Whether you are new to investing or not, some of the investment lingo can be a little confusing. What the heck does a bull or a bear have to do with stocks?! We get it! Investing itself be complicated, without having to think about how to properly use the jargon. The CGS Team is sharing 11 investment terms that every investor, regardless of level, should know. These terms are simplified for easy understanding, so you can pick them up!
Common Investment Terms
Ask – The lowest price an investor is willing to accept for an asset. This is the price at which the investor is “asking” for when selling.
Bid – The lowest price an investor is willing to pay for an asset. This is the price at which an investor is “bidding” for to purchase the stock.
Bear – Often used as “bearish” market, to refer to a market that is falling. A “bear” market has a downward trend, and someone who thinks the market is headed for a drop is often referred to as a “bear.”
Bull – Often used as “bullish” market, to refer to a market that is trending higher than usual. A “bull” is someone who thinks the market is going to go up.
Dividend – Occasionally, a company will offer to divide up some of its income among shareholders. Dividends can be paid once, as a special use of them, or they can be paid more regularly, such as monthly, quarterly, semi-annually, or annually. Dividends can come in many forms as well. Not all companies provide dividends, and it is not a requirement to.
Diversify – An asset allocation strategy that mixes a wide variety of investments within a single portfolio. Diversification rationale is that a portfolio with a variety of investments will earn higher returns and offer lower risk than an individual investment found in a portfolio.
Dow Jones – Dow Jones Industrial Average is the average of a price-weighted list of 30 blue chip (large, well-established, financially sound companies) stocks. The Dow is often used to determine the health of the stock market as a whole, even though it is a very small portion.
NASDAQ – A stock exchange platform that focuses on trading the stocks of technology companies.
S&P 500 – Standard & Poor’s 500 index is an index of 500 stocks seen as a leading indicator of U.S. equities and a reflection of the performance of companies with large capital amounts. The S&P 500 is a common benchmark for the U.S. stock market. There are other S&P indexes for companies with smaller and mid-size capital amounts.
Margin – Borrowed money used to make an investment. You can get credit from a broker to buy more assets than you have actually money for. The goal is that you will make enough money that you will be able to repay the borrowed amount from your earnings. If you lose money, you owe the credit along with your losses.
Yield – Your yield represents the ratio between the stock price you paid for and the dividend you received from that stock. For a stock trading at $100 per share, with a dividend that amounts to $5 per year, you divide the $5 by $100 and turn it into a percentage. In this case, the yield would be 5%. Yields are often only associated with stocks that pay out dividends.
Related: 6 Tips for New Investors.
If you are looking to start familiarizing yourself with the stock market, then you certainly want to know what the 11 terms listed above mean. Over time, investment lingo will be second nature to you. Don’t be overwhelmed if you don’t know what a word means. Simply look it up! What are your experiences with the stock market? What are your fears when it comes to investing? Leave a comment below to share!