10 Investment Terms You Need to Know to Start Investing
Jumping into the investment world can be a scary proposition, filled with many confusing terms and a seemingly limitless amount of options for where to put your hard-earned money. These terms will give you a solid foundation as you begin to choose how to invest your money with your investment adviser.
Diversification: Spread Your Money into Different Investments
Spreading your money among different investments. By not putting all your eggs in one basket, you greatly reduce your portfolio’s risk.
Dollar Cost Averaging: Getting the Most Bang for Your Buck
A strategy of investing the same amount of money every period (week, month or paycheck) to take advantage of price drops to buy more shares, so your overall investment is worth more when the prices rise.
Mutual Funds: Diversifying Through Managed Investments
Professionally managed group of investments that can include stocks, bonds and other securities. The investment pools money from many investors and offers high diversification.
Load: Tipping Your Broker for a Great Investment Strategy
Sales charge paid to the broker. Front-end loads are paid up front, while back-end loads are paid upon selling shares held for less than a specified period of time.
Prospectus: The Manual for Your Mutual Fund
Official document required by the SEC that includes all important information of a mutual fund, including how investments are chosen and past performance.
S&P 500: A Reflection of America’s Biggest and Brightest
Standard and Poor’s index of 500 stocks chosen to give a representation of the stock performance of the largest US companies. This accurate data can be utitlized to get a handle on your portfolio and figure out which stocks are currently the most profitable in the country.
Bond: How Companies Leverage Debt
Debt instrument used by a corporation, government or municipality to borrow money. Bonds are set for a fixed amount of time and interest rate.
Growth Fund: The Greater Your Foresight, the Larger Your Reward
An investment that takes on more risk and is designed for someone with a longer investment horizon. These funds invest in companies that are expanding rapidly and with more potential for value increase than the rest of the market.
Risk Tolerance: Swinging for the Fences or Hitting for Singles
How much an investor is able to endure the possibility of losing money from his or her investment. Risk is a necessary element in making huge profits these days; however, it’s usually not wise to risk more than your can afford to lose.
Price to Earnings Ratio: Putting Your Money Where Your Mouth Is
The stock’s current price divided by the trailing 12-month earnings per share. High P/E means the market has more confidence in the company’s ability to increase earnings, and vice versa. As you analyze your investment options, these terms should give you a better understanding of what is out there and help you on your path to becoming and investment whiz.
