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Investing Terms

Investing in stocks has its own basic language and this is something you want to understand before you start investing.

Investing Terms

Basic terms you'll need to be familiar with include the following:


This is the minimum price that the seller is willing to accept for the stock.


An Asset is any resource that has economic value to the owner, being an individual or a company.

Asset Allocation

Asset allocation is the breakdown of how your overall investment portfolio works. We use the term ‘asset’ to refer to investment types. Also it is implementing a particular investment strategy to try and balance risk and reward.

Asset Classes

Asset classes are groups of investments that have similar characteristics, are subject to the same types of regulations and laws, and typically have common trends in the marketplace.

Asset management 

An Asset management company is a firm that invests a lot of money and invests in different things, including bonds and stocks.

Asset value 

Asset value refers to the total value of the company’s assets, usually done by the investor per share price.

Balance sheet 

Balance sheet is a statement that indicates the assets, liabilities and capital of a business at a particular point in time. It indicates the financial condition of a business at that particular time.


The max price that buyers are willing to pay for a specific stock.

Blue-chip stock 

Blue-chip stock represents a huge company that is financially stable, having operated for many years and often pays dividends to its investors.

Board of director

Board of director is a group of people who are selected by shareholders in a company to ensure the management acts on their behalf and represent their interests.



Bond is a unit of corporate debt issued by a company.

Bond fund 

Bond fund is a fund that invests in debt securities intending to provide a monthly income for the investors.


Capital is an asset that enables an individual or company to perform economic activities. For example, a fishing rod is capital for a fisherman as it helps him generate revenue.

Common stock 

Common stock is equity ownership of a company. Common stockholders can vote on corporate policies and elect the board of directors.

Corporate bond 

Corporate bond is a type of debt security that is sold to investors by a company.

Coupon rate 

Coupon rate is the rate of interest at which the bond issuer will pay. It is expressed in percentage.

Custodial account

Custodial account is a financial account that has been set up for the beneficiary and is managed by a responsible person.


Derivative in finance refers to a product whose value comes from or is dependent on the value of an underlying asset. Derivatives can be traded on an exchange or over the counter.


A portion of net earnings paid periodically, usually quarterly, by a corporation to its stockholders as a return on investment. Dividends can be paid in cash, stock, or property.

Dividend aristocrat 

An S&P 500 company (that therefore meets certain minimum size and liquidity requirements) that's paid out and raised its dividend for at least 25 straight years.

Dividend challenger

A company that's paid out and raised its dividend annually for 5-9 years.

Dividend champion

A company that's paid out and raised its dividend annually for at least 25 years.

Dividend contender

A company that's paid out and raised its dividend annually for 10-24 years

Dividend growth stock

A dividend growth stock is any dividend that consistently pays out to shareholders a larger dividend. 


Dividend king 

A company that's paid out and raised its dividends for at least 50 straight years

Dividend yield 

Dividend yield is a financial ratio that indicates how much a company pays in the form of dividends relative to the stock price.

Dollar-cost averaging 

Dollar-cost averaging while investing large sums of money into the market, the investors may decide to divide the money and invest it at specific intervals to reduce the risk of a market decline. We call that dollar-cost averaging.

Earnings per share 

Earnings per share is a calculation of a company’s profit divided by the number of outstanding shares it has. This is an indication of the money a company makes for each share of the stock it owns.

Enterprise value 

Enterprise value is defined as the measure of any company’s total value. It is used as a basis for evaluating a company's performance.

Exchange-traded funds

Exchange-traded funds, much like stocks, are investment funds traded on a stock exchange.

Expense Ratio

The expense ratio is what a fund charges its investors for managing the fund. The expense ratio includes management fees, operating costs, administrative fees, and other fees related to operating the fund. An expense ratio will be higher for actively managed funds, such as mutual funds, and lower for things like index funds and ETFs which are not actively managed.


A fiduciary acts on behalf of another person, putting their clients' interest ahead of their own, with a duty to act in the other's best interests.

Fiduciary duty 

Fiduciary duty is both a legal and moral obligation of one party to act in the best interest of another.

Form 10-k 

Form 10-k is an annual report that an organization has to present to its shareholders that summarizes the company’s financial performance. It includes information on business history, audited financial statements, among others.

401(k) Retirement Plan 

401(k) retirement plan is an investment plan, sponsored by an employer that allows you to invest with pre-tax money. That means dollars are taken out of your paycheck and placed into an investment account before they’re taxed. You only pay taxes when the money is withdrawn. 401(k) plans are required to offer a wide variety of investment options.

403(b) Retirement Plan 

A 403(b) plan is nearly identical to a 401(k), but it’s only offered to employees of educational institutions and some non-profit organizations. Like a 401(k), a 403(b) usually has a good mix of investment options and is tax-deferred until you withdraw the funds.

