8 Investment Terms You Need to Know as a Beginner is a very important topic to consider as Investing for beginners can be very confusing and intimidating if they do not know to key the investment terms.
As an investor, you’ll come across lots of financial terms and having a basic knowledge of them will help you to succeed in the market.
If you are a beginner investor, you have just come across the right post. This article will provide you with investment terms that you will inevitably come across. Read further for more information.
8 Investment Terms You Need to Know as a Beginner
Below, you will find investment terms that you need to know as a beginner
Stock Market
This is one of the important terms that you need to know as a beginner investor. A stock market is a place where stocks and bonds are traded. It is where shares of publicly listed companies are traded. It is where companies raise funds for ownership.
In the stock market, stock and bonds fund new product launches, support research initiatives, improve infrastructure, and lots more. As an investor, your stocks and bonds will be traded on the stock market. The key to succeeding in the stock market as a beginner is buying a good business that survives for years.
Broker
A broker is an entity that buys and sells investments on your behalf. When you work with an investment broker, you’ll pay a commission fee for services, while the entity will help you to manage your assets.
Investment brokers are financial professionals. They buy and sell securities such as stocks, bonds, mutual funds, and other investment products on behalf of their client. As a beginner investor, you’ll come across this term a lot. You might also probably need the services of a broker to manage your investments within the stock market.
Assets
Assets are resources that could be tangible or intangible but hold value and can be used to produce money for you. They hold dollar value, can be traded, and bring returns in form of cash, stocks, and real estate.
As a beginner investor, you’ll purchase assets such as dividend stocks, bonds, annuities, certificates of deposit, and/or more. These assets are what will generate income for you. Also, it is very essential that you make the right choice of assets to invest in so that you survive in the stock market.
Stocks and Bonds
Stocks are shares of a security that signifies ownership in a company. When you purchase stocks in a company, you’ll have a claim on the part of the assets and earnings in that corporation.
On the other hand, a bond is a fixed-income investment that companies use to raise capital. When you purchase bonds, you are giving the issuer a loan, that they’ll pay back to you on a specified date. In addition to this, the bond issuer will also pay you periodic interest payments alongside.
Bonds could bring returns annually or semi-annually. These are two common assets that investors venture into to generate money.
Bear Market
A bear market is a sustained period of price decline in the stock market. During that period, the value of stocks falls drastically to a lower price. In a bear market, investors usually lose confidence and begin to sell their stocks off for the fear of losing further.
In some cases, it could lead to huge economic hardship such as a recession. Hence, as a beginner investor, your portfolio should be properly diversified between a variety of assets apart from those in the stock market. This is necessary if you want to survive a bear market.
Index and Mutual Funds
These are also terms that you’ll come across frequently when you start investing. Index funds allow you to invest in a group of companies or securities instead of only one company. They are set up to track the investment returns of a benchmark stock market index. That way, you’ll be diversifying your investments in several platforms.
Meanwhile, mutual funds work similarly to index funds. However, they require active management and charge higher fees.
Brokerage Account
When you want to invest, you need to open a brokerage account. A brokerage account is created by licensed firms for investors to deposit funds. It is also used to buy and sell a variety of investments such as bonds, stocks, mutual funds, ETFs, and more. Furthermore, you can transfer money into a brokerage account at any time.
Risk Tolerance
The risk tolerance of the level of risk an investor is willing to take when investing. Different individuals have their tolerance based on their financial goals and the speed at which they would like to grow their investment goals. Generally, a higher risk will yield higher returns.
FAQs
What are the 8 Types of Investment?
The eight types of investment options include savings accounts, mutual funds, annuities, bonds, real estate, commodities, certificates of deposits, and stocks.
What are Some Tips for Beginner Investors?
As a beginner investor, there are some important tips that you need to use to guide yourself. They include
- Buy the right investment.
- Avoid individual stocks.
- Establish a diversified portfolio.
- Try a simulator before investing real money.
- Avoid short-term trading.
- Stay committed to your long-term portfolio.
- Always be prepared for a downturn.
What are the Best Investments for Beginners?
There are so many investments that people venture into. However, some of the best investments that you can venture into as a beginner are
- Index funds.
- Exchange-traded funds (ETFs).
- A Robo-advisor.
- Target-date mutual fund.
- Certificates of deposit (CDs).
- High-yield savings account.
- 401(k) or other employer retirement plan.
What are Some Common Mistakes Investors Make?
Some common mistakes investors make with their long-term investment strategies are
- Underestimating their time horizon.
- Ignoring inflation.
- Diverting from their long-term strategy.
- Failing to have foreign securities.
- Having unclear investment objectives.
What are the Common Types of Investment Risks
As a beginner investor, you also need to that you’ll face investment risks. The common investment risks are
- Market risk
- Concentration risk
- Credit risk
- Liquidity risk
- Reinvestment risk
- Inflation risk
- Longevity risk
- Horizon risk
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