24 Common Investing Terms You Should Know
Whether you invest in cryptocurrency or fiat investments, you will likely encounter several terms you are unfamiliar with as you research. As an investor, it is critical to understand everything you are investing in so that you don’t make any costly mistakes.
With that in mind, we have designed this list of all the investing terms you should know if you plan to invest money or crypto. So read on to learn more!
1. Dollar Cost Averaging
Dollar-cost averaging is the process of investing the same amount of money into an investment on a regular basis. Though you may sometimes buy high and other times by low, dollar cost averaging often causes your returns or losses from the investment to normalize over time and is thus highly recommended for new investors.
2. Equity Fund
An equity fund is a collective account that is used to invest in the stock market as one entity. The exact items invested in vary based on the common goal of the fund.
3. Annualized Rate of Return
The annualized rate of return is how much money a particular investment has returned over a period of years, including any compounding that occurred. This term is more commonly expressed as ‘compound growth rate.’
4. Time Horizon
The term time horizon is often used when working as a day trader and is used as an expression of the amount of time you plan to stay invested in a particular asset.
5. Shorting
Shorting is trader jargon for ‘short-selling’ and it is when an investor predicts that a particular stock will decline in price. How it works is an investor will borrow a security and sell it. They will then wait for the stock to fall in price before buying it back to fulfill their loan. While shorting can be very profitable, it is also very risky.
6. Bear Market
A bear market is a term used to refer to a market where the stock prices are declining steadily across all businesses or industries within a particular market. It is used to express general pessimism.
7. Bull Market
A bull market is the opposite of a bear market and is used to express optimism. Traders use the term “bull market” to refer to any market where stock prices are increasing across the majority of businesses and industries.
8. Capital Gains
Capital gain is the word used to describe the profit made when trading a particular stock. Capital loss is also a thing in investing, and both are important come tax season.
9. Best-in-class
Best-in-class is a term used by brokers when referring to a premium investment product. Note that it is a marketing term and should not be taken as absolute profitability.
10. Treasury Bond
Treasury bonds are bonds which are issued by the U.S government in return for a citizen to loan them money. Bonds are generally considered less risky than traditional stock investing due to the fact that they are backed by the US government though the rate of return is often low.
11. Blue Chip Stocks
Blue chip is a descriptor used to refer to low-risk investments. These investments are usually well-known and established companies that are unlikely to go under. This particular stock investing term came from the game of poker.
12. Value Investing
Value investing is an investment tactic where investors buy shares of a stock that they believe are trading for below value. There is an equation used to calculate whether or not a stock is a value stock, though it doesn’t guarantee positive returns.
13. Yield
Yield is a measure of the rate of return of a particular stock annually. The yield is a common metric to investigate when considering an investment in a particular stock.
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14. Asset Allocation
Allocating assets is the process of dividing your assets between a series of investments. This method of investing is used to reduce risk and optimize return. There is no one right way to allocate assets.
15. Dividend
A dividend is the portion of a company's profit returned to an investor as payment for the loan given to the company. Not all companies pay dividends.
16. Ex-Dividend
Companies will often announce they are paying dividends before the cash is delivered to investors. The time between the announcement and the delivery is known as the ex-dividend.
17. Expense Ratio
An expense ratio is a comparison of a fund’s costs and expenses for the year when compared to its value (usually based on assets held). Low-expense ratio investments are often preferred by investors.
18. Index or Index Funds
An index is a collection of companies following a similar theme, usually inserted in the index title. Indexes track the performance of all assets within them, balancing the gains and losses between several companies. Index funds are often recommended for beginning investors.
Related: A Guide to Bitcoin ETFs
19. Green Bonds
Green bonds are assets (usually fixed-income) that are used to raise money for environmental concerns or to fund environmentally beneficial projects.
20. Impact Investing
Impact investing is investing in products that facilitate social or environmental growth within society. Examples include affordable housing, better education, and universal healthcare.
21. Growth Investing
Growth investing is an investment strategy where an individual invests in a rapidly growing company in hopes they continue to grow at the same pace.
22. Junk Bond
Junk bonds are bonds that return a high yield but carry a lot of risk, usually increasing the likelihood the company will eventually go under. It is not recommended for new investors to invest in junk bonds.
23. Market Timing
Market timing is an investment strategy where the investor tries to predict market conditions and time the purchasing or sale of investments. Market timing is a risky strategy and has often not worked in the past.
24. Liquidity
Liquidity is a measure of how accessible funds are when invested. Investments that can be cashed out at any time are liquid, while illiquid investments can only be cashed out at certain points in the year.
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