Investing Foundations Vocabulary

Bonds

Bonds

Represents a promise by borrower to pay a lender their principal and usually interesting on a loan. Issued by governments and corporations to raise money.

CD (Certificate of Deposit)

A savings product that earns interest on a lump sum for a fixed period of time (you may not take that money out in the time frame)

ETF (Exchange Traded Fund)

A pool of investment securities that trades on an exchange

Large-cap Stock

Stocks of very large companies such as Walmart, General Electric, and IBM that have a market capitalization of between $10 billion and $200 billion

Money Market Fund

A kind of mutual fund that invests in highly liquid, near-term instruments

Mutual fund

A professionally managed investment fund that pools money from many investors to purchase securities

Savings account

A safe, low-return investment available from banks. There is generally no minimum deposit for this type of account, making it perfect for kids and teens just starting out.

Small-cap stocks

Stocks of largely unknown companies with smaller market capitalization, or dollar value of total stock ownership. Small-cap stocks generally have a market capitalization between $300 million, and $2 billion

Stocks

Represents ownership of a fractional share of the issuing corporation

52-week range

The highest price and lowest price of a stock over a 52 week period

Beta

Measures the volatility (rapid or unexpected change) as compared to the overall stock market

Dividend

Money paid by a corporation to each shareholder. Typically paid four times a year, these distributions of company profits can be used to reinvest in more shares of the company

Expense ratio

For a mutual fund, an annual percentage the fund takes as payment. Expense ratios of different funds can be compared to find the best value.

FDIC-insured

is a government agency that ensures depositors' money. Backs and savings and loan companies that are FDIC-insured pay a percentage of their deposits to the FDIC to pay for the insurance.

P/E ratio (Price to Earnings Ratio)

Is a measure of a company's stock price relative to its earning

Previous Close

Is the stock's closing price from the previous day

Rate of Return

The annual amount of money an investment makes, given as a percentage. For example, a $100 investment that is worth $112 the next year had a 12% return.

Return

Monetary increase in an investment. If an investment loses value, it is called a negative return.

Risk

The chance that an investment may lose value. Less-risky investments have a lower rate of return

Yield

Earnings generated and realized on an investment over a particular period of time. It's expressed as a percentage based on the invested amount

Asset class

Separate types of investments, such as stocks/stock mutual funds, bonds/bond funds, money market accounts, and international stocks/international stock funds. Each asset class has typical risks and returns, and a certain investment within that class may perform better or worse than its peers

Bear Market

A market with generally stagnant or falling stock prices.

Bull market

A market with generally rising stock prices

Diversification

Owning a collecting of investments (such as stockes from different industries, stocks from both small and large companies, bonds, and money market funds) in order to spread risk and have a safer overall investment

Dow Jones Industrial Average

A portfolio of stocks chosen to provide na accurate assessment of day-to-day stock market performance

Inflation

Rise in prices that effectively makes cash have less buying power over time

Investment Horizon

The amount of time an investor holds on to a portfolio of investments before cashing them out

Investment Portfolio

The collection of investments you personally hold, including stocks, bonds, money market accounts, and savings accounts.