Like any major financial decision, making an investment can be a troubling journey. Most platforms dedicated to investment aren’t tailored towards newcomers. They don’t take extra efforts to make it easier to understand things. Instead, they use technical terminology and complicated visuals, that only a pro would know.
Once you get to grips with the words that expert investors use, though, your life will be made a lot easier. So, to help you out, this post will go through some of the common phrases used by investors. Obviously, there’s always going to be more, so you’ll have to do some research for yourself, as well.
Key Investing Terms
- Cash, Bonds, And Stocks
You know what cash is, obviously. It’s actual money. Sometimes, it’s better to hold your investment as cash for periods of time. A bond is an investment in your government or a business. You lend your money to an organization, and when the bond matures, they make a payout. This can be risky. Bonds will fail if a party goes bankrupt or can’t pay for another reason. Stocks are small parts of a company. When you invest in a stock, you own a small piece of the business. You make money on stocks by selling them once the company is worth more money. This is risky, because the company that you invest in may never gain value.
- Asset Allocation
To put it simply, this is part of your investment strategy. It’s the point where you choose exactly where your assets will go. Generally, cash is the least risky way to trade. With bonds being a little riskier, and stocks being the riskiest. This will largely determine how you trade. It is advised to start off with cash, before moving on to the other options.
- Mutual Fund
To make investing easier, a lot of people rely on a mutual fund. This is a collective of investors all pooling their assets together. The fund will be used to make multiple investments, to minimize the risk of no payout at all. The fund is controlled by an investment manager, who will make informed choices about the best investments to make.
- Expense Ratio
Of course, these services aren’t free. To cover the costs of the investment manager and other administration fees, a small portion of the fund’s return will be taken away. Usually, this is a small amount around 1.25%. But, the larger the ratio, the less money you’ll get back.
- Target Date-Fund
Often times, investments are made to save for something big, like retirement. To accomplish a time-dependant goal, target date-funds are used. You will set a time limit, as well as how much you want to earn during that time. The investments that are made at the start of the fund will be risky and will payout more if they’re successful. Later on, investments will become more conservative, with less risk. This helps you to start of with a big injection and then keeps the assets growing in a controlled way.
A broker is an individual or business that acts as an intermediary between the buyer and seller during an investment exchange. They will ensure that the transaction is safe and legal and work with both sides to make it go smoothly. You will often have to pay your broker a small percentage of your return. Choosing a good broker can be hard, so it’s best to use resources found on pages like BinaryOptionsExpert Brokers to help you.
Often, it can be best to have your assets spread across multiple investments. This is called diversification. The process takes away a lot of risk, as you aren’t relying on one large investment’s success. Instead, you have lots of smaller investments. So, if one fails, but ten succeed, you’re still in a good position.
- Financial Statements
A financial statement will cover all of your assets, including those in investments and those waiting to be invested. Financial statements are used to prove that you are able to make an investment, or prove that you’re a good investor. They can also be used to measure how well your investments are going, instead of just waiting for a payout.
An index is a benchmark that is used to determine the state of current fund. It uses a snapshot of the current market, compared with your current investments, to see if your money could be better somewhere else.
Understanding these keywords can be the difference between success or failure in the investment world. It’s very important to feel confident that you know what you’re doing, long before ever making an investment. Once you are confident, though, you could start making some real money!