Understanding investing terminology stocks
Dividend yield - Annual percentage of return earned by a mutual fund. The yield is determined by dividing the amount of the annual dividends per share by the current net asset value or public offering price. Dollar cost averaging - Investing the same amount of money at regular intervals over an extended period of time, regardless of the share price.
By investing a fixed amount, you purchase more shares when prices are low, and fewer shares when prices are high. This may reduce your overall average cost of investing. Dow Jones Industrial Average Dow - The most commonly used indicator of stock market performance, based on prices of 30 actively traded blue chip stocks, primarily major industrial companies. The Average is the sum of the current market price of 30 major industrial companies' stocks divided by a number that has been adjusted to take into account stocks splits and changes in stock composition.
Social - Factors that relate to the rights, well-being, and interests of people and communities, e. Governance - Factors that relate to the management and oversight of companies and investee entities, e. EPS - The portion of a company's profit allocated to each outstanding share of common stock. EPS serves as an indicator of a company's profitability. 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. Stock funds may vary, depending on the fund's investment objective. Exclusions - An investment process that excludes specific investments or classes of investment from the investment universe based on specific values or norms-based criteria.
A sustainable investment style that excludes certain sectors, companies or practices based on specific values or norms-based criteria from a fund or portfolio. For example, certain industries, such as defense, tobacco or fossil fuel producers, can systematically be excluded from investment. Ex-Dividend - The interval between the announcement and the payment of the next dividend for a stock. Ex-Dividend date - The date on which a stock goes ex-dividend.
Typically about three weeks before the dividend is paid to shareholders of record. Exchange privilege - The ability to transfer money from one mutual fund to another within the same fund family. Expense ratio - The ratio between a mutual fund's operating expenses for the year and the average value of its net assets.
Expense ratio date - Amount, expressed as a percentage of total investment that shareholders pay annually for mutual fund operating expenses and management fees. The most sensitive indicator of the direction of interest rates, since it is set daily by the market, unlike the prime rate and the discount rate, which are periodically changed by banks and by the Federal Reserve Board.
Federal Reserve Board The Fed - The governing board of the Federal Reserve System, it regulates the nation's money supply by setting the discount rate, tightening or easing the availability of credit in the economy. Financial materiality - An event or information that are reasonably likely to impact the financial condition or operating performance of a company and should be considered during the investment decision-making process.
Fixed income fund - A fund or portfolio where bonds are primarily purchased as investments. There is no fixed maturity date and no repayment guarantee. Fixed income security - A security that pays a set rate of interest on a regular basis. Fund - A pool of money from a group of investors in order to buy securities.
The two major ways funds may be offered are 1 by companies in the securities business these funds are called mutual funds ; and 2 by bank trust departments these are called collective funds. Green Bond Principles - Voluntary process guidelines that recommend transparency and disclosure and promote integrity in the development of the Green Bond market by clarifying the approach for issuance of a Green Bond.
Growth investing - Investment strategy that focuses on stocks of companies and stock funds where earnings are growing rapidly and are expected to continue growing. Growth stock - Typically a well-known, successful company that is experiencing rapid growth in earnings and revenue, and usually pays little or no dividend.
Growth-style funds - Growth funds focus on future gains. A growth fund manager will typically invest in stocks with earnings that outperform the current market. The manager attempts to achieve success by focusing on rapidly growing sectors of the economy and investing in leading companies with consistent earnings growth.
The fund grows primarily as individual share prices climb. Investment themes include activities such as affordable housing, education and healthcare. Investment stewardship - Engaging with companies and voting proxies to ensure our clients' interests are represented and protected and the company is focused on responsible allocation of capital and long-term value creation.
Index - An investment index tracks the performance of many investments as a way of measuring the overall performance of a particular investment type or category. It tracks the performance of large U. Inflation - A rise in the prices of goods and services, often equated with loss of purchasing power.
Interest rate - The fixed amount of money that an issuer agrees to pay the bondholders. It is most often a percentage of the face value of the bond. Interest rates constitute one of the self-regulating mechanisms of the market, falling in response to economic weakness and rising on strength.
Interest-rate risk - The possibility of a reduction in the value of a security, especially a bond, resulting from a rise in interest rates. Investment advisor - An organization employed by a mutual fund to give professional advice on the fund's investments and asset management practices.
Investment company - A corporation, trust or partnership that invests pooled shareholder dollars in securities appropriate to the organization's objective. Mutual funds, closed-end funds and unit investment trusts are the three types of investment companies. Investment grade bonds - A bond generally considered suitable for purchase by prudent investors.
