47 Financial Terms Beginner Investors Should Know.

Photo by Ivan Babydov on Pexels.com

Are you a new investor? Then you’re not expected to make investment decisions like professionals. Lack of confidence boosting knowledge of financial terms is going to get in the way of making informed investment decisions.

It’s important to overcome this ‘handicap’ by learning meanings and applications of key financial terms.

47 Financial terms and their meanings.

  1. Annual report .

This is the yearly audited record of a company that is distributed to shareholders. The yearly audited report shows the company’s performance and condition.

2. Appreciation.

This the increase in the value of a non-physical, liquid asset known as financial asset. Examples of a financial asset are cash, bank deposits, stocks, mutual funds and bonds.

3. Asset allocation

4. Average maturity.

A bond has a maturity date when the principal amount falls due for repayment. A portfolio may have bonds with different maturity periods. Average maturity is the weighted average of maturities of bonds held in a portfolio.

5. Balanced fund/Blended fund.

This is a type of mutual fund that is a combination of both stocks and bonds. A balanced fund is used by investors to achieve diversification for their long term investments.


6. Bear market.

A bear market is when the market is down twenty percent or more for at least a period of two months. Bears often occur when investors choose to sell rather than buy. They often do this in periods of economic slowdown.

7. Blue chip.

A blue chip is a company with a national reputation for being well established, reliable and for having the capacity to make profit in good and bad economic conditions.

8. Bid and Ask/Bid and Offer.

This is the best potential quotation that gives the price at which buyers and sellers are willing to buy and sell security at a given time. The bid price is what an investor is willing to pay for a security while the ask price is the price an investor is willing to sell.

9. Bull market.

A bull market is when securities are on the rise for sustained periods. Bull markets occur when investment prices continue to rise for a sustained period during as a result of soaring consumer confidence.

10. Bond.

Bonds are units of debt issued and secured by com9. es as tradeable assets. Debtholders are paid a fixed interest rate.. Bonds are less risky and less volatile than stocks and Interest rates on bonds are often higher than savings rates at banks.

11. Bond fund/Debt Fund.

A bond fund is an investment in a pool of government, convertible, corporate and other debt instruments to generate monthly income for investors.

12. Capital gain.

Capital gain is the profit earned on the sale of either an intangible asset or a tangible asset which has increased in value over the holding period.

13. Capital gains reinvest NAV.

Capital Gains Reinvest Nav is positive the difference between the purchase price and the sale price of the asset which is automatically invested in the majority of the securities.

14. Capital loss.

When a capital asset which has decreased in value is sold at a price lower than the original purchase price, a loss called, capital loss is incurred

15. Common stock.

shares entitling their holder to dividends that vary in amount and may even be missed, depending on the fortunes of the company; ordinary shares.

16. Diversification.

Is an investment strategy that reduces the effect of volatility in a portfolio. It’s the process of owning different investments that perform well at different times.

7. Dividend .

Dividend is a reward a company gives to its shareholders. Dividend may be in the form of cash, stocks or any other form depending on the dividend policy.

18. Dividend yield.

A dividend yield is an annual percentage of return earned by a mutual fund. It measures the real rate of return by comparing the dividend to the market price of a share it’s calculated by dividing gross dividend per share by market price per share

19. Earnings Per Share (EPS).

EPS indicates how much of a company’s profit can be attributed to each common share in the company. EPS serves as an indicator of a company’s profitability.


20. Equities.

Equities also known as stocks are units of a company that give ownership interest 5o their buyers. A company’s stockholders own a portion of the company equal to their stockholding.

21. Equity fund.

An equity fund is a mutual fund/collective fund in which the money is invested primarily in either common stock or preferred stock. The investment may also be in both common stock and preferred stock.

22. Exchange-traded funds (ETFs).

An investor that buys a share of an ETF has ownership to a fund of different assets. This is different from buying a share of stocks.

23. Ex-Dividend.

This is the interval between the announcement and the payment of the next dividend for a stock.

24. Financial materiality.

Is an information or an event that is likely to significantly impact the operating performance of a company and therefore should be given serious consideration during the investment decision-making process.

25. Fixed Income Fund.

Is a portfolio where bonds are primarily purchased as investments. A special feature here is that, there is neither repayment guarantee nor fixed maturity date.

26. Growth investing.

Is an Investment strategy that focuses on stocks and stock funds with rapidly growing earnings which are expected to continue on the path of growth.

27. Hedge fund.

A hedge fund is an investment tool that produces returns from pooled funds.

28. Index.

An index measures the performance of a group of assets.

29. Interest rate .

Interest rate is the self-regulating mechanism that rises and falls in response to the market’s strength and weakness respectively. It’s the fixed amount of money, often a percentage of the face value of the bond, which an issuer agrees to pay the bondholders.

30. Investment grade.

These are bonds generally regarded as suitable for purchase by shrewed investors.


31. Junk bond.

A junk bond is usually higher-yielding bond with a lower credit rating of BB or lower.

32. Market capitalization.

Market capitalization (or market cap) is the total value of all a company’s shares of stock. It’s determined by multiplying the price of a stock by its total number of outstanding shares.

33. Market timing

This is an investment strategy some investor’s use to buy and sell securities in anticipation of market conditions. It’s a risky investment approach.

34. Median market cap.

Median market capitalization is the midpoint of market capitalization of the stocks in a portfolio. It divides the stocks into two halves of higher market capitalization and lower market capitalization.

35. Mutual fund.

A mutual fund is a pooled portfolio managed by a professional portfolio manager. The portfolio manager uses the pooled fund to buy a diversified portfolio of securities. The pooled funds are contributed by individual investors who purchase shares of the mutual fund.

36. Net Asset Value per share (NAV).

NAV is the current monetary value of a single mutual fund share or share price. The .mutual fund’s NAV is calculated daily through a process called pricing. It’s calculated by deducting the fund’s liabilities from the fund’s total assets and dividing by the number of shares outstanding.

37. Par value.

Par value is the face value of a bond. The market price of a bond may be above par (at a premium) or below par (at a discount).

38. Preferred stock.

This is a class of stock with a fixed dividend that has preference over a company’s common stock in the payment of dividends and the liquidation of assets.


39. Price-to-earnings (P/E) ratio.

This relates the earnings per share (EPS) to the market price of the shares. It’s calculated by dividing market price by EPS. P/E ratio is a useful indicator of how the market assess a company.

40. Redemption.

Redemption is the sale of mutual fund shares by a shareholder.

41. Sector breakdown .

This is a breakdown of securities in a portfolio by industry categories.

42. Sharpe ratio.

A Sharpe ratio is a risk-adjusted measure that measures reward per unit of risk. The higher the sharpe ratio, the better. Sharpe ratios above 1.0 are viewed as indicating that the portfolio is offering excess returns relative to its volatility. And sharpe ratios above 1.0 are generally considered good.

43. Turnover ratio .

Turnover ratio is a percentage of holdings in a mutual fund which are sold within a specified period.

44. Valuation.

Valuation is an estimated worth of a company in terms of the price investors assign to an individual stock.

45. Volatility .

Volatility is the degree to which a traded asset fluctuates in price over time.

46. Yield.

Yield is the annual percentage rate of return on capital. It’s the dividend paid by a company expressed as a percentage of the current price.

47. Yield to maturity.

Yield to maturity is used to calculate the rate of return on a long-term, interest-bearing investment held to its maturity date.

1 Comment

  1. I hear u says:

    Informative dear


Leave a Comment

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s