Like any highly specialized field of endeavor, investing has its own peculiar language, terms, and jargon. Listed below are twenty-five of the most common investment terms and tools, along with their basic definitions. Take the time to learn these terms; you’ll hear them daily. As you come across more complex investment terminology, use this link to locate their meanings in the advanced glossary.
ASSETS - Resources owned by a company, fund, or individual; i.e. cash, investments, money due, materials, inventories, etc.
BEAR MARKET - A market in which prices are falling, or expected to do so.
BOND - A debt security issued by corporations, governments, or their agencies, in return for cash from lenders and investors. A bond holder is a creditor, not a shareholder.
BULL MARKET - A market in which prices are rising, or expected to do so.
COMMODITY - A tradable item that can generally be further processed and sold; i.e. metals, wheat, coal, etc.
COMPOUND INTEREST - Interest which is calculated on both the principal and interest previously earned.
DIVIDEND - The amount of a corporation’s after-tax earnings that it pays to its shareholders.
DOW JONES INDEX - A leading index of U.S. stock market prices.
FINANCIAL ANALYST - A person trained to advise on the risk and return characteristics of investments and in the management of investment portfolios.
INDEX - A numerical measure of price movement in financial markets.
INVESTMENT - An asset acquired for the purpose of producing income and/or capital gains.
LIQUIDITY - The ability of an investment to be easily converted into cash with little- to no loss of capital and a minimum of delay.
MARKET - A public place where buyers and sellers conduct transactions, either directly or via intermediaries.
NATIONAL ASSOCIATION OF SECURITIES DEALERS AUTOMATED QUOTATIONS (NASDAQ) - The New York-based U.S. stock exchange that specializes in technology companies.
OPTION - An agreement that conveys the right, but not the obligation, to the holder to buy or sell a particular security at a stipulated price within a stated period of time.
PORTFOLIO - An investor’s collection of investment holdings, usually with reference to its composition.
PROSPECTUS - A legal document, required by the Securities Act of 1933, setting forth the complete history and current status of a security or fund; it must be made available whenever an offer to sell is made to the public.
RETURN - The amount of money received annually from an investment, usually expressed as a percentage.
RISK - The measurable likelihood of loss or less-than-expected returns.
SECURITIES AND EXCHANGE COMMISSION (SEC) - The U.S. regulatory authority for the securities industry.
SECURITY - The paper right to a tradable asset.
SIMPLE INTEREST - Interest that is paid on the initial investment alone.
STOCK - An instrument that signifies an ownership position (equity) in a corporation.
TREND - The current general direction of movement security or commodity prices.
VOLATILITY - The extent of fluctuation in share price, interest rates, etc. The higher the volatility, the less certain an investor is of return; therefore, volatility is one measure of risk.