42 Investing Key Terms and Their Definitions

investing key terms

If you’re a novice to investing, you may be intimidated by the jargon. To help you get started, here are 42 key investing terms and their definitions. Alpha is a measure of investment success and is also known as excess return. You may have heard of these terms, but you’re probably not quite sure what they mean. To get started, start with an investing glossary. This will help you understand investment news and message boards.

Volatility is another term you should be familiar with. Volatility refers to the degree to which an asset’s price fluctuates. High volatility is generally a sign of greater risk. This makes it difficult to predict an investment’s outcome because of large swings. It’s important to understand how volatile a stock is before investing in it. The higher the volatility, the more risky it is. It’s also important to know how much it costs to invest in a particular stock.

The stock market is a marketplace in which investors purchase and sell stocks and other securities. Major stock indices include the S&P 500, Dow Jones Industrial Average, Nasdaq Composite, and NASDAQ. You can access the stock market through your 401(k) plan, individual retirement account, or regular brokerage account. For more information, visit Investopedia. If you’re not a professional, it’s also important to understand how ETFs work and what they mean for your investing portfolio.

Another important term to know is beta. Beta measures the performance of investment strategies and portfolio managers, and refers to the sensitivity of stocks to the overall market. Investors use beta to evaluate their own risk and a particular company’s risk. A bond, on the other hand, is like a loan; the issuer promises to pay back the full amount at a certain date and at a certain rate. This term is important for investors and those who want to maximize their profits.

Investors must be familiar with several key terms and definitions to avoid pitfalls. For example, yield describes the amount of money an investor earns from a particular investment over time. It is a percentage of the principal amount invested. Interest rates are usually higher than the principal amount of a bond. Inflation reduces the buying power of savings. To decrease your risk, you should diversify your investments across multiple assets. And when interest rates rise, you should increase the amount you invest in stocks and bonds.

The bear market is a period when stock prices fall 20% or more. Bears are people who think the market is headed for a crash. Bear markets can last a couple of weeks or years. In contrast, bull markets are high, but do not offer the same level of reward. And remember, investing in a bear market is risky! By contrast, investing in a bull market, you will be much more likely to reap a large reward.

Another key term is liquidity. A good financial advisor can help you create a diverse portfolio and plan for retirement. Liquidity refers to an asset’s ease of conversion to cash. Examples of liquid assets include cash, mutual funds, bank accounts, and accounts receivable. The higher the liquidity, the better. However, if you are not sure which one to choose, you can always consult with a financial advisor. If you’re just getting started, it’s best to consult with a financial advisor.