Investing Glossary
A beginner-friendly guide to investing and financial terms.
1
10-K
An annual report filed by publicly traded companies with the SEC. It includes detailed financial statements, business overview, and risk factors.
4
401(k)
An employer-sponsored retirement savings plan that allows employees to contribute pre-tax income. Many employers match a percentage of contributions.
5
52-Week High/Low
The highest and lowest prices at which a stock has traded during the past year. Used to gauge where a stock sits in its recent range.
A
Alpha
A measure of an investment's performance relative to a benchmark. Positive alpha means the investment outperformed the benchmark.
Annual Report
A yearly document published by a company that provides financial data, performance summaries, and forward-looking statements for shareholders.
Asset
Anything of value owned by an individual or company, including cash, stocks, real estate, or equipment.
B
Balance Sheet
A financial statement showing a company's assets, liabilities, and equity at a specific point in time. Assets must equal liabilities plus equity.
Bear Market
A market condition where prices are falling or expected to fall, typically defined as a decline of 20% or more from recent highs.
Beta
A measure of a stock's volatility relative to the overall market. A beta of 1 means the stock moves with the market. Above 1 is more volatile, below 1 is less.
Blue Chip Stock
Shares of large, well-established companies with a history of reliable performance. Examples include Apple, Microsoft, and Johnson & Johnson.
Bond
A fixed-income investment where you lend money to a company or government. They pay you back with interest over a set period — essentially an IOU.
Book Value
The net asset value of a company, calculated as total assets minus total liabilities. A low price-to-book ratio may indicate an undervalued stock.
Broker
A person or platform that facilitates the buying and selling of securities for investors. Examples include Robinhood, Schwab, and Interactive Brokers.
Bull Market
A market condition where prices are rising or expected to rise. Bull markets are characterized by investor optimism and confidence.
C
CAGR (Compound Annual Growth Rate)
The average annual growth rate of an investment over a specified period longer than one year, smoothing out volatility.
Capital Gain
The profit earned when you sell an investment for more than you paid. Long-term capital gains (held over 1 year) are taxed at lower rates.
Compound Interest
Interest calculated on both the initial principal and the accumulated interest from previous periods. This is how $2,000 can grow to $1,000,000 over time.
Correction
A decline of 10% or more in the price of a stock, bond, or market index. Corrections are normal and typically short-lived.
Current Ratio
A liquidity ratio that measures a company's ability to pay short-term obligations. Calculated as current assets divided by current liabilities.
D
Day Trading
Buying and selling securities within the same trading day. Requires significant capital, knowledge, and risk tolerance.
Debt-to-Equity Ratio
A measure of a company's financial leverage, calculated by dividing total liabilities by shareholders' equity. Lower is generally better.
Diversification
Spreading investments across different asset types, industries, and regions to reduce risk. Don't put all your eggs in one basket.
Dividend
A portion of a company's earnings paid to shareholders, usually quarterly. Dividend-paying stocks provide income in addition to potential price appreciation.
Dollar Cost Averaging (DCA)
Investing a fixed amount at regular intervals regardless of price. This reduces the impact of volatility and removes emotion from investing.
Dow Jones Industrial Average (DJIA)
A stock market index tracking 30 large publicly owned companies in the United States. Often referred to as 'the Dow' or 'Dow 30.'
E
EBITDA
Earnings Before Interest, Taxes, Depreciation, and Amortization. A measure of a company's operating performance.
EPS (Earnings Per Share)
A company's net profit divided by the number of outstanding shares. Positive and growing EPS is generally a good sign.
ETF (Exchange-Traded Fund)
A basket of investments that trades like a stock on an exchange. ETFs typically have lower fees than mutual funds. Popular examples: SPY, VOO, QQQ.
Equity
Ownership interest in a company. When you buy stock, you own equity. Also refers to the value of assets minus liabilities.
F
Federal Reserve (The Fed)
The central bank of the United States. It sets monetary policy, interest rates, and regulates banks.
Float
The number of shares available for public trading. Low-float stocks can be more volatile because there are fewer shares to buy and sell.
Fundamental Analysis
Evaluating a company by examining its financial statements, P/E ratio, EPS, debt, and other metrics to determine if it's a good investment.
G
GDP (Gross Domestic Product)
The total value of goods and services produced by a country. GDP growth indicates a healthy economy.
Growth Stock
A stock expected to grow at an above-average rate compared to the market. Growth stocks typically reinvest profits rather than paying dividends.
I
Index Fund
A type of mutual fund or ETF designed to track a specific market index like the S&P 500. Known for low fees and broad diversification.
