12 Investment Terms You Should Know

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If you’re just getting started as an investor, it’s good to be as prepared as possible. The stock market itself can be complicated, but it can be easier to develop a strategy that works for you if you’re fully aware of key investment-related terms, like the ones discussed below

1. Bear/Bull

Bear and bull are two related terms that describe the condition of the stock market at any given time. A “bear” market is one experiencing continuous declines in stock values. A “bull” market is one where there is a regular period of increases.

2. Dow Jones Industrial Average

Often referred to as “The Dow,” the Dow Jones Industrial Average (DJIA) is a commonly used index that tracks the prices of various stocks. It focuses on the top 30 companies in the United States.

3. Dividend

This term refers to the portion of a company’s earnings you got a stockholder. Most companies offer regular dividends paid consistently over time, but some dividends are one-time payments referred to as special dividends.

4. Stockbroker

The easiest way to get started as a new investor is to work with an online stockbroker. This is someone who handles the buying and selling of stocks for an investor as per their wishes. A stockbroker also tends to provide advice for new investors on the pros and cons of investing, some of which include:

Pros

• The possibility of steady income from dividends
• The potential for high returns
• The ability to start small and expand your investment portfolio

Cons

• The potential for stock market instability
• The risk of losing money if you invest in an under-performing stock
• It sometimes takes time to see meaningful results

5. Common Stock

Most stocks are considered common stocks. These are shares representing ownership of a company or corporation. With common stock, you own a portion of the company without actually taking possession of that company.

6. Preferred Stock

With preferred stock, you’ll receive an agreed-upon dividend at specific times or intervals. Preferred stocks have both fixed income and equity characteristics, but some of them pay high dividends.

Please note: Some companies go further and classify stocks based on different classes of shares to determine voting rights and other stockholder privileges.

7. Dividend Yield

The dividend yield is a total based on the total amount a particular business dishes out in dividends per year. It’s divided by the price of the company’s stock.

8. Growth Investing

Growth investing is an investment strategy focused on building capital and increasing the return on the initial investment. It’s typically associated with emerging markets and industries that tend to have a good investment track record, like tech-based ones.

9. Value Investing

With this strategy, you’ll purposely seek out stocks that appear to be under-valued. If done right, this strategy could result in significant gains.

10. Income Investing

If you prefer to earn from what you invest, this strategy is worth considering. It’s based on generating a steady income from your preferred investments.

11. Small Cap Investing

If you have a penchant for smaller companies that could take off and do well in the future, then small-cap investing is a strategy you may appreciate.

12. Law of Investing

This is a term sometimes used to refer to the legal aspects of investing. The Securities and Exchange Commission presents several guidelines companies need to follow when issuing stock, making payouts, and keeping investors informed.

The risk involved with the stock market as you invest will depend on the nature of your investments. The general recommendation is to start with “safer” investments before exploring your options with others that have more risk but a higher potential ROI.

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