If you’ve ever scanned the business headlines, you’re probably familiar with terms like the S&P 500, ETFs and bull markets. But do you actually know what they mean, or how they compare to related investing lingo like the Dow, mutual funds and bear markets?
If you said no, you’ve got plenty of company. In a Bankrate survey, nearly half of those 25 and younger said a lack of knowledge about investing kept them from putting money in the market. And a recent poll from TheKnowledgeAcademy.com and YouGov found that many Americans don't feel confident defining basic vocab, like index fund and Roth IRA.
So we’ve rounded up 19 common investing terms you’ve probably heard, but may not really understand, and given you the lowdown on all of them.
Bear vs. Bull Market
A bull market is when everything is just wonderful: Markets are on the rise and investors are confident that strong results will continue. Though the market can have “bullish” days, technically, a bull market is when the market increases in value at least 20 percent. We're currently in the longest-running bull market in history. Hint: Bull market means “up” because real-life bulls attack by driving their horns up in the air.
A bear market is the inverse: The market—and investor confidence—is declining. The job and housing markets may also be down. The upside, however is that bear markets are a bonanza for savvy investors, as prices have recovered historically (and then some) after every bear market. You can remember that it means “down” because bears attack their victims by swiping their paws downward.
Stock vs. Bond
Stocks, or shares of a publically traded company, are a fundamental element of most investment portfolios. The value goes up and down with the company’s financial well-being—and with shareholders’ perception of that company’s well-being. They’re risky, but potentially rewarding.
Bonds are essentially loans that you give to the issuer, which can be a corporation, municipality or the federal government. When you buy, you do so with the expectation of getting paid back, with interest, in a certain amount of time—criteria that render bonds a low-risk, if boring investment.
ETFs vs. Mutual Funds
An ETF is a stock, bond or commodity fund that often tracks an index. (An ETF that tracks an index, like the S&P 500 is called an index fund.) Because they’re more passively run, they tend to charge lower fees. They’re also traded like common stocks at varying prices throughout the day.
A mutual fund—which pools your money with other investors to purchase stocks, bonds and other assets—is professionally managed and therefore tends to come with higher fees. Shares are priced once based on their net asset value (NAV) at the end of the trading day.
August 30, 2016
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