Basic Investment Terms
Are you looking at getting into investing? Or are you trying to understand your 401(k)? Whatever your reason for wanting to find out more, an understanding of these basic terms will make a big difference.
Stocks
A share or part of a company. The price of purchasing this part of the company will change depending on what people think the company is worth.
Ask
When someone is selling a stock, this is the lowest price that they’re willing to accept for it.
Bid
This is used when buying a stock. The bid is the highest amount that the purchaser will pay for the stock.
Blue Chip Stocks
These stocks are issued by companies that fit certain parameters, including a history of solid earning, regular and increasing dividends, and a dependable balance sheet.
Dow Jones Industrial Average
A price-weighted list of 30 blue-chip stocks. This is used to give investors an idea of how the stock market is doing, and is the most popular measure of the US stock market.
Bonds
A debt or IOU. These can be issued by companies or municipalities. When you purchase a bond, you lend them money that they pay back according to the terms of the contract.
Commodity
A good that is interchangeable with goods of the same type, such as gold, oil, or beef. The sales and purchases of commodities are carried out through the use of futures contracts that are standardized for the commodity being traded.
Hedge Fund
A portfolio of investments that is aggressively managed using advanced investment techniques. These often have high minimum investments and require investors to keep their funds in for at least one year.
Mutual Funds
A fund that owns a group of stocks, bonds, and other investments. A mutual fund helps spread out the risk through diversification.
Exchange Traded Funds (or ETFs)
These are similar to mutual funds, but have a few key differences, such as having a price that fluctuates during the day instead of being set at the end of the day. These have become more popular recently.
Real Estate Investment Trust (or REITS)
These investments are directly in real estate, which means that you don’t have the liquidity in other investments. That being said, many investors will purchase mutual funds that have REITS for accessibility and simplification.
Annuities
There are a variety of annuities, but the basic core is the same: Once the fund hits annuitization, it will pay out a set amount every year. This makes it a popular option with retirees.