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Glossary of Financial & Investment Terms from A to Z:

Financial Terms

 

A

 

Annual Percentage Rate (APR): The annual interest rate charged on a loan or credit card.

 

B

 

Bear Market: A market in which prices are falling, causing investors to sell their holdings.

Bull Market: A market in which prices are rising, leading investors to buy more.

 

C

 

Capital: Money or assets that a business or individual uses to generate income.

Capital Gain: The profit made from selling an asset for more than its purchase price.

Capital Gains Tax (CGT): A tax on the profit made from selling an asset.

Cash Flow: The money that comes in and goes out of a business or personal account.

Certified Financial Planner (CFP): A professional who provides financial planning advice.

Compound Interest: Interest that is earned on both the principal and the accumulated interest.

Credit Score: A numerical score that reflects a person's creditworthiness.

 

D

 

Debt-to-Equity Ratio: A financial ratio that compares a company's debt to its equity.

Derivative: A financial instrument whose value is based on an underlying asset.

Dividend: A portion of a company's profits paid out to shareholders.

 

E

 

Exchange: A marketplace where securities are bought and sold.

Exchange Rate: The value of one currency in relation to another.

 

F

 

Futures Contract: An agreement to buy or sell an asset at a predetermined price at a specific time in the future.

 

G

 

Gross Domestic Product (GDP): The total value of goods and services produced in a country.

Growth Stock: A stock of a company that is expected to grow at a faster rate than the overall market.


 

H

 

Hedge Fund: An investment fund that uses a variety of investment strategies to generate high returns.

 

 

Index: A benchmark used to measure the performance of a group of securities.

Inflation: The rate at which the general level of prices for goods and services is increasing.

Initial Public Offering (IPO): The first sale of a company's stock to the public.

Interest Rate: The cost of borrowing money or the return on an investment.

 

J

 

Joint Account: A bank account that is shared by two or more people.

 

K

 

Keogh Plan: A type of retirement plan designed for self-employed individuals.

 

L

 

Leverage: The use of borrowed money to increase the potential return of an investment.

Liquidity: The ease with which an asset can be converted into cash.

 

M

 

Mutual Fund: An investment fund that pools money from multiple investors to purchase a diversified portfolio of stocks, bonds, or other securities.

 

N

 

Net Asset Value (NAV): The value of a mutual fund's assets minus its liabilities, divided by the number of shares outstanding.

 

O

 

Options: A financial instrument that gives the buyer the right, but not the obligation, to buy or sell an asset at a predetermined price at a specific time in the future.

 

P

 

Price-to-Earnings Ratio (P/E Ratio): A financial ratio that compares a company's stock price to its earnings per share.

Portfolio: A collection of investments owned by an individual or entity.
 

Q

 

Qualified Dividend: A dividend that is taxed at a lower rate than other types of income.

 

R

 

Return on Investment (ROI): The profit or loss generated on an investment relative to its cost.

 

S

 

Stock: A share in the ownership of a company.

Securities and Exchange Commission (SEC): A government agency responsible for regulating the securities industry in the United States.

 

T

 

Treasury Bills (T-Bills): Short-term debt securities issued by the U.S. government.

 

Investment Glossary

 

A

 

Asset Allocation: A strategy that involves dividing an investment portfolio among different asset categories (such as stocks, bonds, and cash) based on an investor's goals, risk tolerance, and investment horizon.

 

Annualized Return: The average rate of return earned on an investment over a period of time, usually expressed as a percentage per year.

 

Alpha: A measure of the risk-adjusted performance of an investment compared to a benchmark index, such as the S&P 500. A positive alpha indicates that the investment outperformed the benchmark, while a negative alpha indicates underperformance.

 

Arbitrage: A strategy that involves taking advantage of price discrepancies between two or more markets in order to earn a profit with little to no risk.

 

B

 

Bear Market: A market in which prices of securities are falling, and investors are pessimistic about the future performance of the market.

 

Beta: A measure of the volatility of an investment compared to the overall market. A beta of 1 indicates that the investment's price will move in line with the market, while a beta greater than 1 indicates higher volatility and a beta less than 1 indicates lower volatility.

 

Bond: A debt security that represents a loan made by an investor to a borrower, usually a corporation or government. The borrower agrees to pay the investor a fixed rate of interest over a specified period of time, and to repay the principal amount of the loan at maturity.

 

Bull Market: A market in which prices of securities are rising, and investors are optimistic about the future performance of the market.

 

Blue Chip Stocks: Stocks of large, well-established companies with a history of steady growth and reliable earnings.

 

C

 

Capital Gains: Profits earned from the sale of an asset, such as stocks, real estate, or artwork.

 

Compound Interest: Interest earned on the initial principal amount of an investment, as well as on any accumulated interest. This can result in exponential growth of an investment over time.

