Inside: If lack of knowledge or confidence is keeping you from investing, then this list will help you learn basic investing lingo.
Do you want to start investing, but you’re confused by all the new terms? You don’t need to know everything before you begin investing, but it doesn’t hurt to become familiar with a few basic investment terms you should know.
These definitions will help get you started on your investment path and feel more confident as you continue to learn.
This is the lowest price a seller is willing to accept when selling a security. It is the minimum amount they are asking for.
2. Asset allocation
Asset allocation is a strategy that seeks to balance risk and reward in a portfolio given an investor’s risk tolerance and time horizon.
3. Asset classes
An asset class is a group of securities with similar characteristics. Examples of asset classes would be stocks, bonds, cash equivalents, commodities, and real estate.
4. Bear Market
This is when the market is falling or has a downward trend.
This is the highest price a buyer is willing to pay for a security.
6. Blue Chip
A blue chip is a nationally known, well-established company that has a long record of solid earnings, reliable growth and is financially sound. Current examples include 3M, Coca-Cola, Colgate-Palmolive, and Boeing.
A bond is a type of investment where you lend money to a company or a government agency in return for a promise of getting your investment back plus interest. You can think of a bond as a form of an IOU where you are the lender.
A broker is an entity that buys or sells investments on your behalf, often for a fee. Some brokerages may charge a flat fee per trade and others may charge a percentage of your assets under their management.
9. Bull Market
A bull market is when the market is up or has an upward trend.
10. Capital Gain (or Loss)
A capital gain or loss is the difference between the price you paid when purchasing an investment and the amount you received when selling. If you buy a share of company Y for $100 and sell it later for $150, you have a capital gain of $50. If you had sold that share of company Y for $75, you would have a capital loss of $25.
If a company opts to distribute some of its earnings with shareholders, it is called a dividend. Companies that offer dividends to shareholders tend to be larger and well established.
12. Dow Jones Industrial Average (DJIA)
This is the most widely used measure of the US stock market. It consists of 30 price-weighted blue chip companies.
An ETF, or exchange traded fund, is similar to a mutual fund but trades throughout the day.
14. Expense Ratio
An expense ratio is the percentage of a fund’s assets that are used for administration and other expenses.
Essentially, a fiduciary is a person that is expected to act in the best interest of the person whose assets they are managing.
An index is a tool to statistically measure changes in a group of securities that share certain characteristics such as a market cap or sector. Indexes you may have heard of include the Dow Jones Industrial Average and Standard & Poor’s 500.
17. Mutual Fund
A mutual fund is a diverse collection of stocks, bonds, and other investments and are managed by money managers. There are thousands of mutual funds available and they can be a good way to easily diversify your portfolio. Some funds might cover different sized companies or different market sectors, such as healthcare or energy. Unlike stocks, the value of the mutual fund is calculated at the end of the day and any buy or sell orders are carried out at that time.
A portfolio is a collection of investments and cash held by an investor.
A spread is the difference between the ask and bid prices.
A stock represents ownership in a company. A company will divide ownership stakes into shares. When you buy stock in a company, you are buying shares of ownership in hopes that the company will be successful. The more stock, or shares, of a company you own, the higher your ownership stake becomes. Stocks form the foundation of most portfolios.
Related post: How to Start Investing With Only $100 (or less)
21. Stock Exchange
You can think of a stock exchange as a marketplace. This is where buyers and sellers trade equities. There are several stock exchanges, such as the New York Stock Exchange (NYSE) and NASDAQ.
Knowing these terms should help make the start of your investing journey a bit easier to navigate.