21 Investing Terms You Need To Know
Investing can seem nerve-wracking and overly complicated if you aren’t familiar with the terminology behind it. If you want to boost your confidence and streamline your understanding, Money Under 30 created a list of frequently used investing terms.
Investing doesn’t have to be scary. It’s an incredible way to increase your assets and wealth. Investing might seem like a daunting task — it’s why many people don’t do it. Even talking to a financial advisor can seem overwhelming and intimidating if you don’t understand the terminology commonly used within this area.
Begin adding your voice to the financial conversation by checking out some of the most common investing terms.
Investing Terms For Beginners
Alpha: How much your investment brought back compared to the market index.
Beta: How responsive a stock is to the general movement of the market. It measures how fickle or hazardous a share is concerning the market average.
Appreciation: When you see the profit of an asset gradually increase over a period of time.
Depreciation: This is the opposite of appreciation. Your asset instead loses value over that same period of time.
Balance sheet: A balance sheet is a rundown of your financial balances – assets, liabilities, and equity. In other words, it is a summary of the total worth.
Bear market: A low period in the market, named after the way bears swipe their paws downward during an attack.
Bull market: A bull market is when things are on the rise, named after how bulls attack by thrusting their horns upward.
Capital: Capital is a collection of all your financial assets, including your cash.
Diversification: Diversification is just that, making sure you aren’t putting all your eggs in one basket, but instead investing in multiple ways to ensure security over your assets. You are managing your risk.
Dividend: A dividend, otherwise known as a sum of money, gets paid out to shareholders regularly as the business continues to make a profit. Dividends can be cash or additional stocks.
Emerging market: Emerging markets happen as less-developed nations progress toward developed markets. The stock market in those countries starts to grow in relation to the country’s development.
Exchange: Think of the New York Stock Exchange. This is where all the trading happens. Exchanges are where your investments can be bought or sold.
Fiduciary: A fiduciary has a legal responsibility to put your best interests, as the client, first ahead of their own. They must disclose any conflicts of interest. The difference between a fiduciary and a non-fiduciary advisor is that the latter is not held to the same legal obligations.
Inflation: Remember when movie tickets were only five dollars? Or when a bottle of soda was a dime? It seems like money just doesn’t go as far as it did. Inflation is when the cost of goods increases, resulting in a decrease in our capability to purchase.
P/E ratio: Simple terms: It’s the price to earnings ratio. It is a way to determine the worth of a company by relating the price of its stock to its earnings. This ratio can be used to figure out if a business’s stock is overvalued or undervalued. The price to earnings ratio also can let investors know what the market will pay for a company from any past or future earnings.
Recession: Remember the recession in 2007 – 2009? The National Bureau of Economic Research defines a recession as a severe downturn in the economy that spans longer than a few months.
Security: Any financial asset, including stocks, bonds, or options that can be traded on the stock market, are known as securities.
Shares: A share is holding ownership in a public company. You can buy and sell shares of Starbucks, for example, in the stock market. Once you’ve acquired shares in a public company, you are now considered a shareholder.
Shareholder: Using Starbucks as an example again, once you own one or more shares of Starbucks, you are considered a shareholder. All of Starbucks’s employees are shareholders because they essentially own part of the company they work for. This gives them the right, as shareholders, to trade their shares on the stock market and share in the company’s profitability.
Stock market: The stock market, or stock exchange, is where you can buy and sell shares or publicly held companies. Examples of stock markets include the New York Stock Exchange and the London Stock Exchange.
Volatility: A volatile market reacts that of similarity to a volatile person. Erratic with sudden mood changes and fluctuates up and down. Volatility refers directly to those fluctuations. The more it fluctuates, the more volatile the market.
As you can see, investing isn’t that scary after all. Once you understand the terminology, it’s a breeze. Take full advantage of the many resources available in today’s world to learn what you can about investing and how you can add to your worth by simply investing!
- Martel, Jessica. “42 Investing Terms And Definitions That Will Make You Sound Like An Investing Pro.” moneyunder30.Com, 2 Nov. 2020, www.moneyunder30.com/investing-terms-and-definitions.