Investing Basics
Investing is the best way to protect your money against the risks of inflation. Investing comes with many risks, however, there are strategies you can take to reduce your risks and grow your wealth over time.
Please note information available on this page is for educational purposes only and is not financial advice.
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Key Terms
There are many terms to know when it comes to investing. We have curated a short list of key terms below. However, it is not exhaustive.
Investing
Putting your money in some kind of project or an asset with an intention of earning a return on the same is known as investing.
STOCK EXCHANGE VS STOCK MARKET
Both "stock market" and "stock exchange" are often used interchangeably, but they are not the same.
STOCK EXCHANGE
A stock exchange is a centralized location where different financial instruments are traded, like equities, commodities, and bonds. Exchanges bring buyers and sellers together, so they can trade securities.
STOCK MARKET
The term "stock market" is a general term that refers to the investors that buy and sell securities at one or more of the many stock exchanges that exist around the world.
BEAR VS BULL MARKET
You may have heard people describe what is called a bear market or a bull market. These are slang terms to refer to how the stock market is performing over an extended period of time.
BEAR MARKET
A bear market is when a market experiences price declines for a long time. It typically describes a condition in which stock prices fall 20% or more for a considerable period of time. It make be a period of several weeks or even years.
Examples of bear markets include The Great Depression and the Stock Market Crash of 2008.
BULL MARKET
A bull market is when the prices of stocks are rising currently or is expected to rise, the market condition is called bull market. The term "bull market" can be used for stocks, commodities and bonds.
Examples of bull markets include the Boom after WWII a& nd the period after the housing market crash in 2008 since there were longer periods of appreciation in the overall stock market.
Securities
Security:
A security refers globally to the different types of assets that a consumer can obtain like stocks, bonds, mutual funds, and other assets. It essentially refers to a financial instrument that holds some type of monetary value.
Stocks:
A stock represents a small portion of ownership of a company. The portion of ownership is calculated with the number of stocks that an investor owns.
There are two types of stocks: common and preferred. Common stocks allow owners to have voting rights in some of the company's decisions and the timing of when earnings are received varies. Preferred stock owners do not have any voting rights, however they receive profits before common stockholders and receive earnings at regular intervals.
Bonds:
A bond represents a loan made by an investor to a borrower. A bond has the details of loan and repayment details. Bonds are used by companies, municipalities, states, and sovereign governments to finance projects and operations. Owners of bonds are creditors of the organization that sold the bond.
Mutual Funds:
A mutual fund is a combination of stocks, bonds, money instruments and other assets. Mutual funds are managed by fund managers.
There are many types of mutual funds:
- Ownership - consists entirely of different stocks
- Loanership - consists entirely of different bonds
- Balanced - has a mix of stocks and bonds
- Target-date - diversification is based on the target date for fund withdrawals
- Special sector - may have a mix of stocks and bonds related to a specific industry (e.g., energy)
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