Investing 101
Terms
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- Passive Investing
- An investment strategy involving limited ongoing buying and selling actions.
- Stock
- A type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings.
- Index Fund
- A type of mutual fund with a portfolio constructed to match or track the components of a market index such as the S&P 500 Index.
- Small Cap
- Refers to stocks with a relatively small market capitalization.
- Compounding
- The ability of an asset to generate earnings, which are then reinvested in order to generate their own earnings.
- Active Investing
- An investment strategy involving ongoing buying and selling actions by the investor.
- Fixed-Income Security
- An investment that provides a return in the form of fixed periodic payments and the eventual return of principal at maturity.
- Growth Investing
- A strategy whereby an investor seeks out stocks with what they deem good growth potential.
- Principal
- The amount borrowed or the amount still owed on a loan, separate from interest.
- Capital
- Financial assets or the financial value of assets, such as cash.
- Risk
- The chance that an investment's actual return will be different than expected.
- Risk Tolerance
- The degree of uncertainty that an investor can handle in regard to a negative change in the value of his or her portfolio.
- Income Statement
- A financial statement that measures a company's financial performance over a specific accounting period.
- Interest
- The charge for the privilege of borrrowing money, typically expressed as an annual percentage rate.
- Money Market
- A segment of the financial market in which financial instruments with high liquidity and very short maturities are traded.
- Inflation
- The rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling.
- Balance Sheet
- A financial statement that summarizes a company's assets, liabilities and shareholders' equity at a specific point in time.
- Economics
- A social science that studies how individuals, governments, firms and nations make choices on allocating scarce resources to satisfy their unlimited wants.
- Liquidity
- The degree to which an asset or security can be bought or sold in the market without affecting the asset's price.
- Risk Averse
- A description of an investor who will prefer the one with the lower risk.
- Analyst
- A financial professional who has expertise in evaluating investments and puts together "buy", "sell" and "hold" recommendations for securities.
- Bond
- A debt investment in which an investor loans money to an entity that borrows the funds for a defined period of time at a fixed interest rate.
- Cash and Cash Equivalents
- An item on the balance sheet that reports the value of a company's assets that are cash or can be converted into cash immediately.
- Growth Stock
- Shares in a company whose earnings are expected to grow at an above-average rate relative to the market.
- Standard & Poor's 500 Index
- An index of 500 stocks chosen for market size, liquidity and industry grouping, among other factors.
- Mutual Fund
- An investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets.
- Capital Appreciation
- A rise in the market price of an asset.
- Value Investing
- The strategy of selecting stocks that trade for less than their intrinsic values.
- Volatility
- A statistical measure of the dispersion of returns for a given security or market index.
- Benchmark
- A standard against which the performance of a security, mutual fund or investment manager can be measured.
- Option
- A financial derivative that represents a contract sold by one party (option writer) to another party (option holder).
- Big Cap
- A term used by the investment community to refer to companies with a market capitalization value of more than $10 billion.
- Aggressive Investment Strategy
- A method of portfolio management and asset allocation that attempts to achieve maximum return.
- Portfolio Management
- The art and science of making decisions about investment mix and policy, matching investments to objectives, asset allocation for individuals and institutions, and balancing risk against. performance.
- Speculation
- The process of selecting investments with higher risk in order to profit from an anticipated price movement
- Prospectus
- A formal legal document, which is required by and filed with the Securities and Exchange Commission, that provides details about an investment offering for sale to the public.
- Dollar-Cost Averaging
- The technique of buying a fixed dollar amount of a particular investment on a regular schedule, regardless of the share price.
- Risk-Free Asset
- An asset which has a certain future return.
- Investing
- The act of committing money or capital to an endeavor with the expectation of obtaining an additional income or profit.
- Dividend
- A distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.
- Diversification
- A risk management technique that mixes a wide variety of investments within a portfolio.
- Certificate of Deposit
- A savings certificate entitling the bearer to receive interest.