Basic Investing Terms

Traditional IRA
A Traditional IRA, or Individual Retirement Account, is a type of retirement savings account that allows individuals to make contributions with pre-tax dollars. This means that the money contributed to the account is not taxed until it is withdrawn. The funds in the account grow tax-deferred, which means that you don't have to pay taxes on the earnings until you withdraw them.

One of the benefits of a Traditional IRA is that you have more control over the investments in your account. You can choose from a wide range of investment options, including stocks, bonds, mutual funds, and other securities. This flexibility allows you to tailor your investment strategy to your specific financial goals and risk tolerance.

Additionally, many people choose to roll over funds from a 401(k) or other company retirement plan into a Traditional IRA when they change employers or retire. This allows you to continue to save for retirement while maintaining the tax-deferred status of your retirement savings. Overall, a Traditional IRA can be an effective way to save for retirement and minimize your tax burden.

Roth IRA
A Roth IRA is a type of individual retirement account that is funded with after-tax dollars, meaning there are no upfront tax benefits like with a traditional IRA. However, the gains earned on the investments within the account grow tax-free and there are no taxes on qualified withdrawals in retirement. This means that when you take money out of a Roth IRA, you do not owe any taxes on the gains you earned on your investment or on the principal contributions you made.

One benefit of a Roth IRA is that since the contributions are made with after-tax dollars, you are not required to take any distributions during your lifetime. This can be beneficial if you plan to leave your Roth IRA to your heirs, as it will continue to grow tax-free over their lifetimes as well. However, it is important to note that there are IRS penalties for withdrawing funds from a Roth IRA before age 59 and a half, unless it is for a qualifying event such as a first-time home purchase or higher education expenses. Overall, a Roth IRA can be a powerful tool for tax-free growth and income in retirement.

SIMPLE IRA
A SIMPLE IRA, which stands for Savings Incentive Match Plan for Employees of Small Employers, is a tax-deferred retirement savings plan that is designed for small businesses with fewer than 100 employees. It is an easy-to-administer retirement plan that offers many benefits to both employers and employees.

In a SIMPLE IRA, employees can make pre-tax contributions to their account, and employers are required to make either a matching contribution or a non-elective contribution. The contributions are tax-deferred, which means that the contributions are not taxed until they are withdrawn from the account.

One of the main benefits of a SIMPLE IRA is that it is easy to set up and administer, and it is also cost-effective for employers. Unlike other retirement plans, there are no annual filing requirements, and the employer is not required to pay any administrative fees.

For employees, the contributions made to a SIMPLE IRA are tax-deferred, which means that they can reduce their taxable income and potentially lower their tax bill. Additionally, the funds in a SIMPLE IRA grow tax-free until they are withdrawn, which can provide a significant advantage when it comes to retirement savings.

Overall, a SIMPLE IRA is a great retirement savings option for small businesses and their employees, offering both ease of administration and tax advantages.

SEP IRA
A Simplified Employee Pension (SEP) IRA is a type of retirement savings account designed for small business owners, including those who are self-employed. SEP IRAs are relatively easy to set up and manage and are a cost-effective way for small business owners to offer a retirement plan to their employees.

SEP IRAs allow contributions to be made by both the employer and the employee. The contributions made to a SEP IRA are tax-deductible for the employer, which can help reduce their tax liability. The contributions made by the employer are typically a percentage of the employee's compensation, up to a certain limit, while the employee can also choose to make contributions on their own behalf.

One of the benefits of a SEP IRA is that the contribution limits are much higher than those of a traditional or Roth IRA. In 2023, the employer can contribute up to 25% of the employee's compensation or up to $61,000, whichever is less. The employee, on the other hand, can contribute up to $6,000 (or $7,000 if they are 50 or older) of their own income.

SEP IRAs are also flexible, as there is no requirement for the employer to make contributions every year. This can be helpful for small businesses that have fluctuating income levels. Additionally, contributions to a SEP IRA can be invested in a wide range of investment vehicles, including stocks, bonds, mutual funds, and exchange-traded funds (ETFs).

