Whether it’s in a retirement account, with a simple online investment account, or through a trusted advisor, the idea of spending a little to (hopefully) make a lot is an attractive concept — but it can also be somewhat intimidating to those who are unsure of where to start. So, let’s start at the beginning by exploring some fundamentals.
Investing has its own set of words and meanings specific to the investment world. As such, learning how to speak the language is a great first step toward getting familiar with investing.
For starters, what is investing? Investing is spending money with the expectation of making a profit as a result. It’s different from adding money to a savings or checking account in that it has the potential to grow more, but growth isn’t guaranteed — and in fact, it’s possible to lose the money you invested.
Let’s drill down further into some common investing terms:
- Shares: Financial equities or securities that denote ownership in a public company.
- Stock: A slice of ownership of one or more companies.
- Mutual funds: A financial vehicle made up of a pool of money collected from many investors to invest in securities like stocks, bonds, and money market instruments.
- Bonds: A fixed-income instrument that represents a loan made by an investor to a borrower — almost like an IOU. Bonds include an end date when the principal of the loan is paid back with a variable or fixed interest rate.
- Variable rate: An interest rate that is different, varies, and can change.
- Fixed rate: A set amount or interest rate.
- Risk: A chance that the outcome of actual gains will differ from the expected outcome. This includes the possibility of losing some or all of an original investment.
- Risk tolerance: How much an investor can stand to lose or gain.
- Compound earnings: Interest or earnings calculated on the original amount and also on accumulated interest of previous investment periods. Compound earnings can be considered “interest upon interest.”
- Interest: A charge paid for the privilege of borrowing money.
- Day trading: The purchase and sale of a security within a single trading day.
- Index fund: Type of mutual fund with a portfolio designed to match or track the components of a financial market.
- Volatility: The amount of uncertainty or risk related to the changes in a stock’s value. Higher volatility means the price of the stock can change dramatically over a short period of time. Lower volatility means the stock’s value does not fluctuate much.
Types of investments
Investing is not limited to the stock market, and there are plenty of conservative investment methods as well as ways to capitalize on your funds without risking your money at all. No matter how you choose to invest, there are reputable experts available who can assist with the decisions you make and the associated risk.
Whether you’re looking to invest a little or a lot, here are a few ways that investing can become an active part of your money management journey: a retirement account such as a 401(k), a 403(b), or an individual retirement account (IRA); certificates of deposit (CDs); savings or Treasury bonds; mutual funds; and stocks. Property investments, peer-to-peer lending, or business investments (loaning money to the production of a good idea with an expected higher rate of return) are popular investment ideas, also.
Feeling more confident about investing? Regardless of how you start (or how much you start with), UBT has the tools and people to help. And in the upcoming months, we’ll be making investing easy for you — more details to come!
Still have questions? We’d love to help. Contact Caitlin Moore, Financial Literacy Manager and certified financial coach.
Learning Center articles, guides, blogs, podcasts, and videos are for informational purposes only and are not an advertisement for a product or service. The accuracy and completeness is not guaranteed and does not constitute legal or tax advice. Please consult with your own tax, legal, and financial advisors.