Terms Of Investment

Before you dive into the world of investing I think you should learn these basic investing terms. Once you learn these terms you’ll be all set to tackle any beginner investing book I throw at you.

Actively Managed Fund –The portfolio manager of an actively-managed fund tries to beat the market by picking and choosing investments. The manager performs an in-depth analysis of many investments in an attempt to outperform the market index — like the S&P 500.

Asset- A resource with economic value that an individual, corporation or country owns or controls with the expectation that it will provide future benefit.

Bond – Issued to investors in order to raise capital for businesses and government. By lending money to these groups you receive interest over a fixed period of time. Once a bond matures you receive the money you originally invested in the group. Bonds are the first security to be paid if a company is liquidated.

Broker –An individual or firm which acts as an intermediary between a buyer and seller, usually charging a commission. For securities and most other products, a license is required.

Bull Market – The opposite of a bear market. Referring to a market or market sector when stock prices rise for a significant period of time.

Capital – Money used to generate an income, Start-up costs for businesses are paid for with capital. Money used to buy securities is also capital.

Diversification –Means reducing risk by investing in a variety of assets. If the asset values do not move up and down in perfect synchrony, a diversified portfolio will have less risk than the weighted average risk of its constituent assets, and often less risk than the least risky of its constituents.

Dividend – Payed out by companies to its share holders, most commonly in the form of cash. Companies are not required to pay out dividends.
Index Fund – A passively managed fund that tracks a specific index such as DJIA or S&P 500. More earnings are paid out than a normal mutual fund because less transactions occur.

Inflation – The rise in price of all items and services, resulting in the decrease of the purchasing power of the dollar.
Mutual Fund – A fund offered by a company who will use the money from sales of the fund shares to buy investments. Mutual funds have a minimum investment.

Portfolio – A collection of investments owned by a person, business or any other institution.

Preferred Stock –Preferred stock (also called preferred shares, preference shares or simply preferreds) is a type of stock which may have any combination of features not possessed by common stock including properties of both an equity and a debt instrument, and is generally considered a hybrid instrument.

Profit – Price you sold a stock for minus the cost to buy.

Split – Increasing the total number of shares of stock at a certain ratio, prices are cut at same ratio. If you own 10 shares of Sony and they split 2:1 you will own 20 shares each worth half the price.

Stock – Partial ownership of a company, by buying stock you own a piece of that company.

Ticker Symbol –A stock symbol or ticker symbol is an abbreviation used to uniquely identify publicly traded shares of a particular stock on a particular stock market. A stock symbol may consist of letters, numbers or a combination of both.

Volatility – A measure of how a stock moves compared to a bench mark. The higher the volatility the more risky an investment is.

Dividend Yield – The percentage of dividends paid compared to the price of a security. Found by adding all four quarters’ dividends and dividing by the price.