buyer and seller would agree to exchange an asset.

Initial Public Offering (IPO): The first sale of a company's stock to the public.

Liquidity: The ease with which an investment can be bought or sold and converted to cash.

Margin: Borrowing money from a broker to purchase an investment.

Market Capitalization (Market Cap): The total value of a company's outstanding shares, calculated by multiplying the stock price by the number of shares outstanding.

Maturity Date: The date on which a bond reaches its full term, and the investor receives the principal amount back.

Mutual Fund Manager: The professional who selects investments for a mutual fund.

Order: An instruction to buy or sell a security at a specific price or within a certain price range.

Over-the-Counter (OTC): Securities traded directly between two parties, outside of a formal exchange.

Penny Stock: A stock trading for a very low price per share (typically under $5).

Portfolio: A collection of investments held by an individual or institution.

Price-to-Earnings Ratio (P/E Ratio): A stock's price divided by its earnings per share, indicating how much investors are paying for a company's current earnings.

Prospectus: A legal document that details a company's financial information and offering details for an IPO.

Put Option: A contract giving the right, but not the obligation, to sell a security at a certain price by a certain time.

Risk-Adjusted Return: A measure of return that considers the level of risk involved in an investment.

Sell Order: An instruction to sell a security at a specific price or within a certain price range.

Investment Analysis:

 

Balance Sheet: A financial statement that shows a company's assets, liabilities, and shareholders' equity at a specific point in time.

Cash Flow Statement: A financial statement that shows the movement of cash into and out of a company.

Fundamental Analysis: Evaluating an investment's worth based on a company's financial statements, industry trends, and overall economic conditions.

Technical Analysis: Using charts and historical price data to identify trading opportunities.

Investment Risks:

 

Currency Risk: The risk that the value of your investment will decline due to fluctuations in foreign exchange rates.

Inflation Risk: The risk that the purchasing power of your investment will decline over time due to rising prices.

Interest Rate Risk: The risk that the value of your investments, particularly bonds, will decline when interest rates rise.

Liquidity Risk: The risk that you cannot easily sell an investment and convert it to cash when needed.

Political Risk: The risk that political events or instability in a country will negatively impact your investments.

Reinvestment Risk: The risk that the future returns on your investments will be lower than expected.

Investment Regulations:

 

Financial Industry Regulatory Authority (FINRA): A self-regulatory organization that oversees securities firms operating in the United States.

Securities and Exchange Commission (SEC): The U.S. government agency responsible for protecting investors and maintaining fair, orderly, and efficient markets.

 

Investment Accounts:

 

Individual Retirement Account (IRA): A retirement savings account that offers tax benefits.

401(k): A retirement savings plan offered by many employers, where contributions are made pre-tax.

Roth IRA: A retirement savings account with contributions made after-tax, offering tax-free withdrawals in retirement.

 

Alternative Investments:

 

Angel Investor: An individual who provides financial backing to startups in exchange for ownership equity.

Commodity: A physical good or resource that can be traded, like gold, oil, or wheat.

Hedge Fund: An actively managed investment pool with high fees and potentially high returns (and risks).

Private Equity: Investment in companies that are not publicly traded on a stock exchange.

Venture Capital: Investment in early-stage, high-growth companies.

 

Additional Terms:

 

Accrued Interest: The interest earned on a bond but not yet paid out.

Annual Percentage Yield (APY): The effective annual rate of return on an investment, taking into account compounding.

Bearish Sentiment: A negative outlook on the stock market.

Blue-Sky Laws: State laws regulating the sale of securities within that state.

Call Option: A contract giving the right, but not the obligation, to buy a security at a certain price by a certain time.

Capital Market: A financial market where long-term securities like stocks and bonds are traded.

Closed-End Fund: A type of mutual fund that issues a fixed number of shares that trade on an exchange, unlike open-ended funds that continuously issue and redeem shares.

Credit Rating: An assessment of a borrower's creditworthiness, indicating the risk of default.

Dollar-Cost Averaging (DCA): Investing a fixed amount of money into a particular investment at regular intervals.

Emerging Markets: Stock markets in developing countries with high growth potential.

Escrow Account: A temporary holding account for funds until certain conditions are met.

Fiduciary Duty: A legal obligation to act in the best interests of another person.

Float: The difference between a company's current liabilities and current assets.

Foreign Direct Investment (FDI): An investment made by a company in a business located in a different country.

Growth Stock: A stock of a company expected to experience above-average earnings growth.

Insider Trading: Buying or selling a security based on material, non-public information.

Initial Public Offering (IPO): The first sale of a company's stock to the public.

Market Capitalization (Market Cap): The total value of a company's outstanding shares, calculated by multiplying the stock price by the number of shares outstanding.

Stop-Loss Order: An order to sell a security when it reaches a certain price to limit potential losses.