Investing for Beginners: Terms to Know

When you're just starting out, investing can seem as intimidating as going skydiving without a parachute. While there is a lot of jargon to get past, you can get familiar with financial terms.

Here are some fundamental investing terms that are useful to know whether you're a beginner or seasoned investor.

Investing account terms to have on hand

• Broker: Brokers allow you to purchase and sell investments on the investor's behalf, for a fee. 

• Brokerage account: A licensed broker or brokerage firm offers a brokerage account, allowing investors to deposit funds and place investment orders.

• Money market: A money market account is an interest-bearing account that pays a higher interest rate than a traditional bank savings account using the federal interest rate.

• 401k: A type of retirement plan offered to employees by employers, which usually allows employees to invest their money the way they want. Self-employed people use an IRA.

Terms for investment structures

• Mutual fund: Mutual funds are pooled portfolios in which an asset manager holds money to purchase stocks and bonds.

• Index fund: An index fund allows an individual to track an index, such as the S&P 500. They work similarly to mutual funds.

• ETF: Exchange-traded funds are similar to mutual funds, and can hold baskets of assets like stocks, commodities, or bonds. They trade shares on stock exchanges.

Financial terms to know about individual stocks

• Expense ratio: The expense ratio reflects how much of a fund's assets is used on administrative and operating expenses.

• Earnings per share: For dividend stocks, earnings per share is a company's net profit divided by its outstanding common stock shares. This number indicates the company's profitability to investors. 

• Prospectus: A prospectus is a formal document filed with the Securities & Exchange Commission (SEC) that provides details about a public investment offering of stocks, bonds, or mutual funds. The SEC is similar to the Capital Market Authority in Saudi Arabia or the Dubai Financial Services Authority in the UAE.

Investing terms around going public

• IPO: Also known as the initial public offering, where a private company can go public by opening the sale of its stocks to the general public.

• SPAC: A special purpose acquisition company is a company formed for the main purpose of raising investment funds through an IPO. It's a shell company that takes a private company public. 

• Direct listing: A company will sell existing shares instead of offering new ones for purchase, and will go public without the help of an underwriter.

Dissecting financial terms so you can become a better investor

There's a wealth of information around investing. With practice, you can learn the terminology and do your research to ensure that you're investing in the right stocks, funds, and other securities. Stay on top of the latest financial news and make sure to protect your return on investment. 

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