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To help get your financial investment lingo legs under you, we’ve compiled a short glossary of words and terms you’ll likely hear during conversations or while reading. Feel free to bookmark or print them out for reference, and don’t be afraid to ask if you can’t remember all of them right away. You’ll have a deeper understanding of them over time, and they’ll be rolling off your tongue in no time.
A group of investments that have similar characteristics and are subject to the same laws and regulations. They tend to behave similarly within the marketplace.
The profit from the sale of an asset or investment.
Compound returns make a sum of money grow at a faster rate than simple interest, because in addition to earning returns on the money you invest, you also earn returns on those returns at the end of every compounding period—which could be daily, monthly, quarterly or annually.
Reduces risk by investing in different asset classes, which means various industries, that would react differently to the same event. Basically, don’t put all your eggs in one basket.
A benchmark that tracks 30 American stocks considered to be the leaders of the economy. Examples of stocks included: American Express, Chevron, Intel…
ESG stands for environmental, social, and (corporate) governance. ESG helps identify investments that may follow sustainable, responsible, or ethical guidelines.
Exchange-Traded Funds are baskets of securities much like a mutual fund. The difference is that it trades on an exchange like a stock. A mutual fund only trades once a day after the market closes. They are a low-cost investment vehicle.
A measure of investment’s operating expenses. This expense is passed on to the investor, so it needs to be considered when making investment decisions. EFTs have low expense ratios.
An index that holds 3,700 stocks, over 50% of which represent technology stocks. It is the most used index in financial market reports.
A measurement of the degree of loss an investor is willing to endure within their investments. Age, investment goals, and income contribute to an investor’s risk tolerance.
A financial instruments that hold value and can be traded between parties. In other words, it’s a catch-all term for stocks, bonds, mutual funds, exchange-traded funds or other types of investments you can buy or sell.
Also known as equity, stocks are a security that represents the ownership of a fraction of a corporation. The owner of the stock is entitled to a portion of that corporation’s assets and profits equal to how much stock you own. These units are called shares.
Tracks the stock performance of 500 large companies listed on exchanges. It’s the most commonly-followed equity index. The companies included are Apple, Microsoft, JP Morgan Chase, etc.
An investment account that can invest in stocks, bonds, and mutual funds. Any gains the investments accumulate at the end of the year will be taxed as investment income.
A form of life insurance policy. Term insurance provides coverage for a certain period of time, such as 20 years. If the insured dies during the specified term of the active policy, the death benefit is paid to the beneficiary. This is highly recommend to people with children or anyone who needs to be financially taken care of if their guardian were to pass away.
The period of time the investment will be held until they are needed. Generally the longer the time horizon, the more aggressive an investor can be with their portfolio and vice versa.
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