Are you new to the world of investing and feeling overwhelmed by all the jargon? Look no further! This page offers a comprehensive investing glossary to help you understand all the key terms and concepts. From ‘asset’ to ‘zero-coupon bond’, our glossary provides clear and easy-to-understand definitions for over 90 investing terms.
With terms explained in simple language, you’ll be able to navigate the world of investing with confidence. Plus, our glossary is constantly updated to keep up with the latest developments in the world of investing.
- Alpha: A measure of a portfolio’s performance relative to a benchmark index.
- Asset Allocation: The process of dividing an investment portfolio among different asset categories, such as stocks, bonds, and cash.
- Asset: Anything that has value and can be owned, including stocks, bonds, real estate, and cash.
- Balance Sheet: A financial statement that shows a company’s assets, liabilities, and equity at a specific point in time.
- Bear Market: A market characterized by falling stock prices and a negative economic outlook.
- Beta: A measure of a stock’s volatility in relation to the overall market.
- Blue Chip Stock: A stock of a well-established, financially sound company that has a long history of profitability and stability.
- Bond Fund: A type of mutual fund or ETF that invests in bonds.
- Bond: A debt security that pays regular interest to investors, usually issued by a government or corporation.
- Bull Market: A market characterized by rising stock prices and a positive economic outlook.
- Capital Appreciation: The increase in the value of an investment.
- Capital Gain: The profit made on the sale of an investment.
- Cash Flow: The amount of cash a company generates from its operations.
- Commodity: A physical good that is used as a raw material or an industrial product.
- Compound Interest: Interest that is calculated on the initial principal and the accumulated interest from previous periods.
- Credit Rating: A measure of a borrower’s creditworthiness, usually assigned by a rating agency.
- Currency Risk: The risk that changes in currency exchange rates will negatively impact an investment.
- Current Ratio: A measure of a company’s liquidity that compares its current assets to its current liabilities.
- Debt: Money that is borrowed and must be repaid with interest.
- Derivative Instrument: A financial contract whose value is derived from the performance of an underlying asset.
- Derivative: A financial contract whose value is derived from the performance of an underlying asset.
- Diversifiable Risk: Risk that can be reduced through diversification.
- Diversification: The practice of spreading investment risk across a variety of different assets.
- Dividend Yield: The annual dividend payment of a stock divided by the current stock price.
- Dividend: A portion of a company’s profit paid out to shareholders.
- Earnings per Share (EPS): A company’s net income divided by the number of shares outstanding.
- Earnings Yield: The inverse of the P/E ratio, calculated as earnings per share divided by the stock price.
- Earnings: A company’s profit after all expenses have been paid.
- Efficient Market Hypothesis: The theory that financial markets are informationally efficient and that it is impossible to consistently achieve returns above the market average.
- Equity Fund: A type of mutual fund or ETF that invests in stocks.
- Equity Risk Premium: The additional return investors demand for holding equities instead of bonds.
- Equity: The value of an asset after all liabilities have been paid.
- Ex-Dividend Date: The date on which a stock’s dividend payment is subtracted from its price.
- Financial Planning: The process of creating a plan for managing one’s financial resources.
- Financial Statement: A report of a company’s financial performance and position, such as the balance sheet and income statement.
- FIRE: FIRE stands for “financial independence retire early.” During their working years, FIRE investors invest as much of their income as possible in hopes of attaining financial independence at a young age and maintaining it for the long term—a.k.a. retirement.
- Fixed Income: Investments that pay a fixed rate of return, such as bonds.
- Forward Rate Agreement (FRA): A type of derivative contract in which two parties agree to exchange a fixed interest rate for a floating rate at a future date.
- Fundamental Analysis: The process of evaluating a company’s financial and economic fundamentals to determine its intrinsic value.
- Gross Domestic Product (GDP): A measure of the total value of goods and services produced in a country.
- Growth Stock: A stock of a company that is expected to grow at a rate faster than the overall market.
- Hedge Fund: An investment fund that uses advanced investment strategies to generate high returns.
- Income Statement: A financial statement that shows a company’s revenues, expenses, and net income.
- Index: An index is a benchmark or measure of the performance of a group of stocks or other securities, used as a benchmark for the overall market or a specific sector.
- Inflation: The rate at which the general level of prices for goods and services is rising.
- Inflation-Protected Bond: A bond whose principal is adjusted for inflation.
- Initial Public Offering (IPO): The first sale of a company’s stock to the public.
