Investment Glossary
Plain-language definitions of the terms you will meet across this site.
- Asset
- Anything of value you can invest in — a stock, bond, coin, fund or property.
- Bond
- A loan you make to a government or company that pays periodic interest and returns principal at maturity.
- Bull market
- A period when prices are generally rising and sentiment is optimistic.
- Bear market
- A period when prices are generally falling (often defined as down 20% from a peak).
- Compound interest
- Interest earned on both your principal and previously earned interest — the engine of long-term growth.
- Diversification
- Spreading investments across assets so no single loss sinks your portfolio.
- Dividend
- A portion of a company's profit paid to shareholders, usually quarterly.
- ETF
- Exchange-Traded Fund: a basket of assets that trades like a single stock.
- Equity
- Ownership; another word for stock.
- Forex
- The foreign-exchange market where currencies are traded.
- Leverage
- Using borrowed capital to increase the size of a position and its potential outcome.
- Liquidity
- How quickly an asset can be sold for cash without moving its price much.
- Market cap
- Total value of a company's shares (price x shares outstanding).
- Mutual fund
- A pooled investment managed by a professional, priced once per day.
- P/E ratio
- Price-to-earnings: share price divided by earnings per share; a common valuation gauge.
- Portfolio
- The collection of all your investments.
- Principal
- The original amount you invested, before gains or losses.
- Rebalancing
- Adjusting holdings back to your target mix after markets shift weights.
- Return
- The profit or loss on an investment, often shown as a percentage.
- Risk tolerance
- How much downside you can emotionally and financially withstand.
- Sharpe ratio
- A measure of return per unit of risk; higher is generally better.
- Spread
- The gap between a bid and ask price (or buy and sell rate).
- Volatility
- How much an asset's price swings over time; higher volatility means higher risk.
- Yield
- Income returned by an investment, such as a dividend or bond coupon, as a percentage.
