Ever come across financial terms that left you scratching your head? This quick guide breaks down some of the most common terms to make investing a bit more approachable.
Bond: A debt security issued by a corporation or government promising to pay back the principal amount plus interest over a specified period.
Compound Interest: Interest earned on both the principal amount and the accumulated interest over time.
Diversification: Spreading investments across different asset classes or industries to reduce risk.
Dividend: A payment made by a company to its shareholders, typically from its profits.
ETFs (Exchange Traded Funds): A type of investment fund that trades on a stock exchange like a stock. ETFs give you a way to buy and sell a basket of assets without having to buy all the components separately.
Hedge: Strategically using financial instruments or market strategies to offset the risk of any adverse price movements.
Investment Horizon: The length of time an investor expects to hold an investment.
IPO (Initial Public Offering): The first sale of stock by a private company to the public.
Liabilities: Debts or obligations owed by a company or individual.
Liquidity: How quickly and easily assets can be converted into cash without significant loss in value.
Passive/ Active Management: Passive management involves tracking a market index, while active management involves selecting individual securities based on analysis.
Portfolio: The accumulation of stocks that you have as an investor.
Rebalancing: The process of adjusting the proportions of shares in a portfolio to maintain an original or desired level of asset allocation or risk.
Return on Investment: The profit or loss from an investment, expressed as a percentage.
Risk Tolerance: A person’s willingness or ability to accept different levels of risk.
S&P 500: Standard & Poor 500 is an that tracks the 500 largest companies listed on US stock markets.
Stock Market: A marketplace where stocks are bought and sold.
Shares/ Stocks: Units of ownership in a company.
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