- Interest Rate Swap: A type of derivative contract in which two parties agree to exchange a fixed interest rate for a floating rate.
- Interest Rate: The cost of borrowing money, usually expressed as a percentage of the loan.
- Inverse ETF: An ETF that aims to perform the opposite of the benchmark index it tracks.
- Leverage: The use of borrowed money to invest in order to increase potential returns.
- Leveraged ETF: An ETF that uses leverage to amplify the returns of the benchmark index it tracks.
- Liquidity: The ability to buy or sell an asset quickly and at a stable price.
- Market Capitalization: The total value of a company’s outstanding shares of stock, calculated by multiplying the number of shares by the current market price per share.
- Market Risk: The risk that the value of an investment will decrease due to market conditions.
- Market Timing: The process of trying to predict when the market will rise or fall in order to buy or sell securities.
- Momentum Investing: An investment strategy that seeks to buy securities that have recently performed well and sell those that have performed poorly.
- Money Market Fund: A type of mutual fund that invests in short-term debt securities.
- Municipal Bond: A bond issued by a state or local government.
- Mutual Fund: A type of investment vehicle that pools money from multiple investors to purchase a variety of securities.
- Net Asset Value (NAV): The value of an investment fund’s assets minus its liabilities.
- Non-Diversifiable Risk: Risk that cannot be reduced through diversification.
- Open-End Fund: A type of mutual fund that can issue new shares as demand requires.
- Options: Financial contracts that give the holder the right, but not the obligation, to buy or sell an underlying asset at a set price.
- OTC (Over the Counter): A type of securities market where transactions are made directly between buyers and sellers, rather than on a regulated exchange.
- P/E Ratio: The price-to-earnings ratio, a commonly used valuation metric for stocks.
- Passive Investment: An investment strategy that seeks to match the performance of a benchmark index, rather than trying to beat it.
- Portfolio: A collection of investments held by an individual or institution.
- Private Equity: Equity capital that is not publicly traded on a stock exchange.
- Quantitative Easing: A monetary policy used by central banks to increase the money supply and stimulate economic growth.
- Real Estate Investment Trust (REIT): A type of investment vehicle that allows individuals to invest in real estate without buying property directly.
- Real Estate Investment Trust (REIT): A type of investment vehicle that allows individuals to invest in real estate without buying property directly.
- Real Return: The return on an investment after adjusting for inflation.
- Return on Investment (ROI): The profit or loss generated on an investment, expressed as a percentage of the initial investment.
- Risk Tolerance: The level of risk an investor is willing to take on.
- Risk: The possibility of an investment losing value.
- Risk-Adjusted Return: A measure of an investment’s return that takes into account the level of risk involved.
- Sector Fund: A mutual fund or ETF that invests in a specific sector of the economy.
- Securities: Financial instruments representing ownership, such as stocks, bonds, options, that are traded on securities exchanges and their value fluctuates based on supply and demand.
- Short Position: A bet that the price of a security will decrease.
- Short Selling: The practice of selling a security that the seller does not own in the hope of buying it back at a lower price.
- Stock Market: A marketplace where stocks and other securities are bought and sold.
- Stock Option: A contract that gives the holder the right to buy or sell a stock at a certain price on a certain date.
- Stock: A share of ownership in a publicly traded company.
- Stop Loss Order: An order to sell a security when it reaches a certain price.
- Swap: A type of derivative contract in which two parties agree to exchange one type of financial instrument for another.
- Systematic Risk: Risk that affects the overall market and cannot be diversified away.
- Technical Analysis: The process of evaluating a security’s past performance and trading volume to predict its future price
- Total Return: The return on an investment including both capital gains and income.
- Treasury Bill: A debt security issued by the U.S. government with a maturity of less than one year.
- Treasury Bond: A debt security issued by the U.S. government with a maturity of 10 or more years.
- Undervalued: A stock that is trading at a lower price than its intrinsic value.
- Value Investing: An investment strategy that focuses on buying undervalued stocks with the expectation that their value will increase over time.
- Volatility: A measure of the fluctuation in the value of an investment.
- Wealth Management: The process of managing a client’s financial resources to achieve their goals.
- Yield to Maturity (YTM): The total return on a bond if it is held until maturity.
- Yield: The return on an investment, usually expressed as a percentage of the initial investment.
- Zero-Coupon Bond: A bond that does not make regular interest payments and is sold at a discount to its face value.