Investment funds
Mutual funds are a collection of investment assets such as stocks, bonds, other types of securities or even other funds that are managed by a professional investment manager or investment company. A mutual fund typically focuses on a specific type of investment and uses a pool of money from a large group of investors, often individuals like you and me. As such, mutual funds are an easy way for a small individual investor to buy into diversified portfolios and access professional management. Administration and management costs are usually charged for your investments in an investment fund.
Index funds
An index fund is a type of mutual fund structured to match or track a specific market index, such as the NASDAQ (Nasdaq Composite), the S&P 500 (Standard and Poor's 500 index), or the DJIA (Dow Jones Industrial Average). . ). An index fund is created to replicate the performance of the index and not to beat the market index. The benefits of an index fund include lower operating costs, ease of management, and lower stock turnover. This results in lower administration costs.
Exchange Traded Funds (ETFS)
An ETF is similar in many ways to an index fund, but is traded on an exchange just like stocks. This means they experience price changes and can be bought and sold throughout the day just like regular stocks. Some of the benefits of trading ETFs include flexibility in buying and selling and lower expense ratios (management fees).
Active class
An asset class is a group of securities, such as stocks, bonds and currencies, that behave similarly in the market and are subject to the same laws and regulations.
Shares
An individual share is a share of ownership in a particular company. When you as an individual own a share in a particular company, you are one of its shareholders and are entitled to the company's dividends, if any, and also have the right to vote when necessary. You can also make money from price appreciation by selling your shares when the price rises.
Bonds
A bond is a debt instrument that includes municipal bonds, corporate bonds, savings bonds, government bonds, etc. When you buy someone's bond, you are essentially lending money to the bond issuer (the borrower) in the hopes of generating income from interest. payments over the life of the bond. You also want to get the principal amount (face value of the bond) back at maturity. The further away the maturity date is, the higher the interest a bond will pay, the higher the risk associated with the face value.
Simple interest
Simple interest is interest on which is calculatedoriginal amount of moneyand does not include interest on interest already earned. For example, a simple annual interest rate of 10% on €1000 (10% x 1000) is €100 for the first year and remains €100 for the second year, and so on. As such, the $100 of interest earned in the first year is not taken into account when calculating simple interest for the second year, and so on.
Renters interest
Compound interest is calculated not only on the original amount (principal sum), but also on the interest accrued up to that date. For example, you have an investment of € 1000 that yields a 10% return every year. For the first year, the interest, simple interest, is €100 (10% of €1000). In this case we assume that all returns/interest are reinvested in the same investment. The second year the return/interest is $110 (10% of1100$). Now your investment growth is much higher than with simple interest (see above). Both Warren Buffet (financial) and Albert Einstein (universal) say that compound interest is a powerful force. It has the potential to significantly multiply your investments over time. But be careful, because it works the same way with debt. Compound interest is a very powerful investing force and one of the most important strategies that serious and smart investors use to build wealth.
Time value of money
This financial concept can be difficult to understand. This means that the money you have on hand today will be worth more than the same amount in the future. This concept is based on the premise that the money you currently have can be invested to earn interest and as such could be worth more than its original value at some point in the future.
Berenmarkt
A bear market occurs when the prices of securities, such as stocks, fall because the sellers, called bears, overwhelm the buyers, called bulls. The market is often called bearish when the market outlook is pessimistic.
Marked with tires
A bull market occurs when securities, such as stocks, rise because buyers, called bulls, overwhelm sellers, called bears. The market is often called bullish when the market outlook is optimistic.
Long position
A long position describes when an investor buys a stock or security and holds it for the long term in the hope that the price will rise.
Short selling, shortpositie
Short selling is a security trading technique in which an investor/trader sells a stock/security borrowed through his or her broker, without holding the stock, expecting the stock price to fall. After the price drop, they can then buy back the shares/securities at a lower price, return the shares/securities to the lender through their broker and keep the price difference as profit. Needless to say, it is a risky technique that can make you lose money.
Diversification
Diversifying a portfolio is a risk management technique. You diversify your investments across different asset classes (stocks, bonds, commodities, real estate) to reduce your exposure to each type of security, area and domain. Diversification can help avoid big losses if the market moves.
Asset allocation
Asset allocation is a strategy used for portfolio diversification. As an investor, you spread your investments over a number of different investment categories (see above). The proportion of funds (money) invested in each asset class reflects the risk tolerance, objectives and time frame as determined by the investor.
Financial risk
Financial risk is the potential for financial loss based on the uncertainty of the return on your assets. Every investment you can possibly make involves some degree of risk.
Risk versus return
For all investments there is a relationship between risk and return. Normally, the higher the risk, the greater the return potential, but also the potential for greater losses. The lower the risk, the smaller the chance of return or smaller losses. If an investment does not follow this and has high risk but low return potential, stay away from it.
Risk tolerance
Risk tolerance is defined as the amount of financial risk/uncertainty an investor is willing to take. Several factors influence your own risk tolerance: your investor's background, age, investment horizon (timeline), financial strength, investment knowledge and more. A risk-averse investor prefers a conservative investment approach with limited risk and limited return potential, while a risk-averse investor is the opposite and prefers a less conservative approach with higher return potential but higher risk.
Market volatility
Market volatility is the rate at which a security's price changes. Security, usually stock prices, typically moves up and down throughout the day. Volatility is said to be high when the price changes rapidly in a short period of time.
Liquidity
The liquidity of an asset is the ability to quickly convert that asset into cash without incurring too much loss in value. The liquidity of a given asset depends on the availability of market participants (buyers) to fulfill the buying side of the transaction.
Cost average in dollars
The Dollar Cost Averaging strategies require you to invest a fixed amount at regular intervals over a specified period of time, regardless of the stock price. This is considered a smart investment strategy because the investor does not have to try to pick the top and the bottom.
cost ratio
The expense ratio is the annual fee, expressed as a percentage, paid for professional management of your money, usually mutual funds or ETFs. It generally includes administration fees, administrative charges and other charges as disclosed by the fund management. A high expense ratio will reduce the overall return on investment by the specified percentage. Minimizing the expense ratio over several years will have a significant impact on your overall returns.
Yield
This investment period means that it is money paid out by a company to its shareholders from its profits as part of its profit sharing strategy.
The last shot
I hope you've learned some of the basic investment terms needed to understand the jargon of the investing world. There are several other investment terms you can learn on your journey to financial freedom. Would be a good startread the booked on this list.
Don't forget to keep the dream alive.
