If you’re looking to get started investing, you’ll want to learn all the terms used by the experts. These terms will help you navigate through the field of investing while helping you define your strategy.
We’ve come up with 19 of the most commonly used investment terms that you need to know to get started investing. Bookmark this page for reference.
- Assets: Assets are the items that you invest in and own. Stocks, bonds, commodities and real estate are all examples of an asset you can buy as an investment.
- Bond: Bonds are a type of investment (typically from a government body) where investors are guaranteed the original price of the investment plus interest. Bonds are generally time-sensitive investments that are typically viewed as a safe and reliable investment.
- Broker: Brokers are the individuals or entities that manage your investments. Investors have many options for brokers, from full-featured brokers to discount brokers. Check out our guide on choosing a broker for help.
- Capital Gains: Capital gains refers to the profit you make from selling your investment, often in reference to stock investments. Capital gains taxes are taxes applied to these gains. When you lose money on an investment, it’s called a capital loss.
- Diversification: Diversification refers to the process of investing in a variety of assets. With a diversified portfolio, you can avoid major losses and take advantage of a wide range of investment opportunities.
- Dividends: Dividends are profits that a company pays to investors on a regular basis. If you invest in a company that pays dividends, you can get paid monthly, quarterly, annually, etc.
- DOW Jones Industrial Average: The DOW Jones Industrial Average is a stock index that takes the average of the 30 most successful US stocks. The DOW is often used to measure how the US market is doing.
- Exchange-traded Fund (ETF): An Exchange-traded fund is a collection of stocks purchased by a broker, typically organized around an industry or theme. These can be sold and bought daily like stocks, making them a flexible investment. ETFs are generally used as a more passive form of investment.
- Liquidity: Liquidity measures of how easy it is to buy and sell an asset. Some assets, like stocks, can be bought and sold throughout the day. Bonds, mutual funds, ETFs and real estate investments, however, have more restrictions.
- Market Capitalization: Also known as market cap, market capitalization represents the totality of a company’s stock value.To find a company’s market cap, multiply the total number of shares (stocks) by its price.
- Mutual Fund: Mutual funds are an investment type similar to an ETF but with more restrictions on buying and selling. Mutual funds are a diversified collection of stocks designed to be held for long-term, stable growth. Mutual funds are generally viewed as a safe investment.
- Portfolio: A portfolio is the list of an investor’s investments and their sum total. Whether investing through a broker, a robo-advisor or another platform, many platforms offer a portfolio analysis readily available.
- Real Estate Investment Trusts (REITs): REITs are a form of real estate investment similar to mutual funds. REITs are made by real estate investors and allow other investors to buy into their properties and assets. As far as real estate investing goes, this is a safer and easier option than buying and flipping a house or managing a rental property.
- Risk: Risk is the chance that an investment could be a loss. When deciding to invest, it’s important to gage a securities risk to decide whether or not you want to invest.
- Robo-Advisor: A robo-advisor is an AI financial advisor that uses an algorithm to automatically buy or sell investments according to a set criteria.
- S&P 500: Similar to the DOW Jones Industrial Average, the Standard & Poor’s 500 collects the average stock price of the top 500 US companies. The S&P 500 is often used to track the health of the US market.
- Stocks: A stock is a unit of ownership in a company, also known as shares.
- Taxable Accounts: Taxable accounts are investment accounts that are taxed on the capital gains made from them.
- Tax Advantaged Accounts: Investment accounts where you can deduct, defer or minimize taxes on income made from investments. A roth IRA and a 401(k) account are common tax advantaged accounts.
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If you want to move from learning terminology to learning how to invest, check out our other articles. Our goal is to help you on your investment journey with concise, practical articles.
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