Glossary of Key Investment Terms

1. Asset

Anything of value that can be owned, such as stocks, bonds, real estate, or commodities. Assets can grow your wealth over time.

2. Portfolio

A collection of investments owned by an individual or institution. A portfolio can include stocks, bonds, ETFs, and more.

3. Diversification

The practice of spreading your investments across different asset types to reduce risk. Think of it as not putting all your eggs in one basket.

4. Stock

A share in the ownership of a company. Owning a stock makes you a shareholder and gives you a claim on part of the company’s profits.

5. Bond

A loan you give to a company or government in exchange for regular interest payments and the return of your original amount at maturity.

6. Exchange-Traded Fund (ETF)

A type of fund that holds a collection of investments (like stocks or bonds) and is traded on stock exchanges, similar to individual stocks.

7. Mutual Fund

An investment fund that pools money from many investors to invest in a diversified portfolio, typically managed by a professional.

8. Compound Interest

Earning interest not only on your initial investment but also on the interest that accumulates over time. It’s how your money can grow exponentially.

9. Risk Tolerance

Your ability and willingness to endure fluctuations in the value of your investments. It depends on your financial situation, goals, and comfort with uncertainty.

10. Inflation

The rise in prices of goods and services over time, reducing the purchasing power of money. Investments aim to outpace inflation to maintain value.

11. Dividend

A portion of a company’s earnings paid to shareholders, often as cash or additional shares. Not all stocks pay dividends.

12. Index Fund

A type of mutual fund or ETF that aims to replicate the performance of a specific index, such as the S&P 500, offering broad market exposure.

13. Passive Investing

A strategy focused on buying and holding investments long-term, often through index funds or ETFs, without frequent trading.

14. Active Investing

An investment approach where the investor or a fund manager actively buys and sells assets to outperform the market.

15. Time Horizon

The amount of time you plan to hold an investment before you need the money. Longer time horizons often allow for more risk.

16. Capital Gain

The profit made from selling an investment for more than its purchase price.

17. Liquidity

How easily an investment can be converted into cash without significantly affecting its value.

18. Volatility

The degree to which the value of an investment fluctuates. High volatility means bigger price swings.

19. Expense Ratio

The annual fee charged by mutual funds or ETFs, expressed as a percentage of your investment.

20. Dollar-Cost Averaging

An investment strategy where you invest a fixed amount regularly, regardless of market conditions, to reduce the impact of market volatility.

21. Bull Market

A period when prices in the financial markets are rising or are expected to rise.

22. Bear Market

A period when prices in the financial markets are falling or are expected to fall, usually by 20% or more.

23. Rebalancing

Adjusting your portfolio to maintain your desired level of asset allocation, typically done periodically.

24. Principal

The original amount of money invested, before any earnings or losses.

25. Robo-Advisor

A digital platform that provides automated, algorithm-driven financial planning and investment management services.

26. Blue-Chip Stocks

Shares in large, established, and financially stable companies with a history of reliable performance.

27. Market Capitalization (Market Cap)

The total value of a company’s outstanding shares of stock, calculated by multiplying the share price by the number of shares.

28. Yield

The income return on an investment, expressed as a percentage of the investment’s cost or current market value.

29. Stop-Loss Order

An instruction to sell a security when its price falls to a certain level, helping to limit losses.

30. Asset Allocation

The process of dividing your investments among different asset classes (stocks, bonds, etc.) to balance risk and reward based on your goals.

31. Interest Rate

The percentage charged by a lender to a borrower for the use of money. It also applies to the return earned on savings or investments, typically expressed as an annual percentage. Higher interest rates often mean higher costs for loans but better returns on savings