This glossary contains 60+ essential investment terms to help you understand financial markets and investing.
A
A measure of an investment's performance compared to a benchmark. Positive alpha means the investment outperformed; negative alpha means underperformance.
The percentage gain or loss on an investment over a one-year period, including dividends and capital gains.
An increase in the value of an asset over time. The opposite is depreciation.
Anything of value that can be owned, including stocks, bonds, real estate, cash, and commodities.
The strategy of dividing investments among different asset categories like stocks, bonds, and cash to balance risk and reward based on goals and risk tolerance.
B
A market condition where prices fall 20% or more from recent highs, typically accompanied by widespread pessimism.
A standard against which investment performance is measured, such as the S&P 500 for U.S. stocks.
A measure of a stock's volatility relative to the overall market. Beta of 1 means it moves with the market; above 1 is more volatile, below 1 is less volatile.
Shares of large, well-established companies with a history of reliable performance and often paying dividends.
A debt security where an investor loans money to an entity (government or corporation) that pays fixed interest and returns principal at maturity.
An investment account held at a brokerage firm that allows you to buy and sell securities like stocks, bonds, and funds.
A market condition where prices are rising or expected to rise, typically defined as a 20%+ increase from recent lows.
C
Money or assets available for investment. Also refers to the total financial resources of a person or company.
The profit from selling an asset for more than its purchase price. Can be short-term (held less than a year) or long-term.
The loss from selling an asset for less than its purchase price. Can be used to offset capital gains for tax purposes.
Interest calculated on the initial principal and accumulated interest from previous periods. The key to long-term wealth building.
A decline of 10% or more in a stock, index, or market from recent highs. Less severe than a bear market.
The original value of an asset for tax purposes, typically the purchase price plus any fees or commissions.
D
Spreading investments across various assets, sectors, and regions to reduce risk.
A portion of a company's profits distributed to shareholders, usually quarterly.
A program that automatically reinvests cash dividends to purchase additional shares of the same stock or fund.
Annual dividend per share divided by stock price, expressed as a percentage. Shows income relative to investment cost.
Investing a fixed amount regularly regardless of price, reducing the impact of market volatility.
A stock market index tracking 30 large U.S. companies. One of the oldest and most watched market indicators.
E
A company's profit divided by its outstanding shares. A key metric for evaluating profitability.
Liquid savings set aside for unexpected expenses, typically 3-6 months of living expenses.
Ownership interest in a company, represented by stock. Also, the value of an asset minus any debt owed on it.
Environmental, Social, and Governance investing considers sustainability and ethical factors alongside financial returns.
A basket of securities that trades on an exchange like a stock, offering diversification with trading flexibility.
The annual fee charged by a fund, expressed as a percentage of assets. Lower is generally better.
F
Federal Deposit Insurance Corporation coverage that protects bank deposits up to $250,000 per depositor, per bank.
A person or organization legally obligated to act in the best interest of another party, such as a client.
Investments that provide regular, predictable income, such as bonds, CDs, and Treasury securities.
Portions of a full share of stock, allowing investors to buy expensive stocks with smaller amounts of money.
G
Shares of companies expected to grow faster than the market average. Often reinvest profits rather than pay dividends.
H
An investment made to reduce the risk of adverse price movements in another asset.
Bonds with lower credit ratings that pay higher interest rates to compensate for increased default risk. Also called junk bonds.
I
A statistical measure of changes in a group of securities, such as the S&P 500 or NASDAQ Composite.
A fund that tracks a market index (like the S&P 500) by holding the same securities in the same proportions.
The rate at which prices for goods and services rise over time, reducing purchasing power.
The cost of borrowing money or the return for lending it, expressed as a percentage.
A tax-advantaged retirement savings account. Traditional IRAs offer tax-deductible contributions; Roth IRAs offer tax-free withdrawals.
L
An order to buy or sell a security at a specific price or better. Gives you price control but may not execute.
How easily an asset can be converted to cash without significantly affecting its price.
A sales charge or commission paid when buying (front-end) or selling (back-end) mutual fund shares.
M
The total market value of a company's outstanding shares. Large-cap: $10B+, Mid-cap: $2-10B, Small-cap: under $2B.
An order to buy or sell a security immediately at the best available current price.
The date when a bond's principal is repaid to the investor and interest payments stop.
A pooled investment vehicle managed by professionals that invests in stocks, bonds, or other assets.
N
A stock exchange known for listing technology companies. Also refers to the NASDAQ Composite index.
Total assets minus total liabilities. A measure of overall financial health.
A mutual fund that doesn't charge a sales commission when buying or selling shares.
P
An investment strategy that aims to match market returns through index funds, rather than trying to beat the market.
Stock price divided by earnings per share. Used to evaluate if a stock is over or undervalued.
A collection of investments owned by an individual or institution.
The original amount of money invested or borrowed, before interest or returns.
R
Adjusting portfolio holdings to maintain desired asset allocation, typically by selling overweighted assets and buying underweighted ones.
A significant decline in economic activity lasting more than a few months, typically defined as two consecutive quarters of negative GDP growth.
A company that owns income-producing real estate. REITs trade like stocks and must distribute 90% of taxable income as dividends.
An investor's ability and willingness to lose some or all of their investment in exchange for potential greater returns.
A measure of investment profitability calculated as (gain - cost) / cost, expressed as a percentage.
A retirement account funded with after-tax dollars. Qualified withdrawals are tax-free. Income limits apply for contributions.
S
The U.S. government agency that regulates securities markets and protects investors.
Securities Investor Protection Corporation coverage that protects brokerage accounts up to $500,000 if a broker fails.
A share of ownership in a company. Stockholders can profit through price appreciation and dividends.
When a company divides existing shares into multiple shares, lowering the price per share but not changing total value held.
A stock market index tracking 500 large U.S. companies. Often used as a benchmark for overall market performance.
T
Investment accounts with special tax benefits, such as 401(k)s, IRAs, and HSAs.
Selling investments at a loss to offset capital gains and reduce tax liability.
Debt instruments issued by the U.S. government, including T-bills, T-notes, and T-bonds. Considered very safe investments.
V
Shares of companies that appear underpriced based on fundamental analysis, often with lower P/E ratios.
The process of earning the right to employer contributions or stock options over time.
The degree of variation in an investment's price over time. Higher volatility means greater price swings and risk.
Y
The income return on an investment, typically expressed as an annual percentage.
A graph showing interest rates of bonds with different maturities. An inverted yield curve can signal a recession.
#
An employer-sponsored retirement plan that allows employees to save and invest pre-tax income. Many employers offer matching contributions.
A retirement plan similar to a 401(k) but for employees of public schools and certain tax-exempt organizations.
A tax-advantaged savings plan for education expenses. Earnings grow tax-free when used for qualified education costs.
