Learning the Language: Investing Jargon Simplified

Investment jargon putting standing in the way of you and your investment journey? It doesn’t need to be that way

WORDS BY
Lærke Engelbrekt Pedersen
Published
January 19, 2024
Getting down with the investment lingo is the first step to being a successful investor (Image: Female Invest)
Tags
Investing
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With so many buzzwords and acronyms, it’s natural to feel confused and overwhelmed as a first-time investor. So if you want to jump on the investing bandwagon, it’s important to learn the lingo first. 

We’ve compiled a list of the top terms you should know to build up your financial confidence and ultimately, your net worth. We like to keep things simple around here…

Actively Managed Funds

An actively managed fund is controlled by an actual person who chooses and manages all the investments in the fund in an attempt to outperform an index, and ultimately beat the market. 

Asset Allocation

This is an investment strategy that aims to balance risk and reward. By mixing the assets in your portfolio, you reduce the overall risk. This depends on your individual goals, risk tolerance, and investment horizon 

Bear Market

This is a market that experiences prolonged price declines aka. down turns. In this case, investors are nervous because the market is going down. 

Benchmark

This is a standard by which the performance of a security, mutual fund, or investment manager can be measured.

Bonds

This is a loan investors give to a company or government. It pays investors a fixed return rate for a fixed period of time. Unlike stocks, bonds don’t give any ownership rights. 

Bull Market

Opposite of a bear market, this is a market that is on the rise and existing in a sound market. 

If you want to jump on the investing bandwagon, it’s important to learn the lingo first (Image: Female Invest)

Commodities

These are basic, homogenous goods like natural resources such as oil, gold and wheat. They are usually traded in bulk and can be interchangeable with goods of the same type. Because of the nature of commodities though, they are not ideal for individual investors. Like stocks, bonds, and real estate, commodities fall into a major investment asset class. 

Compound interest

Much like a snowball effect, this is interest earned on money that was previously earned as interest. Also known as exponential growth, this cycle leads to generating additional earnings over time. This growth occurs because the investment accrues earnings from both its initial principal and from preceding periods. 

Dollar-Cost Averaging

A technique used by investors to reduce the impact of volatility on the price of an investment. It involves investing a fixed amount of money at regular intervals, regardless of the price of the investment. 

Diversification

A term that essentially means spreading out risk by investing in different companies across different sectors and countries. 

Dividend

This is a sum of money paid out (normally annually) by a company to its shareholders as a form of profit sharing. This is one way of earning money when investing. 

ETF

ETF stands for Exchange Traded Fund, and means that it is a fund traded directly on the exchange. ETFs are to mutual funds, but as they are listed on exchanges they are traded throughout the day. They are made up of a variety of investments including stocks, commodities, bonds, or a mixture of investment types. 

(Image: Female Invest)

Fund Manager

A fund manager is responsible for a fund’s investment strategy and for managing its portfolio. A fund can be managed by one person, by two people, or by a team of three or more people. 

Index

An index is used to track the performance of a certain type of stock, a specific sector or a country’s stock market. For example you have the S&P500 index that tracks the performance of 500 largest companies listed on the US stock exchange. 

Inflation

This is the rate that prices increase while consequently, the purchasing power of currency decreases.  

Initial Public Offering (IPO)

This is the process by which a private company sells stock to the public in a new stock issuance, thereby becoming a public company.

Investment Funds

A financial vehicle that pools together money from multiple investors and uses that money to invest in a variety of securities, such as stocks, bonds, and other assets. The goal of an investment fund is to provide investors with a diverse portfolio of investments that can help them achieve their financial goals, such as wealth preservation or growth. 

Passively Managed Fund

These funds aim to follow the market, an industry, or a certain type of company and mirror the performance of an index or benchmark. 

Pension funds

These are investment pools that pay for your retirement. Pension funds are paid for by either the employee, the employer, or both. Pensions vary from workplace to workplace, as well as from country to country. 

Portfolio

Simply put, your portfolio refers to all of the investments you own – stocks, bonds, investment funds. So if you own 3 stocks your portfolio consists of 3 stocks. 

Return

This refers to the money made or lost on an investment over a period of time. 

From IPO to dividends, it's important to learn the language of investing (Image: Female Invest)

Return on Investment (ROI)

This is a performance used to measure the success of an investment. It can also be used to compare the efficiency of an investment or the number of different investments. 

Securities

An overall term that describes different types of financial assets (stocks is an example of a security), that hold some kind of monetary value and can be traded. 

Stocks

A stock represents ownership of a company. When you buy a stock, you buy a small piece of that company with an expectation that the company and hence your stock will grow in value in the long run.  

Stock Split

A stock split is a corporate action in which a company increases the number of its outstanding shares by issuing new shares to existing shareholders. For example, if a company conducts a 2-for-1 stock split, it will issue two new shares for every one share that an investor already owns. This effectively doubles the number of outstanding shares, but it does not change the value of the company or the value of each individual share. 

Volatility

A term describing how stable or volatile a security or market is. When the price is relatively stable, the security has low volatility. If the security hits new highs and lows quickly or has dramatic increases and unexpected falls, the security has high volatility. 

Yield

This is the money you earn from an investment over a particular period of time. It’s written as a percentage sign and based on the investment amount, current market value, or face value of the security.

Tags
Investing

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