Welcome to our comprehensive Glossary of Investment Terms! We understand that the world of investments can sometimes be filled with complex jargon and terminology. To empower you with knowledge and understanding, we have compiled this handy resource that explains key investment terms in a clear and concise manner.
Absolute Return – The gain or loss on an investment over a specific period, expressed as a percentage of invested capital.
Active Management – A strategy where a manager makes specific investments with the goal of outperforming an investment benchmark.
After-Tax Return – The return on an investment after all taxes have been deducted.
Alpha – A measure of an investment’s performance relative to a benchmark index.
Amortization – The gradual reduction of a debt or cost over a period of time through regular payments.
Annual Report – A comprehensive report on a company’s activities and financial performance throughout the preceding year.
Annuity – A financial product that pays out a fixed stream of payments to an individual, typically used as an income stream in retirement.
Appreciation – An increase in the value of an asset over time.
Arbitrage – The practice of taking advantage of price differences in different markets by buying and selling simultaneously.
Asset Allocation – The process of dividing investments among different asset categories, such as stocks, bonds, and cash.
Asset Class – A group of securities that exhibit similar characteristics and are subject to the same laws and regulations.
Automatic Reinvestment – A feature where dividends or interest earned are automatically reinvested to purchase additional shares.
Balance Sheet – A financial statement showing a company’s assets, liabilities, and equity at a specific point in time.
Bear Market – A market condition where prices are falling, typically by 20% or more from recent highs.
Benchmark – A standard or index against which the performance of a security or portfolio can be measured.
Beta – A measure of a stock’s volatility in relation to the overall market.
Blue Chip Stock – Shares of large, reputable companies known for stable earnings and performance.
Bond – A fixed income instrument that represents a loan made by an investor to a borrower.
Book Value – The value of an asset as recorded on a company’s balance sheet, often representing the company’s net asset value.
Bottom-Up Investing – An investment strategy that focuses on individual stocks rather than on the overall market or sector trends.
Broker – An individual or firm that acts as an intermediary between buyers and sellers of securities.
Bull Market – A market condition where prices are rising or expected to rise.
Buy and Hold – An investment strategy where securities are purchased and held for a long period.
Buyback – When a company purchases its own outstanding shares to reduce the number available on the open market.
Callable Bond – A bond that can be redeemed by the issuer before its maturity date.
Capital Gain – The profit from the sale of an asset when it is sold for more than its purchase price.
Capital Loss – The loss incurred when an asset is sold for less than its purchase price.
Capital Market – A financial market where long-term debt or equity-backed securities are bought and sold.
Capital Structure – The mix of debt and equity financing used by a company.
Cash Flow – The total amount of money being transferred into and out of a business.
Certificate of Deposit (CD) – A savings product that pays interest on a lump-sum deposit for a fixed period.
Collateral – An asset pledged as security for repayment of a loan.
Common Stock – Shares entitling their holder to dividends and voting rights in the company.
Compound Interest – Interest calculated on both the principal and the accumulated interest from previous periods.
Convertible Bond – A bond that can be converted into a predetermined number of shares of the issuing company.
Custodian – A financial institution that holds securities on behalf of clients for safekeeping.
Day Trading – Buying and selling securities within the same trading day to profit from short-term price movements.
Debenture – A type of unsecured debt instrument backed only by the creditworthiness of the issuer.
Debt Financing – Raising capital by borrowing, typically through loans or issuing bonds.
Debt-to-Equity Ratio – A financial ratio indicating the relative proportion of a company’s debt to its shareholders’ equity.
Default – Failure to meet the legal obligations or conditions of a loan, such as not paying interest or principal.
Defensive Stock – A stock that provides consistent dividends and stable earnings regardless of market conditions.
Deferred Annuity – An insurance product that delays income payments until a future date.
Defined Benefit Plan – A retirement plan that guarantees a specified monthly benefit at retirement.
Defined Contribution Plan – A retirement plan where contributions are fixed, but benefits depend on investment performance.
Depreciation – The reduction in the value of an asset over time, often used as a tax deduction.
Derivative – A financial instrument whose value depends on the value of another asset, such as options or futures.
Diversification – A strategy that reduces risk by spreading investments across various assets or sectors.
Earnings Before Interest and Taxes (EBIT) – A measure of a company’s operating profitability, excluding interest and taxes.
Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) – A measure of profitability before certain accounting deductions.
Earnings Growth – The rate at which a company’s net income increases over time.
Earnings Per Share (EPS) – A company’s net profit divided by the number of outstanding shares.
Economic Indicator – A statistic used to evaluate the overall health and direction of an economy.
Efficient Frontier – A set of investment portfolios that offer the highest return for a given level of risk.
Efficient Market Hypothesis (EMH) – The theory that all available information is already reflected in asset prices.
Emerging Market – A developing country’s market with higher growth potential and investment risk.
Equity – Ownership interest in a company, usually in the form of shares.
Equity Fund – A mutual fund that invests primarily in stocks.
Exchange-Traded Fund (ETF) – A type of fund that trades like a stock and holds a basket of assets.
Ex-Dividend Date – The cutoff date to be eligible to receive the next dividend from a stock.
Fair Market Value – The price an asset would sell for in a competitive and open market.
Federal Reserve (Fed) – The U.S. central bank responsible for setting monetary policy.
Fiduciary – A person or entity legally obligated to act in the best interest of another party.
Financial Advisor – A professional who helps individuals manage their finances and investments.
Financial Instrument – A contract representing financial value, like stocks, bonds, or derivatives.
Financial Statement – A report that shows a company’s financial condition and performance.
Fintech – Technology-driven innovations in financial services, such as mobile apps or robo-advisors.
Fixed Annuity – An insurance product that pays a guaranteed rate of interest over time.
Fixed Income – Investments that offer regular, fixed returns, such as bonds.
Float – The number of a company’s shares available for public trading.
Forwards – Customized contracts to buy or sell an asset at a future date for a set price.
Front-End Load – A commission or fee paid upfront when purchasing a mutual fund or investment