Key Concepts in Investment and Financial Markets

Investment

involves allocating resources, typically money, with the expectation of generating future income or profit. It's essentially putting your money to work to potentially grow its value over time.

Stocks

a share which entitles the holder to a fixed dividend, whose payment takes priority over that of common-stock dividends.

Initial public offering (IPO)

when a private company first sells shares to the public, allowing it to become a publicly traded company and raise capital.

Primary market

where new securities are issued and sold directly to investors for the first time.

Secondary market

where investors trade existing securities amongst themselves.

New York Stock Exchange (NYSE)

is the world's largest stock exchange by market capitalization.

National Association of Security Dealers Automated Quotation (NASDAQ)

is a global marketplace for trading securities, primarily stocks, and a major stock exchange in the United States.

Publicly traded

is a corporation whose ownership is distributed among the general public through the trading of shares of stock on a stock exchange or over-the-counter market.

Shareholders

are individuals or entities that own shares in a company.

Dividends

a sum of money paid regularly (typically quarterly) by a company to its shareholders out of its profits (or reserves).

Securities and Exchanges Commission (SEC)

is a US federal agency that regulates the securities industry, including stock exchanges, broker-dealers, investment advisors, and public companies.

Security

a broadly defined financial instrument that holds value and can be bought, sold, or traded, such as stocks and bonds.

Brokerage

a company that facilitates the buying and selling of investments like stocks, bonds, and mutual funds.

Full-service brokerage

a type of financial firm that offers a comprehensive range of services, including investment advice, financial planning, and estate planning, in addition to executing trades.

Commission

is a fee or payment, often a percentage of a transaction's value, charged by a broker or other financial professional for facilitating a purchase or sale of an asset.

Discount brokerage

is a brokerage firm that executes buy and sell orders for investors at significantly reduced commission rates compared to full-service brokers.

Bond

is a financial instrument representing a loan made by an investor to a borrower.

Maturity date

is the date when a loan, investment, or financial instrument reaches its full repayment or expiration date.

Face value

the value printed or depicted on a coin, banknote, postage stamp, ticket, etc., especially when less than the actual or intrinsic value.

Coupon rate

the annual interest rate paid by a bond issuer to the bondholder, expressed as a percentage of the bond's face value

Treasury bonds

are long-term debt securities issued by the U.S. Department of the Treasury

Municipal bonds

are debt securities issued by state, city, county, and other local governments or public entities to finance public projects and services

Corporate bonds

are a type of debt security issued by corporations to raise capital, essentially allowing investors to lend money to the company in exchange for interest payments and the return of principal at maturity

Investment-grade bonds

Bonds that are believed to have a lower risk of default and receive higher ratings by the credit rating agencies

Junk bonds

are debt securities issued by companies with lower credit ratings, typically those rated below BBB- by Standard & Poor's or Baa3 by Moody's

Mutual funds

investment vehicles that pool money from many investors to purchase a diversified portfolio of securities like stocks, bonds, or other assets

Diversification

involves a company expanding its operations into new, unrelated markets or industries, creating new products or services to reduce risk and increase profitability

Real Estate

property consisting of land and everything permanently attached to it, including buildings, natural resources, and fixtures

Entrepreneur

a person who organizes and operates a business or businesses, taking on greater than normal financial risks in order to do so.

Time value of money

a financial principle that states that the value of a dollar is worth more today than the value of a dollar in the future

Future value

the value of a current asset at a future date based on an assumed growth rate

Compounding

a financial phenomenon that makes time work in your favor

Present value

a particular sum of money today is likely to be worth more than the same amount in the future

Simple interest

a calculation where interest is earned or charged only on the principal amount of an investment or loan

Rule of 72

a financial tool used to estimate the time it takes for an investment to double in value, assuming a constant annual rate of return

Portfolio

a collection of financial investments, a showcase of an individual's work or skills, or a collection of projects within a business

Diversification

a method that scatters your investments over multiple financial assets, including stocks, real estate, certificates of deposit, and more

Asset allocation

dividing an investment portfolio among different asset categories

Estate planning

a process involving the counsel of professional advisors who are familiar with your goals and concerns, your assets and how they are owned, and your family structure

Will

a legal document that details how your assets are distributed and who cares for your dependents after your death

Beneficiaries

a person or entity you designate to inherit your assets upon your passing

Intestate

when someone passes away without having created a valid will to specify how their assets and interests will be handled after death

Trusts

a legal arrangement where one party (the grantor or trustor) transfers assets to a second party (the trustee) to hold and manage for the benefit of a third party (the beneficiary)