Glossary
New terms show up fast in investing. Here is a quick, plain-English reference for the ones that matter when you are starting out.
- Asset
- Something you own that can grow or hold in value, such as a share of a company, a bond, or an index fund.
- Bond
- A loan you make to a company or government. In return, they pay you interest over time and repay the loan at maturity.
- Brokerage
- A financial firm that holds your money and lets you buy and sell investments. Modern ones work mostly through an app or website.
- Capital losses
- When an investment is worth less than what you paid for it, if you sell it at that lower price.
- Compounding
- Earning returns on money you already earned. Over time the growth itself starts generating more growth.
- Diversification
- Spreading your money across many different investments so a single bad one cannot hurt your whole portfolio.
- Emergency fund
- Cash you keep aside, usually about 3-6 months of expenses, to cover surprises so you never have to sell investments at a bad moment.
- ETF
- An exchange-traded fund. A basket of many investments you can buy and sell during trading hours through a brokerage, like a stock.
- Expense ratio
- The annual fee a fund charges, shown as a percentage. Lower is better: a 0.04% fee costs far less than a 1% fee over time.
- Index
- A measure that tracks a group of investments, like the largest US companies or the whole US stock market.
- Index fund
- A mutual fund or ETF built to track a market index. It holds many investments, costs little, and needs no fancy management.
- Market timing
- Trying to predict when prices will go up or down to buy low and sell high. It sounds clever and rarely works.
- Mutual fund
- A pooled investment run by a manager who buys a diversified set of holdings. You buy and sell once per day at the fund's price.
- Portfolio
- All of the investments you own, treated as one collection.
- Risk
- How much an investment's value can move up and down. Higher possible returns usually come with higher risk.
- Stock
- A share of ownership in a single company, which can rise and fall in value as the company performs.
- Time horizon
- How long you expect to keep money invested before you need it. Longer horizons can generally ride out ups and downs.
- Volatility
- How sharply and often an investment's price swings. It is a normal part of owning stocks, not the same as permanent loss.