In summary, a SEP IRA is a retirement savings account designed for small business owners and the self-employed. It is a cost-effective way to provide a retirement plan for employees and offers tax benefits to both the employer and the employee.

401k
A 401(k) plan is a type of retirement savings plan that allows employees to save a portion of their salary on a pre-tax basis. These contributions are made before taxes are taken out, which can help to lower taxable income. In addition to employee contributions, many employers also offer a matching contribution, up to a certain percentage of the employee's salary. The funds in the 401(k) account can be invested in a variety of different assets, such as stocks, bonds, and mutual funds, and the growth on these investments is tax-deferred until the funds are withdrawn.

One of the key benefits of a 401(k) plan is that the contributions and investment earnings compound over time, which can help to grow the account balance significantly over the course of an employee's career. Additionally, 401(k) plans typically offer a wide range of investment options, allowing employees to customize their portfolios to suit their individual needs and risk tolerance.

When an employee leaves a job, they can typically choose to leave their 401(k) account with their former employer, roll it over into a new 401(k) plan with their new employer, or roll it over into an individual retirement account (IRA). However, there may be penalties for withdrawing funds from a 401(k) account before the age of 59 and a half, and withdrawals after that age are generally subject to ordinary income tax.

403b
A 403(b) is a type of retirement account available to employees of certain tax-exempt organizations, public schools, and some ministers. This type of account is similar to a 401(k) in that contributions are made on a pre-tax basis, which can lower your taxable income. The money in the account grows tax-deferred until it is withdrawn in retirement.

Some employers may offer matching contributions, where the employer matches a certain percentage of the employee's contributions. The contribution limits for a 403(b) are similar to those for a 401(k), and for the year 2023, the contribution limit is $19,500 for individuals under 50 and $26,000 for those 50 and older.

It's important to note that withdrawals from a 403(b) are subject to ordinary income tax, and if you withdraw money before the age of 59 1/2, you may also face a 10% penalty. However, there are certain exceptions to this penalty, such as if you become disabled or if you use the funds for certain qualified expenses, such as a first-time home purchase.

Taxable Investment Account
A taxable investment account is an investment account in which the earnings are subject to taxation on an ongoing basis. This type of account is typically opened by individuals or joint account holders who are interested in investing in stocks, bonds, mutual funds, or other securities outside of tax-advantaged retirement accounts. Unlike retirement accounts such as IRAs or 401(k)s, contributions made to taxable investment accounts are made with after-tax dollars and do not offer any upfront tax benefits.

One of the advantages of a taxable investment account is the flexibility it offers in terms of withdrawals. Unlike retirement accounts that impose penalties for early withdrawals before age 59 1/2, taxable investment accounts allow investors to withdraw their funds at any time without penalties or restrictions. Additionally, there is no limit on how much an individual can contribute to a taxable investment account, unlike some retirement accounts that have annual contribution limits.

However, the downside of a taxable investment account is the ongoing tax liability. Earnings from investments held in a taxable account, such as interest, dividends, and capital gains, are subject to taxes each year they are earned, regardless of whether or not the investor withdraws the funds. The amount of taxes owed will depend on the investor's tax bracket, the type of investment, and the length of time it was held.

BEAR
In the world of finance, the term "bear" refers to an investor who has a negative outlook on the market as a whole, or on a specific stock, sector or asset class. In other words, a bear is someone who believes that prices will fall in the future, and as a result, they tend to take positions that will profit if that prediction comes true.

Bears can have different reasons for their pessimistic view. For example, they may believe that the economy is weakening, that interest rates are rising, that geopolitical tensions are increasing, or that a particular company is overvalued or facing headwinds. Whatever the reason, the bearish view is often driven by a fundamental analysis of the underlying factors that affect the market or asset in question.

