TERMINOLOGY – MODULE 13 Test finance

  • Advisor: A professional who assists clients with planning and arranging their final affairs

  • Broker (or stock broker): A person trained and licensed to buy and sell stocks

  • Stocks or shares: Represents part ownership in a company, Shareholders will receive a share of company profits based on the number of shares they own, If the company makes a profit and profits are distributed

  • Economic growth: An increase in the quantity of goods and services produced by an economy

  • Distribution of income: The portion of total income produced in an economy received by the various members of the population or grouping of the population

  • Liquidity: The ease with which an investment or asset can be converted into cash and the certainty of its value

  • Time horizon: The period of time when you will need to turn investments into cash to use the money

  • Bond: A way in which governments and companies can borrow money, A bond can be sold for a period of time and bondholders will be paid a set amount of interest, On the maturity date, the money will be repaid to the bondholder

  • Equity: An asset that has value, The value may change over time

  • Bond market: Where bonds are bought and sold at a market price

  • Stock market: Where stocks(shares of companies) are bought and sold at a market price

  • Fixed income investment: An investment with a fixed interest rate that does not change

  • Investor profile: A description of the type of investor a person is in terms of goals comfort with risk and knowledge of investing

  • Portfolio: A collection of investments held by an investor

  • Mutual fund: Funds pooled by investors and managed/invested on their behalf by a professional fund manager for a fee, Funds differ in terms of the kinds of investments held by the fund

  • Saving: Putting money aside in a low-risk account

  • Investing: Putting money into assets that can potentially grow

  • Present value – money received in the future is not worth as much as money received today

  • Future value – the value of money at a specific date in the future. 

  • Compounding: Earning returns on your previous returns or earning “interest on interest”

  • Market risk - (Systematic risk), refers to the uncertainty associated with any investment decision. 

  • Inflation risk - the potential reduction in the purchasing power of money over time.

  • Interest rate risk - the decline in the value of an asset resulting from fluctuations in interest rates.

  • Investment risk spectrum:

    • Low risk: Savings accounts, GICs

    • Medium risk: Bonds

    • High risk: Stocks, cryptocurrencies

  • Stocks: Direct shares in individual companies

  • ETFs (Exchange-Traded Funds): Baskets of stocks tracking market indexes

  • Market indexes - a group of stocks or other asset classes that track the 

      performance of a segment of the market.

  • Passive Investing:

    •  Tracking market indexes (e.g., S&P 500)

    •   Lower fees and management costs

    •   Minimal trading activity

    • a long-term investment strategy that focuses on buying and holding investments for the long term

  • Active Investing:

    • Actively selecting and trading individual stocks

    •  Attempts to outperform the market

    •  Higher fees and more frequent trading

  • Passive Investing Pros:

    • Lower risk

    • Consistent returns

    • Minimal time investment

  • Passive Investing Cons:

    • Limited potential for exceptional gains

    • No opportunity to beat the market

  • Active Investing Pros:

    • Potential for higher returns

    • Flexibility in investment choices

  • Active Investing Cons:

    •  Higher risk

    • More time-consuming

    •  Higher transaction costs

  • Value Investing:

    • Seeking undervalued stocks

    • Looking for stocks trading below intrinsic value

    •  Examples: Mature, stable companies

  • Growth Investing:

    • Focusing on companies with high growth potential

    • Prioritizing future earnings and expansion

    • Examples: Technology and emerging market companies

  • Value Investing Pros:

    •  Lower risk

    • Potential for steady returns

    • More stable investments

  • Value Investing Cons:

    • Slower growth

    • Requires extensive research

  • Growth Investing Pros:

    • Potential for high returns

    • Exciting investment opportunities

  • Growth Investing Cons:

    • Higher volatility

    • Greater risk of losses

  • Dollar cost averaging  Definition: Investing a fixed amount regularly

    • How it works:

      •  Invest same amount at regular intervals

      • Reduces impact of market volatility

  • Asset allocation Definition: Distributing investments across different asset classes

  • Key Asset Classes: Fixed income: low to medium risk and return potential, Equities: higher return potential but higher risk

  • "snowball method,": paying off the smallest of all your loans as quickly as possible