Investment objective - The goal of a mutual fund and its shareholders, e. In exchange for signing a letter of intent, the shareholder would often qualify for reduced sales charges. A letter of intent is not a contract and cannot be enforced, it is just a document stating serious intent to carry out certain business activities. The performance of all mutual funds is ranked quarterly and annually, by type of fund such as aggressive growth fund or income fund. Mutual fund managers try to beat the industry average as well as the other funds in their category.
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. Loads back-end, front-end and no-load - Sales charges on mutual funds. A back-end load is assessed at redemption see contingent deferred sales charge , while a front-end load is paid at the time of purchase.
No-load funds are free of sales charges. 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. Market price - The current price of an asset. Market risk - The possibility that an investment will not achieve its target.
Market timing - A risky investment strategy that calls for buying and selling securities in anticipation of market conditions. Maturity - The date specified in a note or bond on which the debt is due and payable. Maturity distribution - The breakdown of a portfolio's assets based on the time frame when the investments will mature. Median Market Cap - The midpoint of market capitalization market price multiplied by the number of shares outstanding of the stocks in a portfolio, where half the stocks have higher market capitalization and half have lower.
Money market mutual fund - A short-term investment that seeks to protect principal and generate income by investing in Treasury bills, CDs with maturities less than one year and other conservative investments. Morningstar ratings - System for rating open- and closed-end mutual funds and annuities by Morningstar Inc. The system rates funds from one to five stars, using a risk-adjusted performance rating in which performance equals total return of the fund. 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.
NASDAQ is a computerized system that provides brokers and dealers with price quotations for securities traded over-the-counter as well as for many New York Stock Exchange listed securities. The fund's NAV is calculated daily by taking the fund's total assets, subtracting the fund's liabilities, and dividing by the number of shares outstanding.
The NAV does not include the sales charge. The process of calculating the NAV is called pricing. Number of Holdings - Total number of individual securities in a fund or portfolio. For a stock portfolio, the ratio is the weighted average price-to-book ratio of the stocks it holds. Par value - Par value is the amount originally paid for a bond and the amount that will be repaid at maturity. Portfolio - A collection of investments owned by one organization or individual, and managed as a collective whole with specific investment goals in mind.
Portfolio allocation - Amount of assets in a portfolio specifically designated for a certain type of investment. Portfolio holdings - Investments included in a portfolio. Portfolio manager - The person or entity responsible for making investment decisions of the portfolio to meet the specific investment objective or goal of the portfolio. Positive tilt - An investment process which tilt a fund of portfolio toward a specific sector, company, or project based on specific values or norms-based criteria.
A sustainable investment style in which the portfolio will be tilted toward sectors, companies, or projects with positive ESG characteristics. There are several kinds of preferred stock, among them adjustable-rate and convertible. Premium - The amount by which a bond or stock sells above its par value. Price-to-book - The price per share of a stock divided by its book value net worth per share.
Prospectus - Formal written offer to sell securities that sets forth the plan for proposed business enterprise or the facts concerning an existing one that an investor needs to make an informed decision. Prospectuses are also issued by mutual funds, containing information required by the SEC, such as history, background of managers, fund objectives and policies, financial statement, risks, services and fees.
Proxy - A shareholder vote on matters that require shareholders' approval. Public offering price POP - A mutual fund share's purchase price, including sales charges. A fund with an R2 of means that percent of the fund's movement can completely be explained by movements in the fund's external index benchmark. Ratings - Evaluations of the credit quality of bonds usually made by independent rating services. Ratings generally measure the probability of timely repayment of principal and interest on debt securities.
Recession - A downturn in economic activity, defined by many economists as at least two consecutive quarters of decline in a country's gross domestic product. Redemption - Sale of mutual fund shares by a shareholder. Reinvestment option - Refers to an arrangement under which a mutual fund will apply dividends or capital gains distributions for its shareholders toward the purchase of additional shares.
Relative risk and potential return - The amount of potential return from an investment as related to the amount of risk you are willing to accept. Renewable Energy Certificates RECs - A market-based instrument that is issued when one megawatt-hour of electricity is generated and delivered to the electricity grid from a renewable energy resource. Rights of accumulation - The right to buy over a period of time.
For example, this might be done by an institutional investor to avoid making a single substantial purchase that might drive up the market price, or by a retail investor who wants to reduce risk by dollar cost averaging. Risk tolerance - The degree to which you can tolerate volatility in your investment values.
By regulation, a mutual fund sales charge may not exceed 8. The charge may vary depending on the amount invested and the fund chosen. A sales charge or load is reflected in the asked or offering price. See loads. Sector - A group of similar securities, such as equities in a specific industry.
