TERMS FIRST TIME INVESTORS SHOULD KNOW
A
Active Trading - Active Trading is a specific type of investment
management that involves shorter holding periods for individual
investments. An active trader may buy multiple stocks in a day, hold
some for a few days, and some for a few weeks.
Alpha - The amount of return expected from an investment from its
inherent value.
Annuity - A financial instrument that delivers a regular series of
payments for a specified period of time.
Annual report - The yearly audited record of a corporation or a
mutual fund's condition and performance that is distributed to
shareholders.
Annualized - A procedure where figures covering a period of less
than one year are extended to cover a 12-month period.
Annualized rate of return - The average annual return over a period of
years, taking into account the effect of compounding. Annualized
rate of return also can be called compound growth rate.
Appreciation - The increase in value of a financial asset.
Asset allocation - The process of dividing investments among cash,
income and growth buckets to optimize the balance between risk
and reward based on investment needs.
Asset class - Securities with similar features. The most common
asset classes are stocks, bonds and cash equivalents.
Average maturity - For a bond fund, the average of the stated
maturity dates of the debt securities in the portfolio. Also called
average weighted maturity. In general, the longer the average
maturity, the greater the fund's sensitivity to interest-rate changes,
which means greater price fluctuation. A shorter average maturity
usually means a less sensitive - and consequently, less volatile -
portfolio.
B
Balanced portfolio/fund - An investment portfolio that holds a mix of
different types of investments. The companies selected typically
are in different industries and even different geographic regions.
Bear market – A period of 20% or more market decline. This is also
paired with a general pessimistic view of the current economy.
Beta - A measurement of volatility where 1 is neutral, greater than 1
is more volatile, and less than 1 is less volatile.
Blue chip stock – Considered a very good quality stock that is also
low risk. These are often very well-known and established
companies with large moats and have sustained their success
through a number of years and different market scenarios.
Bonds – Debt issued by companies to raise capital. It is a loan that
the corporation agrees to pay back later and pay the interest.
Bull market – A period of market incline. Paired with generally
favorable and positive views regarding the current economy.
Opposite of a bear market.
C
Capital gain – Profit made when a stock is sold for a price that is
more than what was paid for it.
Capital loss – Losses made when a stock is sold for a price that is
less than what was paid for it.
Cash equivalent – Easily convertible investment that can be turned
into cash. These instruments usually have very little risk.
Common stock – Issued securities that can be purchased by the
public that represents ownership.
Commodity – Goods that can be exchanged for other goods or
services. A physical commodity is subject to the supply and
demand of the market.
D
Diversification – Having a portfolio of different investments, spread
across many different companies and industries. This is a method
used by investors looking to decrease their chances of risk and
volatility.
Dividend – A portion of the corporations profit paid out to
shareholders. Not all corporations pay out dividends to
shareholders.
Dow Jones – Also known as the Dow, is a stock index of the top 30
U.S. companies.
E
Earnings per share – Net income divided by outstanding shares.
Equity – Company issued shared that represents ownership.
Exchange traded fund (ETF) – A fund that holds a variety of assets.
These funds can be bought and sold like stocks, and are often great
for investors looking for diversified portfolios.
F
Fixed securities – Investments that pay pre-paid interest or
dividends.
Future – Product where a seller agrees to give the buyer a formally
agreed upon asset on a agreed upon day.
G
Growth fund – Fund that is focused on gains that outperform the
market.
H
Hedge fund – An investment fund that implements riskier
investment strategies, that utilize a wide range of different types of
stocks, bonds, and other investment instruments.
I
Index – A performance tracker of many different investment
industries.
IRA – An individual retirement account. This account is tax deferred.
Investment Advisor – An investment professional that offers asset
management and investment advice to clients.
J
Junk bond – A low rated bond.
L
Large cap – Market capitalization of stocks of companies valued at
over $10 billion.
Letter of intent – A letter from a mutual fund shareholder saying that
they are intending to invest at a specified time. This letter is not a
contract, but a written statement stating intent.
Liquidity – Invested money that can be easily accessed.
M
Market price – Current price of the stock.
Maturity – When a bond or debt is due and is able to be paid.
Mid-cap – Market capitalization of stocks of companies valued
between $3 to $10 billion.
Money market – Investment that creates income by investing into
CD’s and treasury bills with less than a one year maturity.
Mutual fund – Fund that invests in different avenues such as stocks,
bonds, options, or money markets. The investors in this fund own
shares of the fund as a whole, instead of the individual securities.
NASDAQ – The National Association of Securities Dealers
Automated Quotations, is the computerized system that provides
investors with real time pricing for securities.
P
Portfolio – The total investments owned by an investor or group of
investors. Each portfolio has different growth strategies and
different time horizons.
Portfolio manager – The head decision maker on an investment
portfolio, that attempts to keep in line with the intended goals of the
portfolio.
Price to earnings ratio (P/E) – Stock price divided by earnings per
share.
Q
Quality distribution – Portfolio broken down by investment quality.
R
Reinvestment option – Using dividends towards purchasing more
stock.
Risk tolerance – How much risk/volatility an investor is willing to
withstand.
S
Securities – Otherwise known as a stock/bond.
SEC – The Securities and Exchange Commission is a federal agency
founded in 1934 that is a governing body of securities.
Share – A piece of ownership in a company.
Small-cap – Market capitalization of stocks of companies valued at
less than $3 billion.
S&P 500 – The Standard & Poor's Index, is a stock market index that
tracks the performance of the top 500 companies in the United
States.
Stock – An investment that represents ownership of a company.
Stockholder/Shareholder – Owner of a stock.
T
Total return – Measure of an investment’s performance. Taking into
account dividends, interest, and distributions.
Treasury bill – Short term debt obligations issued by the U.S.
government
V
Value investing – An investment strategy where an investor
purchases securities that they believe to be undervalued and selling
them once they appreciate.
Volatility – The amount of times an investment fluctuates in value.
Y
YTD – Year-to-date return is the return of an investment that
includes appreciation and dividends or interest.
Yield – The annual percentage of return on capital.
Yield to maturity – Rate of return if a long term investment is to its
maturity date.
#
52 week high/low – A security’s trading high/low over the previous 52
weeks.