A — B — C — D — E — F — G — H — I — J — L — M — N — O — P — R — S — T — U — V — Y
A
All-Time High or ATH
The ATH is the highest price or value that a particular investment or market has ever reached, representing a new record level.
All-Time Low or ATL
The ATL is the lowest price or value recorded for a particular investment or market.
Alternative Investments
These are investments that fall outside of traditional asset classes such as stocks, bonds, and cash.
We focus on dividend and interest paying assets. You can see examples of these in the second half of this post.
Annual Percent Yield or APY
APY is a standardized measure that represents the effective annual rate of return on an investment, accounting for compounding.
Asset Allocation
The process of distributing investments across various asset classes to achieve a desired balance of risk and return.
This is similar to diversification where the distribution is across more factors.
Asset Classes
An asset class is a broad category of investments with similar characteristics and risk profiles. Common asset classes include stocks, bonds, funds, real estate, etc. Check out this post for more.
Asset Management
The professional management of investments on behalf of individuals, institutions, or funds. Asset managers make investment decisions and monitor portfolios to maximize returns and manage risk.
B
Bear Market
A bear market is a period of declining stock prices and pessimistic investor sentiment, often associated with a weakening economy. This is the opposite of a bull market.
Beta
Beta is a measure of an investment’s sensitivity to market movements. Beta compares the price volatility of an investment to that of a benchmark index.
A beta greater than 1 indicates higher volatility, while a beta less than 1 indicates lower volatility. If you have a low risk tolerance, look for low beta assets.
Blue-Chip Stocks
These are stocks of large, well-established, and financially stable companies with a history of reliable performance. Blue-chip stocks are considered less volatile and are often seen as safe investments.
I’m sure you’ve heard of Apple, Berkshire Hathaway, Coca-Cola, Johnson & Johnson, etc.
Bonds
A bond is a debt instrument issued by a company, municipality, or government entity. Bonds represent a loan provided by an investor in exchange for periodic interest payments and the return of the principal amount at maturity.
Bull Market
A bull market is a period of rising stock prices and optimistic investor sentiment, typically accompanied by strong economic growth. This is the opposite of a bear market.
Business Development Corporations or BDCs
BDCs specialize in providing financing and capital to small and mid-sized businesses.
As investment options, BDCs offer potential for income investors due to their focus on lending to companies and distributing a significant portion of their profits as dividends to shareholders.
C
Capital Gain
The profit earned when selling an investment for a higher price than its purchase price. It’s calculated as the difference between the selling price and the purchase price.
Capital Loss
The loss incurred when selling an investment for a lower price than its purchase price. It’s calculated as the difference between the purchase price and the selling price.
Certificate of Deposit or CDs
A fixed-term, interest-bearing deposit offered by banks or credit unions where the depositor agrees not to withdraw the funds for a specified period in exchange for earning a higher interest rate.
Coupon Rate
The fixed interest rate paid on a bond, expressed as a percentage of the bond’s face value. The coupon rate determines the periodic interest payments made to bondholders.
D
Derivative
A financial contract that derives its value from an underlying asset or benchmark. Derivatives include options, futures contracts, swaps, and forwards.
Diversification
This involves spreading investments across different asset classes, sectors, or geographic regions to reduce risk. It aims to protect the portfolio from significant losses if one investment performs poorly.
Dividends
A dividend is a portion of a company’s profits that’s distributed to its shareholders as a return on their investment.
Dividends are typically paid out in cash or in additional shares of stock on a regular basis, such as quarterly or annually.
Dividend Reinvestment Plan or DRIP
DRIP is a program offered by companies that allows shareholders to automatically reinvest their dividends by purchasing additional shares instead of receiving cash payments.
Dividend Yield
The annual dividend payment of a stock expressed as a percentage of its current market price. Dividend yield helps investors assess the income potential of a dividend-paying stock.
Dollar Cost Averaging
This is a strategy of investing a fixed amount of money at regular intervals, regardless of market conditions.
Using this approach allows you to purchase more shares when prices are low and less shares when prices are high. This reduces the overall cost of investments or your average buy-in price.
Dollar-Denominated
Investments or securities that are priced or traded in U.S. dollars. This term is commonly used to refer to investments outside of the United States that are valued in U.S. currency.
Dollar-Weighted Average Return
The average return earned by an investor in a fund, weighted by the amount of money invested at different points in time. It accounts for the timing and size of cash flows into and out of the fund.
