Learn: Unit 3 Vocab: Investing

Investing

Putting money into assets, such as stocks or bonds, with the goal of increasing wealth over time and reaching long-term financial goals, such as retirement.

Active Trading

Buying and selling investments within a short time frame in hopes of making quick profits from the small price changes. Research shows that 95% of active traders lose money.

Inflation

The rate at which the price of goods increases and consumer purchasing power decreases over time

Purchasing Power

The number of goods and services that money can buy. It can weaken in time due to inflation.

Stock Market

The trading network, such as the NYSE, where shares of companies are bought and sold.

Bull Market

A market in which there is increased stock trading and rising stock prices

Bear Market

A market in which prices are falling, encouraging selling.

Stock

A share of a company's value, granting the investor partial ownership.

Share

A single unit of ownership in a company, stock, mutual fund, or real estate investment trust (REIT).

Shareholder

Any individual, company, or institution owning at least one share.

Dividend

A quarterly payment made to shareholders from a company's profits.

Capital Gain

The profit made from selling an asset, calculated as the selling price minus the purchase price.

Rate of Return

The ratio of money gained or lost on an investment compared to the amount invested (ROI).

Bond

A loan from an investor to a company or government, repaid with regular interest and principal at maturity.

Bond Fund

An investment combining multiple bonds.

Coupon

The annual interest payment, shown as a percentage of face value.

Risk

The uncertainty of making money on an investment.

Risk Tolerance

How much risk a person is willing to take with an investment for the possibility of a higher return.

Diversification

Investing in a variety of assets to reduce overall risk.

Asset Allocation

Dividing a portfolio among asset categories like stocks, bonds, and cash.

Portfolio

A collection of financial investments, including stocks, bonds, commodities, etc.

Dollar Cost Averaging

Investing a fixed amount regularly, regardless of the asset's price.

Fund

Money pooled from many investors to buy a collection of investments.

Mutual Fund

A fund that pools investors' money to buy stocks, bonds, or other investments. Investors buy shares representing ownership in the fund.

Index Fund

A fund designed to track the performance of a market index, such as the S&P 500, typically with low fees.

Exchange-Traded Fund (ETF)

A collection of stocks and/or bonds traded on exchanges throughout the day like individual stocks.

Target Date Fund (TDF)

An investment fund that automatically rebalances its asset mix over time toward a projected retirement year.

Active Investing

A strategy aiming to beat the market through a fund manager who selects holdings for a higher fee.

Passive Investing

A long-term wealth-building strategy using index funds with minimal trading and costs. Research shows 85-95% of passive funds outperform active ones over the long run.

Brokerage Account

An account that lets individual investors trade stocks, bonds, mutual funds, and other investments

Robo-Advisor

An automated, algorithm-based online wealth management service requiring no human financial planners.

401(k) Plan

An employer-sponsored retirement savings plan with tax advantages and often an employer match.

Employer Match

Money your employer adds to your retirement account based on your contributions, up to a specified limit.

Individual Retirement Account (IRA)

A retirement account opened by an individual, with tax advantages, annual contribution limits, and typically more investment choices than a 401(k).

Traditional IRA

An IRA whose contributions may be tax-deductible, with investment growth taxed when withdrawn.

Roth IRA

An IRA funded with after-tax money, with contributions and investment growth withdrawn tax-free when retirement withdrawal requirements are met.