Investing in bonds, the stock market, or even a retirement account are all popular and often profitable ways to achieve your future financial security. If you’re a young wage earner or even an entrepreneur, then investment should be something you strongly consider.
When you’re getting started in the investment market, it can be difficult to make sense of the jargon, particularly when you’re reading investment quotes and the news.
Here are some critically important and simplified explanations of stock market investment terms that any beginner should know.
Stock Market Indexes
Are you confused by names like: NASDAQ, S&P 500, and the Dow Jones Industrial Average? These are simply different indexes of the stock market. They track company stocks to determine performance gains and losses, which are reported continuously throughout the day.
- The NASDAQ index relates to the stock exchange of the same name. This calculates performance based on over 3000 individual companies.
- The S&P 500 tracks 500 companies (as implied by the name).
- The Dow Jones Industrial Average looks at just 30 large and heavily embedded companies on the stock market.
Investment vs. Trading
When related specifically to the stock market, investment means purchasing stocks that you intend to keep over a long period to make a profit from dividend payouts.
Trading refers to the behavior of purchasing stocks for short term holding, before selling them at a profit. Trading is more intensive and requires more management, but it allows for short and mid-term growth and turns out to be extremely profitable for some investors.
Exchange Traded Funds
Commonly referred to as ETFs, Exchange Traded Funds track a particular index on the stock market. They are associated with low fees and lower risk than individually traded stocks. You can hold ETFs long term as an investment, or trade them to make profit as the market fluctuates.
Stocks vs. Bonds
When you buy stocks, you are actually purchasing shares in a public company. Stocks are one of the most common forms of investment. Stock prices are determined by company financial performance, as well as the confidence of the market.
Bonds are different to stocks, and are issued by a corporation, local government, or the federal government. Churches also offer bonds in some scenarios. Bonds are lower risk and they usually offer a near-guarantee of making a profit. Think of bonds like loans. When you buy bonds, you are feeding the issuer with capital, with them in turn giving you a promise to pay back the loan with interest.
When it comes to stocks, they are often described as growth or value stocks. Growth stocks are those that have a history of high performance. Take Apple as an example. The company has a long record of increasing stock price value for shareholders.
Value stocks are lower priced and are used to describe companies that aren’t performing well. Value stocks are high risk but the low cost of investment can mean serious gains when you purchase wisely.
The Bull and Bear Market
The Bear market relates to conditions where investor confidence is low and the economy is underperforming. This can spook some investors but declining prices can also allow for low cost entry into traditional growth stocks that will rebound in the future.
The Bull market is the opposite: when indexes are high and stocks are performing well. A Bull market means that investors are profiting, but an ongoing Bull market also comes with the risk that it might hit a ceiling, before declining again.
With a firm grasp of the most common investment jargon, you’ll be better prepared to explore the stock market and what it has to offer.
You may be interested
Job Hiring is Picking Up as Employers and Consumers Gain ConfidenceLamont J - March 29, 2021
The recent government stimulus for small and medium-sized businesses, personal stimulus checks, and declining Coronavirus cases, are all great news…
Fed Could Maintain 0% Interest Rate Until 2024Adam R - March 26, 2021
The Federal Reserve is holding its target interest rate in a range of 0.00% - 0.25%, even while the economy…