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Beginners looking to invest for the first time can often be overwhelmed to the point of indecision. So many terms are casually tossed about by investment professionals and the financial media that it can be easy to be insecure about taking your first steps.
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But the truth is that investing, at its core, is a simple proposition. As long as you consistently contribute to investments with successful long-term track records, you’re likely to do well. But learning the lingo of the investment world also can give you the confidence you need to participate in the first place. With that in mind, here are 18 investing terms that you should really know before you jump in with both feet.
Asset Allocation: Asset allocation refers to the different types of investments you buy with your money. For example, if all you buy is 100 shares of Microsoft, your asset allocation is 100% stocks. But if you mix in some bonds, foreign currencies, Treasury bills and so on, your asset allocation is more diversified.
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Diversification: Diversification refers to spreading out your asset allocation among different types and styles of investments to help reduce your overall risk. In other words, diversification is the opposite of “putting all your eggs in one basket.”
Bull Market: A bull market refers to a market that continues to trade higher, particularly over an extended period of time.
Bear Market: The opposite of a bull market, typically characterized by a drop of at least 20% in market prices.
Capital Gain/Loss: Capital gains or losses occur when you sell an investment above or below the price at which…
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