Basic Investment Terms Flashcards
Stocks
Fractional pieces of publicly traded companies.
If you own a company’s stock, you own a piece of that company.
A stock’s value rises and falls based on the current value determined by the market.
Bonds
These are essentially loans.
When you buy one, you are lending a company or the government money. In return, you can earn income from interest on that loan.
Capital Gains
The value or profit realized after selling off a long-term asset.
Capital gains are calculated by the difference between the net purchase price and the net sale price.
Dividends
The income received by shareholders from the profits of a company.
This money is typically from profits. The amount given is usually expressed on a per-share basis.
Security
A tradable financial asset.
These assets include stocks, bonds, mutual funds, and other investments.
Portfolio
A collection of investments such as stocks and bonds that are owned by an individual, organization, or investment fund.
Net Asset Value (NAV)
The amount that one share of a mutual fund is worth.
The net dollar value of the mutual fund share is calculated by the fund on a daily basis.
Share
A piece of ownership in a company, mutual fund, or other investment. A share’s value is based on a company’s market valuation.
Each share represents a unit of company ownership.
Unit
A unit is a currency value assigned to a piece of a group annuity that a participant holds.
Most collective investment funds are divided into units instead of shares.
Expense Ratio (AKA Management Expense Ratio)
A measure of how much of a fund’s assets are used for administrative and operating expenses.
These costs are expressed as a percentage of its assets or in basis points. Operating expenses reduce the fund’s assets, which reduces the return to investors.
Market Cap
The total value of all a company’s shares of stock.
The value is calculated by multiplying the price of a stock by its total number of outstanding shares.
Shares versus Units
Shares are the pieces of ownership in a corporation. Shares represent a fraction of the company’s assets, earnings, and voting rights.
Units are the pieces of ownership in a group investment, such as a group annuity.
