Unit 2 - Investing Vocabulary (Top 25)

Asset Allocation

Asset Allocation

Investment strategy that aims to balance risk and reward by dividing a certain percentage of investments (like stocks, bonds, real estate, cash, etc.) across different assets in an investment portfolio.

Averaging Down

Investment strategy that involves buying additional shares of an asset after its price has fallen, resulting in a lower average purchase price.

Beta

The measure of an asset's risk in relation to the market.
A stock with a beta of 1.5 means that the stock typically moves 50% more than the market in the same direction. Generally, a higher beta indicates a riskier investment—if the market rises 10%, the stock will rise by 15%, but if the market falls by 10%, the stock will fall by 15%.

Bond

A type of security loaned by an investor to a borrower like a company or government used to fund its operations.

Call & Put Options

Call Option - A contract that gives its holder the right to buy a number of shares at the strike price, before the option's expiration.
Put Option - A contract that gives its holder the right to sell a number of shares at the strike price, before the option's expiration.

Capitalization (Market Cap)

The total market value of all a company's outstanding shares. It's calculated by multiplying the total number of shares by the current share price.

Diversification

Investment strategy that divides investment funds across a variety of assets in order to minimize overall risk.

Dollar-Cost Averaging

Investment strategy in which you invest a fixed amount on a regular basis regardless of the price of the asset.

Dow Jones Industrial Average (DJIA)

Stock market index consisting of the 30 most-traded blue-chip stocks on the New York Stock Exchange.
It's used to measure the performance of shares among the largest U.S. companies and gauge the overall direction of stock prices.

Earnings per Share (EPS)

A company's profit divided by its number of outstanding shares.
Used to measure corporate profitability.

Exchange-Traded Funds (ETFs)

A collection of stocks or bonds combined in a single fund that can be purchased and traded on major stock exchanges.
Similar to mutual funds, they're a pooled investment fund, meaning a "pool" of money is collected from multiple investors.
They are usually passively managed and typically feature less fees (expense ratios) than mutual funds.

Expense Ratio

The cost of owning a fund, including expenses like the management of the fund, overhead fees, and any other costs associated with running the fund.
Measured as a percentage of your total investment—for example, if you invest $10,000 in a fund with an expense ratio of .20%, you'll pay $20 on top of your investment.

Going Short/Short Selling

The act of selling stock shares with the expectation that the asset's price will fall.
When an investor goes short on an asset, they borrow that asset, sell it, and hopefully purchase it later at a lower price if the price does decline, resulting in profit.

Index Funds

Investment funds that follow the performance of a specific benchmark or stock market index, like the S&P 500.
When you invest in an index fund, your money is used to invest in every company in that index.
This typically results in a much more diverse portfolio than if you were hand-selecting individual stocks.

Initial Public Offering (IPO)

A previously private company that becomes public by selling stock shares on the stock market for the first time.

Margin (Buying on the Margin)

When investors borrow money from a broker to purchase a stock, similar to a loan.

Mutual Funds

Pools of investments from shareholders used to "mutually" buy securities like stocks, bonds, and other assets.
These funds are usually actively managed and typically have higher fees (expense ratios).

Nasdaq (National Association of Securities Dealers Automated Quotations)

Electronic exchange where investors can buy and sell stocks through an automated network of computers.
It's the second-largest stock exchange in the world, following the NYSE.
Includes many tech companies such as Facebook, Apple, etc.

P/E Ratio (Price-to-Earnings Ratio)

The ratio of a company's share price to the company's earnings per share.

Common & Preferred Stock

Common Stock - A class of stock that represents ownership in a corporation and has voting rights.
Preferred Stock - A type of stock that combines characteristics of both common stock and bonds. Receive dividends before common stockholders, but generally don't come with corporate voting rights.

S&P 500 (Standard & Poor's 500)

Stock market index tracking the stock performance of 500 of the largest companies listed on stock exchanges in the United States.

Stock Split

Occurs when a corporation increases the number of its outstanding shares by distributing more shares to current stockholders.
By splitting existing shares into multiple new shares, the stock becomes more affordable.

Volume

A measure of how much a certain stock or other investment has been traded over a certain period of time.
Volume is a critical component of strategically analyzing stock market trends, and is often used to determine market strength.

NYSE (New York Stock Exchange)

The oldest American stock exchange (1792) and largest in the world based on market capitalization.
Investors can trade in person (Wall Street in NYC) or electronically.
Includes large companies such as Coca Cola, General Motors, IBM & Nike.