E
Earnings Per Share or EPS
EPS is a company’s net earnings divided by the number of outstanding shares. EPS is often used as an indicator of a company’s profitability and is used in various valuation metrics.
Equity
Equity refers to an ownership stake or shares in a company, representing a portion of ownership in the business.
Exchange
A marketplace where buyers and sellers come together to trade securities, commodities, derivatives, or other financial instruments.
Examples include: stock exchanges, commodity exchanges, and cryptocurrency exchanges.
Exchange-Traded Fund or ETF
This is an investment fund that trades on stock exchanges, representing a basket of securities (such as stocks, bonds, or commodities).
ETFs offer diversification and are designed to track the performance of specific indices or sectors.
Ex-Dividend Date
This is the day the stock starts trading without the value of its next dividend payment. An investor who buys the stock on its ex-dividend date or later will not be eligible to receive the declared dividend.
Should you buy before or after the ex-dividend date?
Expense Ratio
The annual fee charged by a mutual fund or ETF for managing the investment. It’s expressed as a percentage of the fund’s total assets and covers operating expenses.
F
Financial Goals
These are measurable objectives that an individual or entity sets to achieve desired financial outcomes.
Financial goals often involve accumulating wealth, generating income, or achieving certain milestones within a defined timeframe through strategic investment decisions.
FI (Financial Independence or Financially Independent)
FI is used in the finance community as shorthand for either financial independence or financially independent. Sometimes you’ll see FIRE which stands for Financial Independence Retire Early.
Fixed-Income Securities
Investments that provide fixed periodic income, typically in the form of interest payments. Examples include bonds, government securities, and corporate debt instruments.
Fundamental Analysis
An investment analysis approach that focuses on examining the underlying factors that can affect an asset’s value, such as financial statements, earnings, management, competitive position, and industry trends.
This may get paired with a technical analysis to predict when to buy and sell an asset.
G
Growth Investing
An investing strategy focused on acquiring stocks or assets of companies expected to experience above-average revenue and earnings growth, with the anticipation that their share prices will rise significantly over time.
Growth Stocks
Stocks of companies expected to experience above-average revenue and earnings growth. Growth stocks typically reinvest their earnings into expanding operations rather than distributing them as dividends.
H
Hedge Fund
An investment fund that pools capital from accredited investors and institutions to employ various investment strategies.
Hedge funds are known for their flexibility in pursuing potentially higher returns but often involve higher risks and fees.
High-Interest Savings Account
A type of deposit account offered by financial institutions that provides a higher interest rate than a standard savings account, allowing savers to earn more on their deposited funds.
High-Yield Bonds
Bonds issued by companies with lower credit ratings, also known as junk bonds. They offer higher yields to compensate investors for the increased credit risk associated with these issuers.
I
Income Investing
An investing strategy that focuses on generating a steady stream of regular income from investments, such as dividends, interest, or rental payments, to meet financial objectives.
Income Stocks
Stocks that provide regular income in the form of dividends. Income stocks are often associated with stable, mature companies that generate consistent cash flows.
Index Fund
A type of mutual fund or ETF that aims to replicate the performance of a specific market index, such as the S&P 500. It provides broad market exposure and typically has lower fees compared to actively managed funds.
Inflation
The rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of currency is decreasing. Inflation erodes the value of money over time.
Initial Public Offering or IPO
An IPO is the first sale of a company’s stock to the public. It allows the company to raise capital and become publicly traded. You can’t buy IPOs though the market. Only after they become publicly traded.
Interest Income
Income earned from interest payments on fixed-income securities, such as bonds, CDs, or savings accounts. It is typically paid at regular intervals based on the interest rate and the principal amount invested.
Interest Rate
The percentage at which a lender charges borrowers for the use of borrowed funds, or the return earned on an investment or savings account.
Intrinsic Value
The perceived or estimated underlying value of an investment that’s independent of its market price. This is different than the relative value of an asset.
Intrinsic value is often assessed through fundamental analysis and represents a better picture of what an asset is truly worth.
J
Junk Bonds
Bonds issued by companies with lower credit ratings, also known as high-yield bonds. They offer higher yields to compensate investors for the increased credit risk associated with these issuers.
L
Limit Order
An order placed with a broker to buy or sell a security at a specific price or better. They ensure that the trade is executed only if the specified price conditions are met.
Limit orders allow investors to control the price at which they buy or sell and provide protection against unfavorable price movements.
