investment terms

Stock

represents ownership in a company

Bond

a debt investment where an investor loans money to an entity for a defined period at a fixed interest rate.

Mutual fund

an investment vehicle that pools money from many investors to invest in stocks, bonds, or other assets.

ETF

a type of investment fund that is traded on stock exchanges, similar to stocks.

Index fund

a type of mutual fund or ETF that aims to replicate the performance of a specific index.

Dividend

a payment made by a corporation to its shareholders, usually in cash or additional shares, representing a portion of the company’s profit.

Capital gain

is the profit from the sale of an asset that exceeds its purchase price.

Capital loss

occurs when the selling price of an asset is less than its purchase price.

Risk

refers to the possibility that an investment’s actual return will be different from expected returns.

Return

the gain or loss of an investment over a specified period, expressed as a percentage of the investment’s initial cost.

Diversification

a risk management strategy that involves spreading investments across different assets, industries, or regions to reduce exposure to any single asset or risk.

Portfolio

collection of investments owned by an individual or an institution.

Asset allocation

the process of distributing investments among different asset classes in a way that reflects an investor’s goals, risk tolerance, and investment horizon.

Market capitalization

the total value of a company’s outstanding shares of stock, calculated by multiplying the share price by the number of shares outstanding.

P/E ratio

a valuation ratio that shows the relationship between a company’s stock price and its earnings per share.

Bull market

a financial market condition where prices of securities are rising or are expected to rise.

Bear market

a financial market condition where prices of securities are falling or are expected to fall.

Recession

a significant decline in economic activity that lasts for an extended period, typically characterized by a decrease in GDP, employment, and income.

Inflation

the rate at which the general level of prices for goods and services is rising, leading to a decrease in purchasing power over time.

Interest rate

the cost of borrowing money, or the return on investment expressed as a percentage per year.

Liquidity

how easily an asset or security can be bought or sold in the market without affecting its price.

Volatility

a statistical measure of the dispersion of returns for a given security or market index.

Dollar-cost averaging

an investment strategy where an investor buys a fixed dollar amount of a particular investment on a regular schedule, regardless of the share price.

Value investing

an investment strategy that involves selecting stocks that appear to be trading for less than their intrinsic or book value.

Growth investing

an investment strategy that focuses on buying stocks that are expected to grow at an above-average rate compared to other companies or the overall market.

IPO

the process by which a private company becomes publicly traded by selling its shares to the public for the first time.

Secondary market

where investors buy and sell securities that are already owned.