securities+investments

Asset

Something you own that has value

Liability

Something you owe

Equity

Ownership value (assets minus liabilities)

Liquidity

How quickly an asset can be turned into cash with little loss

Volatility

How much price moves over time

Diversification

Spreading investments to reduce company

Asset Allocation

How you split money across asset classes (stocks, bonds, cash, etc.)

Rebalancing

Adjusting portfolio back to target allocation after market moves

Dividend

Cash paid by a company to shareholders

Yield

Income return relative to price (often annualized)

Capital Gain/Loss

Profit/loss from selling an asset for more/less than purchase price

Total Return

Price change plus income (dividends/interest) over a period

Time Horizon

How long you plan to invest before needing the money

Risk Tolerance

How much uncertainty/loss you can handle emotionally/financially

Inflation Risk

Risk that purchasing power declines over time

Credit Risk

Risk a borrower defaults

Interest Rate Risk

Risk that rate changes affect asset prices (especially bonds)

Emergency Fund Purpose

Cash reserves to cover unexpected expenses without selling investments

Nominal Return

Return not adjusted for inflation

Real Return

Return adjusted for inflation

Risk–Return Tradeoff

Higher expected return usually requires higher risk

Short Horizon Strategy

More liquidity and stability; less volatility tolerance

Long Horizon Strategy

Can accept volatility for growth potential

Fundamental Analysis

Uses financials and business performance to estimate value

Technical Analysis

Uses price/volume patterns to analyze trends

Investment Wrapper

Account/legal structure that affects taxes, access rules, and reporting

Compounding

Earning returns on both principal and prior returns

Future Value Formula

FV = PV(1 + r)^t

Present Value Formula

PV = FV / (1 + r)^t

Rule of 72

Approximate years to double ≈ 72 ÷ interest rate (%)

Primary Market

New securities sold to investors (IPO/new bond issue)

Secondary Market

Investors trade existing securities with each other

Bull Market

Broad prices trending upward

Bear Market

Broad prices trending downward

Pig Market Behavior

Greedy, overleveraged, excessive risk

Income Statement

Shows revenue, expenses, and profit over a period

Balance Sheet

Shows assets, liabilities, and equity at a point in time

Cash Flow Statement

Shows cash in/out from operations, investing, and financing

Mutual Fund

Pooled investment vehicle where investors own shares of a combined portfolio

NAV (Net Asset Value)

Value of fund assets minus liabilities per share

Expense Ratio

Annual percentage fee that pays fund operating costs

Load

Sales charge (front

Bond

Loan made by investor to issuer with interest and principal repayment

Coupon

Bond’s stated interest payment rate

Maturity

When principal is repaid

Bond Price–Yield Relationship

When yields rise, bond prices fall (inverse relationship)

Duration (Concept)

Sensitivity of bond price to interest

Collateral

Asset pledged to back a loan/bond

Secured Bond

Backed by collateral