Liquidity
The ease with which an investment can be bought or sold without causing significant price fluctuations. Cash is considered the most liquid asset.
M
Margin
Borrowed funds from a brokerage firm that an investor can use to purchase securities. Margin allows investors to amplify their potential returns but also increases the risk of losses.
Margin Call
A margin call occurs when an investor’s margin account falls below the required maintenance margin set by the brokerage.
The brokerage then demands the investor to deposit additional funds or securities to bring the account’s value back up to the minimum level, preventing the potential forced liquidation of the investor’s positions.
Market Capitalization or Market Cap
Market cap is the total value of a company’s outstanding shares of stock, calculated by multiplying the current stock price by the number of shares.
You’ll often hear this in reference to large-cap, mid-cap, and small-cap companies.
Market Order
An order to buy or sell an investment at the prevailing market price. These are executed immediately at the best available price.
Market orders are executed quickly but may be subject to price fluctuations, especially if a stock is high volume or rapidly fluctuating in price.
Market Sector
A specific segment of the economy that comprises companies that operate in a similar industry or share common characteristics.
Investors often analyze and categorize stocks based on market sectors to gain insights into industry performance, identify trends, and make informed investment decisions.
Master Limited Partnership or MLP
MLPs are a type of limited partnership that’s publicly traded. They’re primarily engaged in natural resource-related activities, such as oil and gas pipelines or storage facilities. They offer income via regular distributions to their unit holders.
Modern Portfolio Theory or MPT
MPT is a framework that seeks to optimize investment portfolios by considering the relationship between risk and return. It emphasizes diversification and the efficient allocation of assets.
Mutual Fund
An investment vehicle that pools money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other assets. Mutual funds are managed by professional fund managers.
N
Net Asset Value or NAV
NAV represents the per-share value of a mutual fund, exchange-traded fund (ETF), or a real estate investment trust (REIT).
It’s calculated by subtracting the fund’s liabilities from its total assets and dividing the result by the number of outstanding shares, giving investors an indication of the fund’s underlying value.
O
Option
A derivative contract that gives the holder the right, but not the obligation, to buy (call option) or sell (put option) an underlying asset at a predetermined price within a specified period.
Overvalued
This refers to a situation where the current market price of an asset, such as a stock or a bond, is higher than its intrinsic value or fair value.
It suggests that the asset may be trading at a premium, making it potentially risky to purchase at that price as it could lead to subpar returns in the long run.
P
Payout Ratio
The percentage of a company’s earnings that is paid out as dividends to shareholders. A high payout ratio indicates that a company is distributing a significant portion of its profits as dividends.
Penny Stock
A low-priced stock, often traded outside of major exchanges, with a small market capitalization. Penny stocks are generally associated with higher risks and lower liquidity.
Portfolio
A collection of investments held by an individual or entity, including stocks, bonds, cash, and other asset classes.
Preferred Stock
A class of stock that has a higher claim on a company’s assets and earnings compared to common stock.
Preferred stockholders typically receive fixed dividends before common stockholders and have a higher priority in case of liquidation.
Price-to-Earnings Ratio or P/E Ratio
This ratio is a valuation metric that compares a company’s stock price to its earnings per share (EPS). It helps investors assess the relative value of a stock and can be used to gauge if a stock is overvalued or undervalued.
Prospectus
A legal document provided by investment issuers, such as mutual funds or companies offering securities, which provides detailed information about the investment’s objectives, risks, fees, and performance history.
R
Real Estate Investment Trust or REIT
A company that owns, operates, or finances income-generating real estate. REITs pool funds from multiple investors to invest in a diversified portfolio of properties.
They typically distribute a significant portion of their taxable income as dividends to shareholders. REITs allow individual investors to invest in real estate assets without directly owning or managing the properties.
Rebalancing
The process of adjusting the weights of assets in a portfolio to maintain the desired asset allocation. Rebalancing involves buying or selling assets to bring the portfolio back to its target allocation.
Relative Value
An analysis strategy that involves comparing the value of one asset or investment opportunity against another to identify potential mispricing or undervalued opportunities.
This is different than using fundamental analysis to determine as asset’s intrinsic value.
Return on Equity or ROE
A measure of a company’s profitability relative to its shareholders’ equity. ROE is calculated by dividing net income by shareholders’ equity and is often used to assess a company’s efficiency in generating profits.
Return on Investment or ROI
A measure of the gain or loss generated on an investment relative to the amount invested. ROI is expressed as a percentage and is used to evaluate the profitability of an investment.
