What is Investing?

investing

putting wealth to work with the hopes that it will create more wealth

saving

keeping your money in a bank account, not earning interest on it

speculation

the act of conducting a financial transaction that has a substantial risk of losing value but also holds the expectation of a significant gain or other major value

capital appreciation

the difference between the purchase price and the selling price of an investment

dividends

the distribution of some of a company's earnings to a class of its shareholders, as determined by the company's board of directors

interest

the amount a lender charges for the use of assets expressed as a percentage of the principal

brokerage account

an arrangement in which an investor deposits money with a licensed brokerage firm, which places trades on behalf of the customer

tax-advantaged accounts

any type of investment, financial account, or savings plan that is either exempt from taxation, tax-deferred, or that offers other types of tax benefits

active investing

an investment strategy that involves ongoing buying and selling activity by the investor

passive investing

a long-term strategy in which investors buy and hold a diversified mix of assets to match, not beat, the market

professional investing

investing for other people as a career

personal investing

investing with another career path in progress

inflation

the decline of the purchasing power of a given currency over time

time value of money (TVM)

the concept that money you have now is worth more than the identical sum in the future due to its potential earning capacity

compounding (rate of return or interest)

the process in which an asset's earnings, from either capital gains or interest, are reinvested to generate additional earnings over time

custodial account

a savings account at a financial institution, mutual fund company, or brokerage firm that an adult controls for a minor

risk-reward tradeoff

the potential return rises with an increase in risk

principal

the original sum of money borrowed in a loan or put into an investment

default

the failure to repay a debt, including interest or principal on a loan or security

fixed-income investing

an investment approach focused on the preservation of capital and income

typically includes investments like government and corporate bonds., CDs, and money market funds