Teenager speak, circa 2015: “She is thirsty for my outfit because it’s on fleek and my bae loves it.” Come again??
Adult translation: “She is eager to have of my great outfit that my boyfriend loves.”
Fortunately for all of us, teenage slang comes and goes, so the bewildered smile-and-nod approach should get us through the latest language fad. In the adult world of investing, however, there are a few key terms that are worth committing to memory. Below are the top investing terms we believe everyone should know.
Asset Allocation is a fancy word for your mix of stocks, bonds, cash and other investment types. The appropriate mix is based on your risk tolerance, financial situation and time frame.
Stocks are partial ownership in a company. Stocks are also called “equities” because you have equity or ownership in the underlying company.
Bonds are loans you make to corporations, governments or governmental agencies for a set period of time in exchange for annual interest payments or “coupons.” Bonds are also called “fixed income” or “debt instruments” because of the fixed income they pay or the debt they represent.
Cash is the green stuff, but it’s also used to describe certain securities that can readily be turned in for cash such as CDs, Treasury Bills or money market accounts.
Mutual Funds are investment vehicles that pool individual investors’ money to purchase stocks or bonds (or both). The buy and sell decisions are made by a professional fund manager. Funds hold a number of stocks and/or bonds with the purpose of spreading risk.
Expense Ratio is the cost of a mutual fund that goes towards covering fees for management, administration, record-keeping, advertising etc.
Index Funds are a type of mutual fund that attempt to mirror the investments of a pre-defined index, such as the Standard & Poor’s 500 Index (S&P 500) or Dow Jones Industrial Average (DJIA). Index funds are “passive” investments, since the fund manager is relying on a preset index, rather than being “active” in choosing investments on his or her own.
Prospectus is a detailed report providing information about a mutual fund’s objective, investment strategy, expense ratio, underlying holdings and other details. You can get a copy online or from your financial advisor. They’re thick, but we encourage you to review the key information found in the summary pages before investing.
You may now consider yourself “winning” with this knowledge (basically, succeeding in life).