23 Investing Terms You Need to Know: investor Junkie
By: Kara Perez
Updated: September 27, 2019
When you’re a new investor, learning investing terms and their meanings can seem like a full-time job. Especially because investing covers a wide range of topics and terms.
There’s real estate investing, stock market investing, retirement investment… the list goes on and on. The amount of information out there about investing can leave you feeling overwhelmed.
If you’re reading an article on investing but don’t understand the terminology, you may as well be reading a foreign language.
So let’s start with a working knowledge of the terms and strategies you’ll see when reading about investing.
Here are 20 investing terms that you need to know. Understanding these terms will help you learn more about investing and hopefully help you become a more confident investor.
1. Bear Market
A bear market is a stretch of time during which the price of securities falls 20% or more from their highest price. While there is no agreed-upon timeframe that the prices have to fall, a one-day drop doesn’t qualify as a recession. Bear markets can last for a few weeks or years.
A bond is a loan to an entity of some sort. A municipal bond, for example, is a loan to a town or other municipality. Investors lend the entity money for a set amount of time. In return they receive a set amount of interest and get their money back at the end of the bond term.
A company that brokers (arranges and enables) investor sales and purchases. Investors open an investment account at a brokerage and then buy and sell investments through those accounts. TD Ameritrade, E*TRADE and Firstrade are examples of brokerages.
4. Bull Market
A bull market is the opposite of a bear market; it’s when the price of securities continually rises over a period of time and there is confidence in the stock market by the general population.
5. Capital Gains
This is the difference between what you bought an investment for and what you sell if for. You earn a capital gain when you sell an investment for more than you bought it for. A capital loss is when you sell an investment for less than you paid for it.
A portion of a company’s profits paid out to shareholders on a quarterly or annual basis. Each company will set its own dividend rules.
7. Dow Jones
The Dow Jones is a stock market index that tracks the value of 30 of the biggest publicly owned companies in the United States. (See also Index Fund.)
A marketplace where stocks and bonds are bought and sold. The NYSE and Nasdaq are two examples of exchanges.
Exchange-traded funds, a type of investment fund that trades like a stock. Investors buy and sell ETFs on the same exchanges (see Exchange) as shares of stock.
10. Hedge Fund
This is an alternative investment that uses pooled funds. A money manager or registered investment advisor sets up this type of structure as an LLC or a limited partnership. The manager raises money from outside investors and then invests and manages that money. Hedge funds are aimed at high-income investors, since individuals must earn at least $200,000 annually to be considered an accredited investor and eligible to invest with a hedge fund.
12. Index Fund
An index fund is a type of mutual fund (see Mutual Fund) that allows an individual to buy investments that mimic the trends of an index. These are generally more passive investments with lower fees than mutual funds.
This stands for individual retirement account. It is a tax-advantaged account (see Tax-advantaged Accounts). There are several types of IRAs. Anyone over 18 with a job can open an IRA for themselves. However, not everyone will have access to every type of IRA.
14. Money Market
A money market account is an interest-bearing account that will usually pay a higher interest rate than a bank savings account would.
15. Mutual Fund
A mutual fund is managed by a professional portfolio manager that purchases securities with money pooled from individual investors. The fund can hold individual stocks or bonds. Such funds typically come with higher fees than other investments, since the account is actively managed.
This is a U.S. exchange (see Exchange) for buying and selling securities. It is based in New York City. Nasdaq is also an index of the stocks bought and sold on the Nasdaq exchange. (In case you’re curious, the initials stand for the National Association of Securities Dealers Automated Quotations.
The New York Stock Exchange is another U.S. exchange (see Exchange) for buying and selling securities.
18. Personal Investment Strategy
This is exactly what it sounds like: your personal approach and strategy to investments. There’s no single right way to invest. Learn about how investing works. Then define and execute your personal strategy.
A recession is defined as two consecutive quarters when a country sees negative economic activity. Usually this is determined by a decline in GDP (gross domestic product) for two consecutive quarters.
20. S&P 500
The Standard & Poor’s 500 is a stock market index that tracks the value of 500 companies in the United States. It’s similar to the Dow Jones in that it is also a stock market index. (See also Index Fund.)
A stock is partial ownership in a publicly traded company. Investors can buy stocks individually or through a fund of some type.
22. Taxable Accounts
Account you can use for trading stocks, bonds, mutual funds, etc. Taxable accounts don’t carry any tax advantages, so you’ll be taxed on your investment income. (See Capital Gains.)
23. Tax-advantaged Accounts
These types of investment accounts come with tax advantages of some type that let you defer or be exempt from taxes on investment income. Retirement accounts — where you can deduct contributions from your taxes, such as an individual retirement account (IRA) — fall into this category.
Knowing these investing terms should help you understand most beginner articles about investing.
After all, hearing the term “hedge fund” in a Hollywood movie and thinking That sounds like a good investment is one thing. Knowing that you need to earn $200,000 a year to participate in one is quite another. Continue to expand your understanding of the stock market. It will serve you through a lifetime of investing.