From Asset To ZCash: Basic Investing Terms For Beginners
American personal finance has so many terms to understand. And many of them are pretty alien to newcomers. And that is especially true when it comes to investing terms. But investing is an essential way to grow wealth. We’ll define some basic investing terms for beginning investors and those new to the U.S.
401(k)
Tax-advantaged retirement savings and investing plan some employers offer. Contributions are automatically deducted from your paycheck and invested in a fund from a list you can choose from.
Asset
Tangible or intangible items for producing income or held in anticipation of a future increase in value. Examples of investment assets include stocks, bonds, mutual funds, retirement accounts, and real estate.
Asset allocation
An investment strategy intended to balance risk and reward by adjusting the percentage of each asset in an investment portfolio according to the investor’s level of risk tolerance, time horizon, and financial goals.
Bear market
Occurs when the stock market experiences a prolonged decline in prices.
Bond
A type of investment that is similar to a loan. The buyer is the lender and the seller is the borrower. Bonds are typically issued by a government (local, state, federal) or a corporation. When the bond is issued, the issuer promises to repay the principal amount (the price of the bond) on the maturity date. Interest is paid to the bondholder periodically.
Bull market
Occurs when the stock market experiences a prolonged rise in prices.
Capital gain or loss
A capital gain is a profit or return on an investment. A capital loss is money lost on an investment.
Certificate of Deposit (CD)
An interest-bearing account offered by banks and credit unions. CDs pay higher interest than most savings accounts, and the money must be left in the account for a set amount of time, known as the term. If money is withdrawn early, there is a penalty.
Cryptocurrency
A digital currency designed to be a form of currency through a computer network that doesn’t rely on a central authority like a bank or government to maintain or uphold it.
Diversification
Owning different investments inside a portfolio to reduce the risk of investing.
Dividend
A portion of profits some companies pay out to shareholders. Dividends can be a one-time payment, paid periodically, or not paid if the company did not have a profitable year.
Dow Jones Industrial Average (Dow)
The most common indicator of U.S. stock market performance based on the prices of 30 blue chip stocks, primarily major industrial companies. The Average is the sum of the current market price of those companies divided by a number that is adjusted to account for stock splits and changes in stock composition.
Exchange-traded funds (ETFs)
A basket of securities that trade on an exchange just as stocks do. ETFs can contain different types of investments, including stocks, bonds, and commodities. ETFs are a way to diversify a portfolio without having to buy several individual securities.
Index
Measures the performance of a group of assets like stocks and bonds. The most well-known are the Nasdaq, S&P 500, and Dow Jones Industrial Average.
Index fund
A mutual fund containing assets that mirror a certain index. Index funds are passively managed, so they have lower fees than a typical mutual fund which is actively managed.
Individual retirement account (IRA)
A tax-advantaged retirement account. There are two types, Roth and Traditional.
Inflation
An increase in the price of goods and services that reduces the buying power of the dollar.
Interest rate
The cost to borrow money via a loan or credit card.
Liquidity
How quickly an asset can be turned into cash.
Maturity
The date the debt on a bond is payable.
Money market account
An interest-bearing account available through a bank or credit union. Similar to a savings account but with some of the features of a checking account. MMAs often pay higher interest rates than a savings account but have larger minimum deposits and higher balance requirements to earn interest.
Mutual fund
A pooled portfolio managed by a professional money manager. The pooled money of many investors is used to buy a diversified portfolio of securities.
NASDAQ
National Association of Securities Dealers Automated Quotations system, owned by the National Association of Securities Dealers. NASDAQ is a computerized system that provides price quotes for securities traded over the counter as well as many NYSE-listed securities to brokers and dealers.
New York Stock Exchange (NYSE)
The world’s largest stock exchange by market capitalization of its listed companies. Located in Lower Manhattan in New York City, this is what people mean when they speak of Wall Street as its physical address is 1 Wall Street.
Portfolio
A collection of investments.
Price-to-earnings (P/E) ratio
A valuation metric used to determine the value of a company relative to its earnings often expressed on a per share basis.
Prospectus
A legal document with in-depth information about an investment like a stock, bond, or mutual fund.
Recession
A downturn in economic activity generally defined as at least two consecutive quarters of decline in a country’s gross domestic product (GDP), the monetary measure of the market value of all the finished goods and services produced in a specific period of time by a country.
Risk/Risk tolerance
How much volatility you are willing to tolerate in your investments.
Securities
Another term for investments like stocks and bonds.
Securities and Exchange Commission (SEC)
A federal agency that administers laws governing the securities industry.
Share
A portion of ownership in a company also called a stock.
Standard & Poor's Index (S&P 500)
A broad measure of changes in the condition of the stock market based on the average performance of 500 widely held stocks.
Stocks
A portion of ownership in a company. When a company is doing well, a share of stock may rise in price. If a company is doing poorly, the stock may decrease in price.
Stockholder
The owner of a stock also called a shareholder.
Target-date fund
An all-in-one portfolio tailored to your expected retirement date. As you get closer to retirement, the assets inside the fund shift from more risky (stocks typically) to less risky (bonds typically).
Tax-advantaged
A bonus available on certain types of accounts or investments that are tax-reduced, tax-deferred, or tax-free. Examples include retirement accounts like IRAs and 401(k)s.
Time horizon
The amount of time an investor expects to hold an investment. Generally, time horizons are short-term (one-five years), intermediate (six-nine years), and long-term (ten years or more). The longer your time horizon, the more risk you can take with an investment.
Treasury bill (T bill)
Short-term (one year or less) debt obligation (bond) issued by the U.S. government.
Treasury bond
Long-term (ten years or more) debt obligation (bond) issued by the U.S. government.
Volatility
How much a traded asset fluctuates in price over time.
ZCash
A cryptocurrency that uses cryptography for enhanced privacy for users. This is not a common investing term, but we needed a term that begins with Z for our A-Z list!
Learn more with Upwardli
There is a lot to learn when it comes to U.S. personal finance. This investing terms glossary is just one of the many resources Upwardli has created to help people understand the U.S. financial system. Upwardli can also connect you with financial service providers who understand not everyone has a credit score or Social Security number. And if you need help building your credit score, Upwardli can do that too!