 

Corporate Bond: A bond issued by a corporation, which pays a fixed rate of interest to the investor.

 

Coupon Rate: The fixed rate of interest paid by a bond to its investor, usually expressed as a percentage of the bond's face value.

 

Commodities: Raw materials or primary agricultural products that can be bought and sold, such as oil, gold, or corn.


 

D

 

Diversification: A strategy that involves investing in a variety of assets in order to reduce risk. By spreading investments across different types of assets, investors can reduce the impact of any one asset's poor performance on their overall portfolio.

 

Dividend: A payment made by a corporation to its shareholders, usually in the form of cash or additional shares of stock, as a share of the company's profits.


 

E

 

Equity: The value of an asset after liabilities have been subtracted. In the context of stocks, equity refers to the ownership interest that shareholders have in a company.

 

Exchange-Traded Fund (ETF): A type of investment fund that trades on an exchange, similar to a stock. ETFs typically track a specific index, such as the S&P 500, and provide investors with exposure to a diversified portfolio of stocks.

 

F

 

Face Value: The value of a bond or other debt security at maturity, as stated on the security itself.

 

Fixed Income: An investment that pays a fixed rate of return, such as a bond or certificate of deposit (CD).

 

Fund Manager: The individual or team responsible for managing an investment fund, such as a mutual fund or hedge fund.

 

Front-End Load: A sales charge paid by the investor when purchasing a mutual fund or other investment.

 

G

 

Growth Stock: A stock issued by a company that is expected to experience above-average growth in revenue and earnings.

 

Gross Domestic Product (GDP): The total value of all goods and services produced within a country's borders in a given period of time. GDP

 

H

 

Hedge Fund: An investment fund that uses complex strategies to generate high returns for a group of accredited investors.

 

Index Fund: A type of mutual fund or ETF that tracks the performance of a specific stock market index.

 

I

 

Inflation: The rate at which the general level of prices for goods and services is increasing.

 

Initial Public Offering (IPO): The first sale of stock by a company to the public.


 

Index: a benchmark or a reference point that tracks the performance of a particular group of securities or the overall market. For example, the S&P 500 is an index that tracks the performance of 500 large-cap stocks in the US.


 

L

 

Liquidity: the ability to buy or sell an investment quickly and easily without affecting its price. Cash is the most liquid asset, while real estate is typically less liquid.

 

M

 

Market capitalization (market cap): the total value of a company's outstanding shares of stock. It is calculated by multiplying the number of shares outstanding by the current market price of the shares.

 

Mutual fund: a professionally managed investment vehicle that pools money from multiple investors to purchase a diversified portfolio of stocks, bonds, or other securities.

 

N

 

Net asset value (NAV): the value of a mutual fund's assets minus its liabilities, divided by the number of shares outstanding. It is calculated daily and represents the per-share value of the fund.

 

O

 

Option: a financial contract that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specified price within a specified period of time.

 

P

 

Portfolio: a collection of investments, such as stocks, bonds, and other assets, held by an individual or an institution.

 

Price-earnings ratio (P/E ratio): a valuation ratio that compares a company's current share price to its earnings per share. It is used to evaluate whether a stock is overvalued or undervalued.

 

Q

 

Quantitative easing: a monetary policy in which a central bank buys government bonds or other financial assets to increase the money supply and stimulate economic growth.

 

R

 

Return: the gain or loss on an investment over a certain period of time, usually expressed as a percentage of the initial investment amount.

 

Risk: the possibility of losing some or all of an investment due to factors such as market volatility, economic conditions, or company performance.

 

S

 

Sector: a group of companies that operate in the same industry or business area, such as technology, healthcare, or energy.

 

Security: a financial instrument, such as a stock, bond, or option, that represents ownership in a company or the right to payment from a borrower.

 

Stock: a type of security that represents ownership in a company. Stocks can be bought and sold on exchanges or in the over-the-counter market.

 

T

 

Ticker symbol: a unique combination of letters that represents a publicly traded company's stock on an exchange.

 

U

 

Underlying asset: the asset, such as a stock or commodity, on which an option or other derivative contract is based.

 

V

 

Volatility: a measure of the amount and frequency of price changes in an investment. High volatility can indicate greater risk.

 

W

 

Warrant: a financial contract that gives the holder the right to buy a company's stock at a specific price within a specified time period.

 

X

 

Exchange-traded fund (ETF): a type of investment fund that trades like a stock on an exchange and tracks the performance of a particular index or sector.

 

Y

 

Yield: the income earned on an investment, expressed as a percentage of the investment amount.

 

Z

 

Zero-coupon bond: a type of bond that does not pay periodic interest payments but is sold at a discount to its face value and pays the face value at maturity.

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