It’s calculated by dividing the gain or loss from an investment by the initial investment amount.
Risk-Adjusted Return
This is a measure that evaluates an investment’s return relative to its level of risk.
Risk-adjusted return helps assess whether the return justifies the risk taken and allows for comparisons between investments with different risk profiles.
Risk Tolerance
An investor’s willingness and ability to endure fluctuations in the value of their investments. Risk tolerance is influenced by factors such as financial goals, time horizon, and comfort with volatility.
S
Screener
A research tool used to identify potential investments. Stock screeners allow investors and traders to sort through thousands of individual securities to find those that fit their own criteria.
Sector
A specific segment or industry within the economy, such as technology, healthcare, or energy. Investors often consider sector performance when making investment decisions.
Sector Rotation
A strategy of shifting investments among different sectors based on the cyclical trends of the economy.
Sector rotation aims to take advantage of sectors that are expected to outperform while reducing exposure to sectors that are expected to underperform.
Securities and Exchange Commission or SEC
The SEC is a regulatory agency in the United States that oversees and enforces securities laws, protects investors, and maintains fair and orderly markets.
Shareholders
An individual, company, or institution that owns shares or equity in a corporation, entitling them to a portion of the company’s profits and a say in corporate matters during shareholder meetings.
Short Selling
The practice of selling borrowed securities with the expectation that their price will decline. Short sellers aim to buy back the securities at a lower price to profit from the price difference.
Stock Market Index
A benchmark or indicator that tracks the performance of a specific group of stocks, representing a particular market or sector. Examples include the S&P 500, Dow Jones Industrial Average (DJIA), or Nasdaq Composite.
Stock Split
A corporate action where a company increases the number of outstanding shares by dividing existing shares. It’s usually done to make the stock price more favorable and shares more accessible to investors.
Stop-Loss Order
An order placed with a broker to automatically sell a security if it reaches a specific price. Stop-loss orders help limit potential losses by triggering a sale when the price falls below a predetermined level.
Systematic Risk
The risk that is inherent in the overall market or a specific industry, rather than specific to an individual investment. Systematic risk cannot be eliminated through diversification and is also known as market risk.
T
Tax-Deferred Account
An investment account that offers tax advantages. Contributions to these accounts are either tax-deductible or grow tax-deferred until withdrawals are made in retirement.
The most common are Individual Retirement Accounts (IRAs) or 401(k)s.
Technical Analysis
An investment analysis approach that focuses on studying historical price and volume data to identify patterns, trends, and potential future price movements.
Technical analysts use charts and indicators to make investment decisions. This isn’t the same as a fundamental analysis.
Total Return
The overall return on an investment, including both income generated (dividends or interest) and capital appreciation or depreciation.
The total return reflects the change in the investment’s value over a specified period, including reinvestment of income. This is not the same as ROI.
U
Undervalued
This refers to a financial asset, such as a stock or bond, that is trading at a price below its intrinsic or true value.
An undervalued asset is considered to have potential for price appreciation as investors may recognize its true worth and bid up its price over time.
V
Value Investing
An investing strategy that involves buying undervalued assets, such as stocks, with the expectation that their intrinsic value will be recognized and lead to long-term appreciation.
Volatility
The degree of variation and fluctuation in the price or value of an investment over time.
Higher volatility indicates larger price swings and greater uncertainty, while lower volatility implies more stable price movements. If you want less volatile assets, look for those with a low beta metric.
Volatility Index or VIX
A popular measure of market volatility and investor sentiment, often referred to as the “fear gauge.” The VIX tracks expected volatility in the S&P 500 index and indicates the market’s expectation of future volatility.
Volume
Volume refers to the total number of shares or contracts traded in a particular security or market during a given period, such as a day or a trading session.
It’s an important indicator as higher trading volume can signal increased investor interest and liquidity, while lower volume may indicate decreased activity and potential price volatility.
Y
Yield
The income generated by an investment, typically expressed as a percentage of the investment’s current value. It can refer to interest payments from bonds, dividends from stocks, or rental income from real estate.
Yield on Cost
The annual dividend or interest income generated by an investment relative to its original cost. It’s calculated by dividing the current annual income by the initial investment amount.
Yield-To-Maturity or YTM
The total return anticipated on a bond if held until its maturity date. YTM takes into account the bond’s current market price, coupon rate, and time remaining until maturity.