It’s every finance student’s goal to learn how to invest. But the financial world can be intimidating as there is a lot to learn, especially when it comes down to the knowledge needed to talk the talk of the industry.
Your journey towards investing starts with studying the jargon. Mastering the vocabulary will help you to hit the ground running as soon as you step foot in the field. Use this guide to familiarize yourself with 44 fundamental finance terms.
Learn the lingo before investing…
1. Annual percentage rate (APR)
The rate that is earned from investing over the length of a year, expressed in a percentage.
2. Asset allocation
An investment strategy in which your portfolio is divided among different investments in order to balance risk and reward for a given timeframe.
Also known as capital or capital assets, assets refer to anything you own with financial value (e.g., shares, bonds, certificates of deposit.)
Money an investor loans to a company, city or government with the promise to be paid back in full with regular interest payments.
5. Capital gain
The profit that’s made when an asset is sold for more than its original purchase price.
6. Capital growth
When an asset or investment increases in value over a period of time.
7. Certificate of deposit (CD)
A sum of money deposited in a bank which accumulates interest over time. Unlike a savings account, the money cannot be accessed until an agreed-upon date.
A strategy that focuses all investments in a single stock or sector.
Investing in different types of assets, companies or stocks in a variety of sectors or industries.
The distribution of profits a company pays to its shareholders.
11. Earnings per share (EPS)
The portion of a company’s earnings allocated to each outstanding share of common stock.
The gradual rise in
A fee charged by a lender to a borrower for the use of assets, usually in the form of an annual percentage rate.
The practice of committing money to something with the expectation of earning additional income or profit.
15. Mutual fund
A pool of funds collected from several individuals to invest in a shared asset in which dividends are split between members.
16. Net income (NI)
The amount of earnings or profit for an individual or company after all expenses have been subtracted.
17. Net worth
A business or individual’s total assets subtracted by their liabilities.
The ability to sell or buy an asset at a predetermined price for a set period of time.
All of an investor’s financial assets: shares, bonds, CD’s, etc.
Capital gains and other forms of income from investments, usually quoted as a percentage.
The total amount of money an individual or company earns during a period of time.
A catch-all term for investments such as stocks, bonds, mutual funds, etc.
Any individual who owns at least one share of a company’s stock, entitling them to a portion or percentage of the company’s profits.
24. Stock exchange
A physical or electronic marketplace where securities are traded. Common exchanges include the New York Stock Exchange and NASDAQ.
25. Stock market
The general term referring to the act of trading and exchanging of stocks
A share is a unit of ownership in a corporation or financial asset.
An investor’s portfolio of shares.
A measure of risk that refers to the frequency
The number of shares or other assets that have been traded in a specific time period.
This term is used to refer to the specific dividends or income earned by an investor.
Now that it’s time to start investing…
31. Bear market
When prices of securities in a market are falling, causing pessimism among investors.
32. Blue chip
Companies that are notorious for being financially sound and enduring the ups and downs of the economy.
33. Bottom-up investing
When an investor focuses on the activity of individual stocks rather than the overall economic or market trends.
An estimation of how much can be spent as a result of how much is earned during a future period.
35. Bull market
When prices of securities in a market are rising or projected to rise, resulting in optimism and confidence among investors.
36. Dow Jones Industrial Average
An index that consists of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ; also known as the Dow or DJIA.
A combination of stocks that is used as a benchmark to reflect the overall performance of all investments within a sector.
38. Large cap stocks
A term referring to companies that have a market capitalization of more than $10 billion.
The ability to quickly convert an asset to cash.
40. Market capitalization
The overall dollar value of a company’s outstanding shares, used to determine a company’s size.
42. Penny stocks
Shares that sell for less than $1.00.
43. Top down investing
An investment strategy that focuses on the “big picture economy,” investing in industries or sectors that align with the successes of the economy.
44. Small cap stocks
A term for companies with a small market capitalization, usually between $300 million to $2 billion.
Invest in your future
Now that you can talk the talk, you’re one step closer to walking the walk. Working in finance can be an exciting and rewarding way to make a living. Learn more about the benefits of working in finance.