8 Financial Terms Investors Need to Know

As investors, brush up on your financial terms with these seven terms you need to know in the investing world:

investors teach another about investing
A man teaches another about data, graphs and charts regarding investing.
  1. Asset Allocation

This is just a much fancier way of saying investment strategy. This is the precise implementation of your investment strategy. It will try to balance risk versus reward through adjustment of oercentage of every asset in your investment portfolio.

  1. Bonds

With bonds, you are, in simpler terms, lending money to a company or government. In the event that no bad thing will happen, such as a bankruptcy, you can cash in the bond once it’s mature. Each bond has a maturity date when you can collect some interest from it.

  1. Expense Ratio

It will cost you money to run mutual funds, so you need to expect to pay annual fees. This is exactly that. It shows the percentage of assets deducted each fiscal year for fund expenses, such as management fees, administrative fees, operating costs, and other asset-based costs sustained by the fund.

  1. Index Funds

This is one of the most popular types of mutual fund. This is due to its costs usually being low. If you wish to fully understand index funds, you must first understand what indexes are. Indexes are a slice of economy represented by stocks. It tracks the performance of a group of stocks and then provides a sense of how it is doing. Through investing in an index fund, you are counting on the success of the basket of companies it contains.

  1. Mutual Fund

In simple terms, this is a collection of money from investors like you. This collection will then be invested in assets such as stocks and bonds. A mutual fund may contain hundreds of stocks, with the purpose of spreading the risk.

  1. Price-to-earnings Ratio

This indicates the dollar amount you can expect to invest in a particular company in order for you to receive a dollar of that company’s earnings. This is why the P/E is sometimes referred to as the price multiple due to it showing how much you will be willing to pay per dollar earnings.

  1. Stocks

This is when you purchase a small bit of ownership in the firm. Generally, the better the company performs the better for the value of your share of stock. If the company isn’t doing well, you’re stock can end up being worthless.

  1. Target-date Fund

This can usually be found in 401(k) plans. This kind of funds is meant to serve as all-in-one portfolios which are designed to accommodate your expected retirement date.

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