Fractional shares

Many stocks today trade at several hundred dollars per share. If you're investing a flat amount, say $2,000, and the price of the stock is $150, you'll need to buy 13 1/3 shares to complete the order. The 1/3 is a fractional share.

Hedge funds

Hedge funds are funds that use pooled money from the investors and employ strategies to earn active returns.

Income statement

Income statement is a report that indicates how profitable a company has been over a specific reporting period.

Index fund

Index fund is a fund that is designed to follow certain preset rules and track specific underlying investments.

Individual Retirement Account or IRA

IRA account is an individual retirement account that allows an individual to contribute pre-tax dollars. The investment grows tax-free until retirement, where it is taxed at the current income tax rate.

Investment-grade bond

investment-grade bond is a bond classification that helps investors know the bonds that carry low credit risk compared to others.

Junk bond

Junk bond is a bond that has a very high risk of default issued by a company or government. They represent bonds by companies that are struggling financially and have a high chance of defaulting interest payments.

Limit order

This is an order where you set a specific price you're willing to pay for a stock. The broker will wait to purchase the stock until that price or a lower one is reached. Limit orders can also be placed on the sale of the stock. 


Limited partnerships

Limited partnerships are business ventures that exist in the form of a publicly traded partnership.

Margin of safety

Margin of safety is the amount of sales or money a company makes after deducting all operational costs is referred to as the margin of safety.

Margin account

Margin account is an account where a broker lends customer money to buy stocks or any other financial product with a periodic interest rate.

Market capitalization

Market capitalization is the market value of a companies shares that have been publicly traded and are outstanding. It is arrived at by multiplying the company’s outstanding shares with the current market price per share.

Market order

This is an order you place with your broker to purchase stock immediately at the best price available.


Mutual funds

Mutual funds are investments that get money from many investors to purchase securities, bonds, or stocks.

Net asset value

Net asset value refers to the value of a company’s asset minus its liabilities

Odd lots

This refers to buying less than 100 shares. For example, you might buy 30 shares.


Preferred stock

Preferred stock or shares represents a form of hybrid stock ownership in a company. Holders of preferred stock have a high claim to dividends and asset distribution.

Price to earnings ratio AKA P/E

Price to earnings ratio is a ratio that indicates the amount in dollars that an investor can expect to invest in a company before they get a dollar of that company’s earnings. It shows how much an investor is willing to invest per dollar earnings. If a company's stock is trading at $50 and has an EPS of $2, the P/E ratio is 25 (50 divided by 2).
P/E ratio is a way to compare the performance of a company with its competitors. Generally, the lower the P/E ratio, the better.



REITs — Real Estate Investment Trusts. REIT funds invest in companies that invest in (confused yet?) income-producing real estate. So it’s a broadly diversified blend of companies that deal in all types of real estate.

Roth IRA

Roth IRA account is an individual retirement account that is untaxed on the distribution as long as certain conditions are met.

Robo Advisor

Robo Advisor is a virtual algorithm that offers financial advice or investment management in autopilot. Robo Advisor provides basic, and low-cost portfolio management.

Rollover IRA

Rollover IRA is an account is a retirement account is one that allows an individual to transfer funds from their previous employer-sponsored account.

Round lots

This refers to buying blocks of stock, usually 100 shares (or more) at one time.

Simple IRA

Simple IRA is a savings plan that is suitable for businesses with few employees. Employees may choose to make a small percentage for the retirement savings plan.

Short selling is when an investor borrows a security and sells it on the open market, intending to buy it later at a lower price.

S&P 500

S&P 500 is a market index that lists the 500 best-performing companies on the stock exchange market. It is one of many of the indexes available to compare the performance of stocks and bonds.


The difference between the lowest ask price and the highest bid price.

Stockbroker is a professional who, on behalf of his clients, places buying and selling orders for stocks and securities. He acts as an intermediary between the investor and securities exchange.

Stock fund

Stock fund is a fund that focuses primarily on stocks.

Stock market

Stock market or equity market is a place where investors connect to buy and sell stocks or investments. In this case, the stock market offers buyers a claim to big businesses by buying the shares listed on a public stock exchange market.

Stop-loss order

This is a price you can set on a stock you own that essentially creates a floor. For example, if you purchase a stock at $25, you can set a stop-loss order at $20. Should the stock price fall, the sale will be triggered at $20, which will limit your loss.

Technical analysis

Technical analysis helps to predict future stock prices based on historical prices. Trend analysis and law of averages are applied to predict a trend using scientific tools.

Trust fund

Trust fund is a fund that is designed to hold and manage someone else’s assets on their behalf with the help of a neutral third party.

Uniform Transfers to Minors Act or UGMA

Uniform transfers to minors act is an account that allows minors to receive gifts, money without the help of a trustee or guardian. The appointed custodian runs the account until the minor is of age.


Volatility in finance is the variation of the trading prices over some time. It measures past market prices over a series of time.

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