Sector breakdown - Breakdown of securities in a portfolio by industry categories. Securities - Another name for investments such as stocks or bonds. The name 'securities' comes from the documents that certify an investor's ownership of particular stocks or bonds. Securities and Exchange Commission SEC - The federal agency created by the Securities and Exchange Act of that administers the laws governing the securities industry, including the registration and distribution of mutual fund shares.
Share - A unit of ownership in an investment, such as a share of a stock or a mutual fund. Share class net assets date - Fund assets included in a specific share class. Share classes - Classes represent ownership in the same fund but charge different fees. This can enable shareholders to choose the type of fee structure that best suits their particular needs.
Benchmark: a portfolio with which the investment performance of an investor can be compared for the purpose of determining investment skill. Benefits: periodic payments promised or expected to be made to the designated beneficiaries of a pool of assets. Benefit Security Ratio: see Funded Ratio. Bond also Fixed-Income Security : a type of investment in which the holder lends money to another entity and is then entitled to periodic payments of interest and a return of the capital at a specified time in the future.
Buyout: a form of private equity in which a partnership buys all the shares of a public company, usually taking on a large debt, to operate the company privately with the intention of eventually making a profit by taking the company public again or selling part or all of it to another business. Commingled Fund: an investment vehicle that sells units of ownership in itself to one or more investors and uses the proceeds to purchase financial assets for the benefit of the investors.
The investors have a pro rata claim on the assets of the fund proportional to their unit ownership. Common Stock also Equity; Stock : legal representations of an ownership position in a corporation. Commodity: a physical real asset used as an input to a production process. Many commodities are traded in cash spot markets or on organized exchanges in the form of futures contracts. Conflict of Interest: a situation in which a person who has a duty to one party acts in such a way as to benefit the person or a related party at the expense of the party to whom the duty is owed.
Contributions: money added to a pool of assets for the purpose of investment and, eventually, payment of benefits. Correlation: a statistical measure of the co-variation of two random variables i. Custodian Bank: a type of bank that provides safekeeping of financial securities for an investor, including the related accounting and reporting services.
Defined-Benefit Plan: a retirement plan in which the participants are promised a fixed benefit. The sponsoring organization takes the risk that its investments will be sufficient to provide these benefits. Defined-Contribution Plan: a retirement plan in which a participant and perhaps a sponsoring organization makes fixed contributions and the participant bears the risk that the assets will be sufficient to provide adequate benefits upon retirement. Diversification: the process of investing in more than one type of asset to reduce the risk of the entire portfolio.
Endowment: a gift, usually to an educational institution, whose purpose is to provide funding for a particular mission in perpetuity. Collectively, an aggregate of such gifts being managed in a single strategy.
Equity: see Common Stock. Expected Return: the return on a security or portfolio that an investor anticipates receiving over a given time horizon. Fiduciary: a person or entity that assumes responsibility to manage or oversee a pool of assets on behalf of some other person or entity, such as a pension fund or endowment. Fiduciary Duty: a legal or ethical relationship of confidence or trust between two or more parties.
Financial Asset also Security : a legal representation of the right to receive prospective future benefits under stated conditions. Fixed-Income Security: see Bond. Foundation: an entity that has some public mission e.
It owns a pool of assets that are invested to provide income to fund that mission. General Partner: an individual or firm that sources and obtains financing for the purchase of an asset and then manages that asset on behalf of other providers of capital the limited partners.
Governance Structure: the set of processes by which a fund is managed for the benefit of some group of beneficiaries. Growth Stocks: a segment of an equity market characterized by the stocks of companies that have experienced or are expected to experience earnings per share growth higher than the market as a whole. They also tend to display high price-to-earnings ratios relative to the market. The term is often synonymous with absolute return fund. Indexing: see Passive Management.
Information Ratio: a risk-adjusted measure of portfolio active management performance. Investable Universe: the aggregate of securities that is appropriate and available for selection under a particular investment mandate. Investment Committee: a group of individuals who are responsible for determining the investment policy of a fund.
Investment Consultant: a professional usually associated with a firm who offers advisory services to a fund, most often in the areas of asset allocation, investment policy and manager selection. Investment Manager: a person or entity that creates and manages portfolios of securities for clients with money to invest. Investment Return: the percentage change in the value of an investment in a financial asset or portfolio of financial assets over a specified time period.
Investment Risk: the potential for loss accepted by an investor in the pursuit of investment return; alternatively, the uncertainty associated with the end-of-period value of an investment. Investment Skill: the ability of an active manager to select portfolios that consistently have average returns greater than a given performance benchmark. Liability: the present value of the accrued benefits promised to the beneficiaries of a fund.
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Stock Market Terminology for Dummies
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