Vocabulary

Savings:

Money not spent that is kept and can be used later on. Savings can be held in cash, saving accounts, or other places.

Investment:
An asset purchased primarily to obtain an additional source of income or gain profit over a specific period of time in order to build wealth.

Stock:
A form of security that indicates the holder owns a portion of the issuing corporation. Corporations issue stock to raise funds to operate their businesses

Shareholder:
An owner of shares of stock in a company. Shareholders may own different numbers of shares that represent anything from a very small to a very large part of the company.

Capital Market:
A financial market (not usually a physical place) in which long-term debt (over a year) or equity-backed securities such as stocks or bonds are bought and sold

Bond:
An IOU that a company or government sells when it borrows money. Bonds are called fixed-income investments because they pay a fixed amount of interest to the bondholder for the use of his/her money.

Mutual Fund:
A mutual fund is a collection of stocks, bonds, and other securities owned by a group of investors and managed by a professional investment advisor.

Company:
A business formed to manufacture or supply products or services for profit.

Product:
An item sold by a company.

Brand:
The name a company gives to a product it makes or a service it provides.

Public Company:
A company whose shares can be purchased and traded in capital markets.

Private Company:
A company that is privately owned by a person or group of people and whose shares cannot be purchased or traded.

Ticker symbol:
An abbreviation used to uniquely identify publicly traded shares of a particular stock on the stock market.

Diversification:
An investment strategy in which you spread your investment dollars among different markets, sectors, industries, and securities to protect the value of your overall portfolio in case a single security or sector takes a serious downturn and drops in price.

Industry:
A group of companies producing similar products or services. Examples include food service, finance, manufacturing, or pharmaceutical industries.

Index:
An index reports changes, usually expressed as a percentage, in a specific financial market, in a number of related markets, or in an economy as a whole.

Portfolio:
A collection of investments owned by one individual or organization.

Risk:
The chance of losing all or part of the value of an investment.

Risk tolerance:
An individual investor’s ability to accept loss based on factors including age, financial stability, and amount of time before the invested funds are needed for other purposes.

Earnings:
Whatever profits or net income remains after subtracting the company’s expenses from its revenue (also called a company’s profit).

Inflation:
An increase in the general level of prices of goods and services.

Market capitalization:
A measure of the value of a company, calculated by multiplying the number of outstanding shares by the current price per share.

P/E ratio:
A company’s current price per share divided by its latest annual earnings per share.

Dividend:
A payment made by a company to its shareholders on a regular basis, usually quarterly, from profits or cash reserves.

Principal:
The amount of money upon which interest is paid

Interest:
Money paid to you by a bank or financial institution when you keep money in an account there OR the extra money that you must pay back when you borrow money

Simple Interest: Simple interest is interest earned on the principal amount only that is calculated on regular intervals

Compound Interest:
Compound interest is interest earned on the principal amount plus the interest already earned

Interest Rate:
In savings, an interest rate is the price a financial institution pays for using a saver’s money and is normally expressed as an annual percentage of the amount saved; for loans, interest rate determines the price the borrower must pay in addition to the principal amount

Corporate Bond: Bonds sold by corporations to borrow money for expenses. Debentures, the most common type of corporate bond, are backed by the general credit of the corporation, while asset-backed bonds are backed by specific corporate assets, such as property or equipment.

Municipal Bond: Bonds issued by state and local government organizations, such as schools or police departments. General obligation bonds are backed by the full faith and credit of the issuer, and revenue bonds by the income generated by the particular project being financed.

Treasury Bond:
U. S. Treasury bonds are backed by the full faith and credit of the United States government. When the government spends more than it collects in taxes and other revenues, it issues Treasury notes, bills, and bonds to borrow the money to pay the difference.

Default:
Failure to pay principal or interest when due. Defaults can also occur for failure to meet other obligations, such as reporting requirements, or when a material problem occurs for the issuer, such as a bankruptcy.

Trade Date:
The date when the purchase or sale of a stock, bond, or other security is transacted. Trades may occur throughout the day or at the close of the markets, depending on the trade type.

Investment Grade Bond:
Bonds that are sold by a very reliable issuer, like the government, a large corporation, or a government agency that is most likely to repay the loan and the interest as promised.

High Yield Bond:
To attract investors, the issuers of these bonds pay a higher rate of interest than investment grade bonds with the same maturity. They are rated below investment grade bonds and are also called “Junk Bonds" because of the high risk of default.