Financial terms can be intimidating. The financial industry can even seem to have its own language designed to keep the average person confused. But if you understand the terminology, you'll gain the confidence you need to make good, informed decisions. In this small report, you’ll find some of the most common financial terms and acronyms used in the world of banking, mutual funds, stocks, and real estate transactions.
Although you may need to allow a little time to make sense of all the new terms, they're really not difficult if you dive right in.
Keep this guide handy as you explore the world of investing!
2. Learning the Lingo
• As you delve more and more into investing, you’ll run
across many unfamiliar and confusing terms. Once
you become familiar with these terms, though,
investing and it’s associated research becomes much
easier!
• In this presentation, you’ll learn many common terms
in the world of mutual funds.
• Mutual funds are especially good for the beginning
investor because they have built-in diversity and you
can get started without much money.
3. Closed-End Fund
• A type of fund which issues a finite number of shares
that trade throughout the day on stock exchanges at
market-determined prices. Investors in a closed-end
fund can buy or sell shares through a broker or online.
• Using this kind of fund is no different than buying and
selling stock shares of any publicly traded company.
4. Diversification
• Investing broadly across a number of different
securities, industries, or asset classes to reduce risk. This
is a principal advantage of investing in mutual funds.
5. Dollar-Cost Averaging
• The practice of investing a fixed amount of money on
a regular basis. This strategy results in buying more
shares of a mutual fund when the price is lower and
buying fewer shares when the price is higher, which
lowers the average price paid for the fund shares.
• Also, this popular investment strategy promotes
regular and consistent investing.
6. Expense Ratio
• The total of a fund's expenses, shown as a percentage
of its assets. These expenses include operating
expenses, salaries, and more, and amount to most of
the cost of owning shares of that fund.
7. Front-end Load
• A fee that some funds impose at the time of
purchase, in addition to the ongoing management
expenses.
8. Hedge Fund
• A private investment pool for qualified investors.
Hedge funds are exempt from SEC registration.
Among the various qualifications is a significant
amount of wealth; the minimum investment is typically
$1 million or more.
• Hedge funds don’t have the same limitations as
placed upon mutual funds. The risk and rewards can
both be very high for hedge funds.
9. Hybrid Fund
• A mutual fund that invests in both stocks and bonds.
10. Index Fund
• A fund intended to mimic the performance of a
market index. In essence, it's like owning a share of the
entire market within that stock index.
11. Initial Public Offering (IPO)
• A closed-end fund's first offering of shares in that fund.
Remember that closed-end funds are similar to stocks
in many ways. Initial stock offerings from public
companies are also referred to as IPOs.
12. Liquidity
• When an investment can be quickly converted to
cash, it is said to have a high amount of liquidity.
Mutual funds are quite liquid because the shares can
be sold back to the fund the next business day.
13. Money Market Fund
• A mutual fund which invests in short-term securities.
Money market funds are very safe, since the
investments they make are quite low risk. Many
people use these in lieu of a savings account. Money
market funds are also a common place to hold
money between investments.
14. Mutual Fund
• An investment company that buys a portfolio of
securities and is managed by a professional
investment adviser.
• Mutual funds can be actively managed, where the
manager creates a mix of investments to meet the
fund's stated objective. They can also be passively
managed, in which case the manager would just be
attempting to track the performance of a particular
index.
15. Net Asset Value (NAV)
• The per-share value of a mutual fund. This is
determined by subtracting the fund's liabilities from its
assets and holdings and then dividing by the number
of shares outstanding.
16. No-Load Fund
• A mutual fund that is sold without a sales commission
and doesn’t have a 12b-1 charge of more than 0.25%
per year. (See the definition of 12b-1 fees later in this
presentation.)
17. Open-end Fund
• A mutual fund that sells shares directly to investors. The
fund also buys back shares when investors decide to
sell. The price of the shares is always the Net Asset
Value (NAV).
18. Payroll Deduction Plan
• Some employers provide employees the option of
deducting a specific amount from their paychecks at
regular intervals; those monies are then used to
purchase mutual fund shares.
19. Portfolio
• The collection of securities (stocks, bonds, and other
financial instruments) held by the mutual fund. The
sum of your investment holdings would be your own
personal portfolio.
20. Prospectus
• Mutual funds have to provide an official document
that describes the mutual fund to prospective
investors. The information is required by the SEC and
contains such attributes as policies, fees, and risks.
21. Stock Fund
• A mutual find that primarily invests in stocks.
22. Total Net Assets
• This is simply the total amount of assets a fund
possesses minus its liabilities.
23. Total Return
• A measure of a fund's performance that considers all
aspects of return: capital gains distributions, dividends,
and changes in net asset value. The total return is
assessed over a specific period of time, and assumes
that all dividends and capital gains distributions are
reinvested.
24. Yield
• A measure of income (dividends and interest) earned
by the securities in a fund's portfolio minus the fund's
expenses during a specified period. A fund's yield is
expressed as a percentage of the maximum offering
price per share on a specified date.
25. 12b-1 Fee
• A mutual fund fee, named for the SEC rule that
permits it, used to pay distribution costs. One example
of these expenses is compensation to financial
advisers for initial and ongoing assistance. If a fund
has a 12b-1 fee, it will be disclosed in the fee table of
a fund's prospectus.
26. Your World Just Got Easier!
• Now that you know about mutual funds, take this
knowledge and apply it to your world.
• How?
• By starting a regular investment plan with mutual
funds!
27. We hope you enjoyed your Special Report!
Curtis Roese is an experienced professional with extensive experience in
personal finance and small business matters. Curtis writes and
publishes articles, courses, guides and special reports on his personal
finance blog.
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