Inflation
The rate at which the general price level of goods and services rises over time, reducing purchasing power.
Insider Buying
When company executives purchase shares of their own company on the open market. Often seen as a positive signal about the company's future.
IRA (Individual Retirement Account)
A tax-advantaged account for retirement savings. Traditional IRAs offer tax-deductible contributions; Roth IRAs offer tax-free withdrawals.
J
Junk Bond
A high-yield bond with a lower credit rating (below investment grade). Higher risk of default but pays higher interest.
L
Limit Order
An order to buy or sell a stock at a specific price or better. Unlike market orders, limit orders give you price control.
Liquidity
How quickly an asset can be bought or sold without significantly affecting its price. Stocks are generally liquid; real estate is not.
Long Position
Owning a security with the expectation that its price will rise. The most common investing strategy.
M
Margin
Borrowing money from a broker to purchase investments. Margin amplifies both gains and losses.
Market Capitalization
The total market value of a company's outstanding shares. Calculated as share price times number of shares. Categories: small-cap, mid-cap, large-cap.
Market Order
An order to buy or sell immediately at the best available price. Execution is guaranteed but the price is not.
Moving Average
The average price of a stock over a set number of periods. Used in technical analysis to identify trends and support/resistance levels.
Mutual Fund
A pool of money from many investors used to buy a diversified portfolio of stocks, bonds, or other assets. Managed by professionals but typically has higher fees (3-7%).
N
NASDAQ
A stock exchange known for listing technology and growth companies. The NASDAQ Composite index tracks over 3,000 stocks.
Net Income
A company's total earnings after all expenses, taxes, and costs are subtracted from revenue. The 'bottom line.'
P
P/E Ratio (Price-to-Earnings)
Stock price divided by earnings per share. A P/E below 20 may indicate an undervalued stock. Used to compare companies within the same industry.
Portfolio
The collection of all investments held by an individual or institution, including stocks, bonds, ETFs, and cash.
Pump and Dump
A fraudulent scheme where a stock is artificially inflated through misleading promotion, then insiders sell at the peak, leaving other investors with losses.
R
Resistance Level
A price point on a chart where selling pressure tends to prevent a stock from rising further. When broken, it often becomes a new support level.
Return on Assets (ROA)
A profitability metric showing how efficiently a company uses its assets to generate profit. Positive ROA is a good sign.
Return on Equity (ROE)
Net income divided by shareholders' equity. Measures how effectively a company uses investor capital to generate profits. Positive is good.
Risk Tolerance
The degree of variability in investment returns that an investor is willing to withstand. Determines how aggressively you should invest.
Roth IRA
A retirement account funded with after-tax dollars. Investments grow tax-free, and qualified withdrawals in retirement are also tax-free.
S
S&P 500
A stock market index tracking the 500 largest publicly traded companies in the U.S. Widely considered the best gauge of the overall stock market.
Sell Short
Borrowing shares and selling them, hoping to buy them back at a lower price. Risky because losses are theoretically unlimited.
SPY
The SPDR S&P 500 ETF Trust. One of the most popular and heavily traded ETFs, tracking the S&P 500 index.
Stock
A share of ownership in a company. Stock prices move up and down based on supply and demand.
Stock Split
When a company divides its existing shares into multiple shares. A 2-for-1 split doubles the number of shares while halving the price.
Stop Loss
An order to sell a stock when it reaches a certain price, limiting potential losses. Keep your stops wide to avoid being shaken out by normal volatility.
Support Level
A price point on a chart where buying pressure tends to prevent a stock from falling further. A key concept in technical analysis.
Swing Trading
A trading strategy that holds positions for days to weeks, aiming to profit from short-term price movements.
T
Technical Analysis
Studying price charts, patterns, and indicators to predict future price movements. 'The trend is your friend.'
Trend Line
A line drawn on a chart connecting price points to show the general direction of a stock. Uptrend connects higher lows; downtrend connects lower highs.
V
Value Stock
A stock that trades at a price below what its fundamentals suggest it's worth. Often identified by low P/E ratios and strong financials.
Volatility
The degree of variation in a stock's price over time. Higher volatility means bigger price swings and typically more risk.
Volume
The number of shares traded during a given period. High volume confirms price movements; low volume may signal weak conviction.
VOO
Vanguard S&P 500 ETF. A low-cost ETF that tracks the S&P 500, popular among long-term investors.
Y
Yield
The income return on an investment, expressed as a percentage. For stocks, this is typically the dividend yield.