A Summarized Stock Market dictionary
To better understand the stock market and news about it you will need to know the following terminology that we have summarized for you below. These definitions were made to be as simple as possible for you!
Asset allocation also known as asset mix: is the balance/proportion between stocks and bonds .So depending on your age that's how much you should have in stocks or bonds e.g. if you're 20 years old you should maybe have 75-80 percent in stocks, 20-25 percent bonds. If you're 70 years old you should have 70 percent bonds and 20 percent stocks. The younger and wealthier you are the more risk you are able to take , that's stocks, the older and the less wealthy you are the less risk you can take so these are bonds.
Bond: loan from you to a company or government.
BULL/BEAR Market: bull market is when the market is going up/ rising, bear market is when the market is going down/ falling.
Capital gain: profit from stock sale usually annually( or over one year)
Compound interest : you get interest both on the money you spend and the interest that was previously made.
We call it “Interest making interest”.
Quote: compound interest is the eighth wonder in the world, whoever understands it earns it, who ever doesn't pays it
1 to power 365 is 1
1.01 to power 365 is 37.8
Diversification: spreading risk amongst many asset classes (don't put all your eggs in the same basket)
Dividend: companies' earnings paid to their shareholders as a portion of the total profit.
Current economic climate: is the economic situation or condition that we are in currently.
Blue-chip companies: are known to withstand downturns and operate profitably in the face of adverse economic conditions, which helps further contribute to their long reputation of stable and reliable growth.
They have a proven track record and trades are in high volume daily (reference to liquidity).
Dow jones: are the 30 largest blue chip stocks in the world
For example when we say the market went up today or the market went down today, then that's basically what the dow jones has done because these 30 blue chip stock companies have the most considerable effect on the whole stock market.
Equities: ownership in corporations(company) also known as stocks
ETF:(exchange traded funds): collection of stocks that trade index over time typically returning 11- 13 percent return on the high side which isn't bad to invest in.
“The ETFs are called the exchange traded funds because they're traded on an exchange just like stocks are traded. The price of an ETF’s shares will change and fluctuate throughout the day( day here refers to the trading day) as shares are bought and sold on the market. This is not the same as mutual funds, which are not traded on an exchange, and trade only once daily after the market closes. Additionally, ETFs tend to be more effective when it comes to costs and have more liquidity in comparison to mutual funds.”
Liquidity: describes how easily and quickly you can exchange your asset(s) for cash. The easier and the quicker it is to convert an asset into cash, the more liquid it is. And cash is generally considered the most liquid asset. Cash in the bank account or credit union account can be accessed quickly and easily, via a bank transfer or an ATM withdrawal.
For instance in the current account your money is considered very liquid, but a savings account is less liquid. Gold, cars, houses and land are good assets to own however they aren't as good when it comes to liquidity , because it takes time to sell them, often it's also hard to sell them and cant be used as a medium of exchange instantly( one of the main characteristics of money)
Fiduciary: someone that acts on your best behalf/ best interest. You can work with someone who is a fiduciary and they will help you achieve the goal on your mind.
Fixed income : security that pays specific interest rate ie bonds
Funds: sums of money saved or made available for a particular reason or purpose.
Growth stock: is a strategy to invest in rapid growing stocks
Hedge fund: strategy used by very wealthy investors to pool funds to beat the market.
Index: indicators of the market ie S and P 500
We talked about Dow Jones in the top 30 blue chip companies. That's an index but the best known index is the s and p 500 which is an index of the top 500 companies in America. This index can be more reliable.
Index investing: in such, if someone is index investing , it means they are mirroring the market's trends. Seeing the trends and following them accordingly .
IPO(initial public offering): is the first time offering on the private firms going public. They do an ipo when going public .
IRA(individual retirement account): tax favored individual retirement account . These are typically accounts that are tax advantaged.
IRAs savings accounts or are retirement savings accounts that have tax advantages. Money held in an IRA usually can't be taken out or withdrawn before the age 59 or 60 without incurring a heavy and large tax penalty of about 10% of the amount taken out(withdrawn) unless you have qualified for an exception.
Investing in an IRA enables your money to grow considerably and compound. You can then invest in stocks, bonds and other assets. How your account balance grows over time will depend on how you invest and how much you will and have contributed to the IRA.
“You have to take into consideration your financial situation and how much risk you are willing to and able to tolerate, but if someone doesn’t need the money in the next five years, they should be more equity-oriented,”. That basically means investing in stocks and having an individual retirement account. IRAs help people better prepare for retirement.
Advantages include saving money for retirement, cutting tax bills and many investments that are available to choose from.
Junk bond: high yielding low rated, highly risky bond.
For example if someone is willing to risk their money a lot in return for the opportunity to make high profits , they can be called a junk bond investor.
KPI (key performance indicator): or the company's trajectory over a long period of time . It can be a company, corporation or any other firm.
Plunged: if a value or price suddenly becomes less, then it has plunged:
Rumors on Wall Street may cause stock prices to plunge. The sudden plunge of the stock market will cause panic and will reduce confidence among investors.
Skidded: a period of sharp decline/decrease or repeated losses: eg Bad economic situations has sent the markets into a skid.
Ascending prices: are prices that are rising and going higher.
Descending prices: are prices that are falling and becoming less.
Written by Amir Hussein | Proofread by Yasmin Uzykanova
