Explained
Ever wondered what on earth financial advisers are talking about when we mention “bear” and “bull” markets? Or what mutual funds, index funds and bonds really are?
Here we give a short summary of twelve key investment terms worth understanding.
Glossary of Investment Terms
Active: an “active” investment manager aims to outperform a specific index, or benchmark and will continuously monitor and make changes to investments in an attempt to maximize returns.
Bonds: Investing in a bond is essentially loaning money to a company or government. On the maturity date, you cash in the bond and collect interest, providing that nothing negative happens, like bankruptcy.
Bear market: refers to a market environment in which prices are generally falling and investor confidence is low.
Bull market: refers to a market environment in which prices are generally rising and investor confidence is high.
Cash: in investment terms, “cash” is more than the notes in your back pocket. If a financial advisor suggests you move some of your portfolio into “cash”, this refers to certificates of deposit (CD’s), Treasury bills or money market accounts.
Expense ratio: is the proportion of money it costs to manage your investments each year by fund managers. The higher the expense ratio, the less profit left in the investment.
Index funds: are a popular type of mutual fund as costs are generally low. Indexes are collections of stocks that represent a slice of the economy and they give investors a sense of how the chosen market is doing. By investing in an index fund, you are essentially betting on the success of the basket of companies it contains.
Mutual fund: this is a pile of money that comes from a lot of investors and is then invested in assets like stocks and bonds. A mutual fund may hold hundreds of stocks, with the purpose of spreading the risk. Money managers generally buy and sell the investments for mutual funds.
Return on investment: is the amount of value returned to you, or expected to be returned to you, for your investment.
Strategic: Refers to longer-term asset allocation decisions that aim to take advantage of future market opportunities.
Stocks: When you buy stock in a company, you’re purchasing a tiny bit of ownership in the firm, known commonly as “shares”. Generally, the better the company performs, the more your share of stock is worth, and vice versa – stocks may decrease in value too.
Price-to-earnings ratio: this looks at stock price in relation to its earning and provides a general measure of whether your investments are overvalued or not.
Dental & Medical Financial Services can help explain the financial jargon that comes with investments.
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