Understanding Investing Terminology

investing terminology

Investing involves placing your money in assets with the goal of increasing its value over time. Investments can be made in a variety of things, including stocks and bonds, real estate property, or even in your own business. Whatever you choose to invest in, it’s important to understand the terms involved. Investing terminology can be confusing, but understanding the definitions of some key investing terms will help you make more informed investment decisions.

A Term to Understand

The process of buying and selling securities over a public market, such as a stock exchange or over-the-counter markets. Securities are traded on these markets through brokers and dealers. Generally, the more liquidity a security has, the easier it is to sell or buy.

A tax-deferred retirement savings plan for employees of certain nonprofit organizations, educational institutions and government agencies. Similar to a 401(k), contributions to a 403(b) are tax-deferred until the account holder retires or leaves their job.

Any asset that has the potential to increase in value over time, such as a home, car or stock portfolio. This type of asset is considered an equity investment and can produce a steady stream of income through mortgage payments or dividends.

An amount paid to an investor in exchange for a percentage of a company’s profits, as determined by the board of directors. Many investments pay dividends on a monthly, quarterly or yearly basis.

The process of selecting and analyzing the financial performance, sales, profitability and other information about a company in order to determine its future earnings potential. Also known as fundamental analysis, this type of analysis can be used to select stocks or develop a long-term investment strategy.

A fee charged by some mutual funds, named after the SEC rule that permits it, to cover the cost of distributions and other expenses. This fee is typically included in the fund’s prospectus and can be found on the fund’s expense table.

Cash equivalents are short-term money-market instruments of high liquidity and safety, such as Treasury bills, repurchase agreements, and corporate bonds. They are often used to diversify an investment portfolio.

A Term to Understand

An investment that is guaranteed to return the principal invested, plus interest, at its maturity date. A bond is considered a fixed-income investment because it pays a fixed rate of interest over the life of the instrument, usually with a maturity date of one year or more.

An investment strategy that focuses on investments or themes that are selected based on ethical, environmental and social criteria. This type of investment process is often referred to as sustainable or ESG investing.