Glossary of Investment Terms

If you want to get familiar with terms related to stock trading, here is a quick guide.

1.     Appreciation - The increase in value of a financial asset.

2.     Bond - A bond acts like a loan or an IOU that is issued by a corporation, municipality or the U.S. government. The issuer promises to repay the full amount of the loan on a specific date and pay a specified rate of return for the use of the money to the investor at specific time intervals.

3.     Dividend - A dividend is a portion of a company's profit paid to common and preferred shareholders. Dividends provide an incentive to own stock in stable companies even if they are not experiencing much growth. Companies are not required to pay dividends.

4.     Equities - Shares issued by a company which represent ownership in it. Ownership of property, usually in the form of common stocks, as distinguished from fixed-income securities such as bonds or mortgages. Stock funds may vary depending on the fund's investment objective.

5.     Inflation - A rise in the prices of goods and services, often equated with loss of purchasing power.

6.     Liquidity - The ability to have ready access to invested money. Mutual funds are liquid because their shares can be redeemed for current value (which may be more or less than the original cost) on any business day.

7.     Long-term investment strategy - A strategy that looks past the day-to-day fluctuations of the stock and bond markets and responds to fundamental changes in the financial markets or the economy.

8.     Market price - The current price of an asset.

9.     Market risk - The possibility that an investment will not achieve its target.

10.     Mutual fund - Fund operated by an investment company that raises money from shareholders and invests it in stocks, bonds, options, commodities or money market securities.

11.     Portfolio - A collection of investments owned by one organization or individual, and managed as a collective whole with specific investment goals in mind.

12.     Public offering price (POP) - A mutual fund share's purchase price, including sales charges.

13.     Share - A unit of ownership in an investment, such as a share of a stock or a mutual fund.

14.     Stockholder - The owner of common or preferred stock of a corporation. Also called 'shareholder.'

15.     Value investing - A strategy whereby investors purchase equity securities that they believe are selling below estimated true value. The investor can profit by buying these securities then selling them once they appreciate to their real value.

16.     Diversification - The process of owning different investments that tend to perform well at different times in order to reduce the effects of volatility in a portfolio, and also increase the potential for increasing returns

17.     Capitalization - The market value of a company, calculated by multiplying the number of shares outstanding by the price per share.

18.     Capital - The funds invested in a company on a long-term basis and obtained by issuing preferred or common stock, by retaining a portion of the company's earnings from date of incorporation and by long-term borrowing.

19.     Asset class - Securities with similar features. The most common asset classes are stocks, bonds and cash equivalents.

20.     Annual report - The yearly audited record of a corporation or a mutual fund's condition and performance that is distributed to shareholders.