Overview
Understanding investing terminology is crucial for making informed financial decisions. This cheat sheet covers essential terms to help navigate the world of investing.
Common Investing Terms
*General Terms*
- Asset Allocation: Strategy of distributing investments across asset types (stocks, bonds, cash).
- Diversification: Spreading investments to reduce risk.
- Risk Tolerance: Level of financial risk an investor is willing to take.
- Liquidity: Ease of converting assets into cash.
*Stock Market Terms*
- Stock: Ownership share in a company.
- Dividend: Payment from a company to its shareholders.
- Market Capitalization: Total value of a company’s outstanding shares.
- Bull Market: A period of rising stock prices.
- Bear Market: A period of declining stock prices.
*Investment Strategies*
- Growth Investing: Investing in companies expected to grow revenue rapidly.
- Value Investing: Buying stocks that appear undervalued compared to their fundamentals.
- Index Fund: A fund that tracks a stock market index.
- Exchange-Traded Fund (ETF): A collection of stocks or bonds traded like a stock.
*Bond & Fixed Income Terms*
- Bond: A loan to a company or government that pays interest.
- Yield: Earnings generated from an investment over time.
- Coupon Rate: Interest rate paid on a bond’s face value.
- Duration: Sensitivity of a bond’s price to interest rate changes.
*Advanced Investing Concepts*
- Price-to-Earnings (P/E) Ratio: Stock price relative to company earnings.
- Return on Investment (ROI): Profit or loss from an investment.
- Capital Gains: Profit from selling an investment at a higher price.
- Short Selling: Betting that a stock price will decline.
Tools & Resources
- Stock screeners for researching investments.
- Financial news platforms for market updates.
- Investment calculators for assessing returns.