Investing can be daunting, but with a little knowledge of key investment terms for beginners, you’ll feel less like a fish out of water!
When I first started to become interested in investing my money (instead of just squirreling it all away in a savings account) I knew there’d be a steep learning curve.
I had a ton of questions…
What is the DOW Jones?
What’s the difference between a stock and a bond?
What are blue chip stocks?
I was excited to get started investing my money, but I quickly became overwhelmed. I felt intimidated. But I knew that I wanted to learn as much as I could.
What I quickly realized was that you don’t have to know everything there is to know about investing to get started, but there are some basic terms that you should familiarize yourself with.
Listed below are some of the investment terms that you’ll most commonly come across, and their definitions.
10 Investment Terms for Beginners
You’ve probably heard of a “stock”, but what does it actually mean? It’s actually pretty simple – a stock is a share in the ownership of a company – the more stock you acquire, the higher your ownership stake in the company becomes.
You’ve heard of an IOU, right? A bond is basically an IOU or a loan that is made out to an entity (generally a company or governmental agency) by an investor. When you purchase a bond you’re essentially acting as a bank – you’re lending out your money for a fixed amount of time with the borrower promising to pay you back in full, with interest.
3) Mutual Fund
Once you start on your investing journey it won’t take long for you to come across the term “mutual fund”. A mutual fund is essentially the pooling of money from a group of investors to purchase a diversified group of stocks, bonds, and other securities. There are thousands of mutual funds that you can buy into, with your money being invested by a portfolio manager.
A dividend is one of the ways you make money from your stock – when a company makes a profit, sometimes they will pay out a portion of that to their shareholders (typically every 3 months.) Not all companies do this, though, and it’s never guaranteed.
5) Blue Chip Stocks
Blue chip stocks are the stock of large, well-established, reliable and profitable companies that typically have a large market share of their industry. Blue chip stocks generally pay increasing dividends and are considered to be stable and reliable investments. Some examples include AT&T, Walmart, Boeing, Chevron and General Motors.
6) Stock Exchange
The stock exchange is essentially a marketplace where stockbrokers buy and sell stocks, bonds, and other securities. 5 of the largest stock exchanges in the world are the New York Stock Exchange (NYSE), the NASDAQ OMX, the Tokyo Stock Exchange, the London Stock Exchange and the Shanghai Stock Exchange.
7) Dow Jones Industrial Average
If you watch the nightly news, there’s a high probability that you’ve heard the newscaster say something like “The Dow Jones was down 10 points today.” So what exactly is the “Dow Jones”? The Dow Jones Industrial Average or the “Dow Jones”, consists of 30 of the most well-known companies in the stock market, known as “blue chip” stocks. It shows investors how these 30 companies have traded during a standard session in the stock market and provides investors with an overall view of how well the current stock market is performing.
8) Bull Market/Bear Market
The terms bull market and bear market are used to describe what is currently happening in the stock market. A bull market refers to a market that is trending higher and likely to gain and a bear market refers to a market that is dropping.
9) Balance Sheet
A balance sheet, also known as a “statement of financial condition” shows a snapshot of the financial condition of a company at the time the balance sheet was prepared. It provides a summary of the company’s assets, liabilities, and shareholder equity, and gives investors a better idea of what the company owes, what it owns, and what is left over.
10) Capital Gains (or Loss)
A capital gain is the increase in value of an asset, a loss is the decrease in value of an asset.
The Best Investment Site For Beginners
Once I’d familiarized myself with these common investment terms, I decided that I’d open my first investment account with Betterment.
Betterment is an automated investment service that is perfect for beginning investors and for those who prefer a more hands-off experience. It’s a great way to learn about investing without feeling like you’re constantly swimming up stream.
Betterment has no minimum deposit (which means you can get started with as little, or as much money as you’d like) and a intuitive user-interface which makes it easy for even the least tech-savvy person.
I’ve been very happy with my Betterment experience and I intend to stay with the company long-term. In the future, I may look into self-managing parts of my investment portfolio but I will continue to make monthly contributions to my Betterment account.
If you’d like to learn more about opening an automated investment account with Betterment, I have a special link for you that will give you your first 90 days managed free, so you can try them out and see what you think.
The Best Investment Books for Beginners
In addition to learning key investment terms, I also read a number of books on the topic of investing. Warren Buffet is said to read at least 500 pages every single day, and at the beginning of his investment career, read 800-1000 pages a day.
While I certainly can’t commit to reading that amount every day (I wish) I do try to read regularly.
Here are some of the best books on investing that I’ve read: