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