Investing is like a lot of complex concepts in that it’s got tons of jargon attached to it which can leave newcomers baffled.
To bring beginners up to speed, here’s an overview of the investment-related terms and phrases you need to know.
APY (Annual Percentage Yield)
Put simply, APY refers to the return you generate on your investments each year. Expressed as a percentage, it can give you a way of estimating yield in the long term, which is useful if you’ve got a plan to achieve financial stability.
Bear & Bull Market
You’ll hear the term ‘bear market’ and ‘bull market’, as well as ‘bearish’ and ‘bullish’ thrown around a lot by veteran investors.
They are essentially opposite ends of the spectrum in terms of market performance, with bearishness representing a downturn and bullishness indicating growth and prosperity.
Investors can buy financial bonds from bodies that issue them, such as governments, in order to effectively lend money to the entity in question, from which they’ll receive interest payments over time, before getting the original amount they put in paid out as the bond matures in years to come.
An alternative to fiat currency, crypto assets like Bitcoin can be bought and sold via exchanges and online platforms. Investors may trade them on a daily basis, or buy and hold them in anticipation of their value increasing.
ETFs (Exchange-Traded Funds)
ETFs consist of investment assets, including stocks and bonds, which are combined in a single unit that tracks an index to either match or beat its performance. They represent a lower risk, lower cost alternative to other types of funds, and allow buyers to diversify their portfolio, which is an important part of learning how to invest so as to mitigate risk.
Equities are synonymous with stocks and shares. It signifies that by purchasing a slice of a particular business, you’re taking ownership of it, along with the other shareholders.
Indexes act as a benchmark for a given stock market, or a subsection of a specific market segment. They might track how the largest businesses in a given country perform, for example, as is the case with the S&P 500.
At times of inflation, the cost of living increases because it gets more expensive to procure everyday consumer goods, and by association the services that also rely on these resources.
Interest is what you’ll pay to lenders when you take on debt, or what you’ll earn from entities when you buy bonds. The rate of interest impacts the affordability of borrowing, and the percentage paid is usually influenced by your credit history, as well as your income.
Short for market capitalization, this term is used when discussing the collective value of every stock issued for a given business. It’s a useful, if simplified, means of weighing up the relative size, scope and success of two or more organizations.
Like ETFs, mutual funds are made up of a number of investment assets, with a whole hoard of investors getting together to take ownership of them, according to how much they put into the pot. The main difference is that while ETFs can be traded throughout the day while the markets are open, mutual funds only get traded once every 24 hours when closing time is just around the corner.
Your portfolio covers everything you’ve invested in, whether that’s stocks, ETFs, crypto, and beyond. It can even cover things like real estate, art and even collectibles, depending on your investment preferences.