Bearish investors may employ a range of strategies to profit from a decline in prices, such as short selling, buying put options, or using inverse exchange-traded funds (ETFs). These strategies can be risky, as they involve predicting the direction of the market, but they can also offer the potential for significant returns if the predictions turn out to be correct.

Overall, the term "bear" is used in finance to describe an investor who takes a pessimistic view on the market or a particular investment, and positions themselves accordingly in order to profit if prices fall.

BULL
n finance, a "bull" is an investor who has a positive outlook on the market, believing that the prices of assets will rise. This can refer to the stock market as a whole, or to specific stocks or other securities. A bull may base their optimism on various factors, such as positive economic indicators, strong corporate earnings reports, or favorable political developments. Bulls often look to buy securities they believe are undervalued, with the expectation that they will rise in price over time, allowing them to sell at a profit.

The term "bull" is often used in contrast to a "bear", which is an investor who takes a negative view of the market or a particular security, anticipating that prices will fall. Bulls and bears are important concepts in financial analysis and market forecasting, and understanding the views and actions of both can be key to making informed investment decisions.

BULL MARKET
A Bull market refers to a market condition where the prices of most stocks are increasing over an extended period, typically months or even years. During a bull market, investors generally feel optimistic about the economy's outlook, and this positivity translates into the stock market, driving prices higher. Bull markets are often characterized by low unemployment rates, rising consumer spending, and strong economic growth.

Investors and traders are said to be bullish when they believe that the market or a particular stock will continue to rise in value. This optimism leads them to purchase stocks, which further drives up prices, creating a cycle of positive momentum. Bull markets can be favorable to investors who hold long positions in stocks, as they can see significant capital gains over time.

However, it's important to note that bull markets are not guaranteed to continue indefinitely. They can be interrupted by unexpected events or economic downturns, leading to a market correction or even a bear market. Therefore, investors need to remain vigilant and adjust their investment strategies accordingly.

BEAR MARKET
A bear market is a period of time where the stock market, as a whole, experiences a prolonged and widespread decline in prices. This decline can last for several months or even years. During a bear market, investors tend to be pessimistic about the economy and may sell off their stocks, causing prices to fall further. This can result in a downward spiral, as falling prices lead to further selling, which leads to more falling prices. Bear markets can be caused by a variety of factors, such as economic recessions, geopolitical events, or changes in government policies. Investors who believe that a bear market is approaching may take steps to protect their portfolios, such as diversifying their investments or moving their assets into less volatile securities.

BID
The bid price represents the maximum amount a buyer is willing to pay for a security, such as a stock, at a given point in time. It is the opposite of the ask price, which represents the minimum amount that a seller is willing to accept to sell a security. The bid price is typically displayed on a stock quote and trading platform alongside the ask price, and the difference between the two is known as the bid-ask spread. The bid price is an important metric in trading as it helps investors determine the value of a security and decide whether to buy, sell or hold it. The bid price can fluctuate in real-time based on market supply and demand, news and events, and other factors that affect investor sentiment.

ASK
The "Ask" price, also known as the "offer" price, is the lowest price that a seller is willing to accept when selling a security (such as a stock) in the market. It represents the price at which an investor can purchase a security from a seller. In other words, if you want to buy a stock, you need to pay the asking price to purchase the stock from the seller.

The ask price is displayed on the right-hand side of a stock quote and is typically shown in a different color than the bid price. The difference between the bid and ask price is known as the "bid-ask spread," which represents the profit for the market maker or broker.

Investors should keep in mind that the ask price can change frequently as market conditions and demand for a particular stock fluctuate throughout the day. It's important to pay attention to both the bid and ask prices when buying or selling securities to ensure that you're getting a fair price.

SPREAD
In financial markets, the spread refers to the difference between the bid and ask prices of a security, such as a stock or bond. The bid price is the highest price a buyer is willing to pay for the security, while the ask price is the lowest price a seller is willing to accept. The spread is the difference between these two prices and represents the transaction cost for trading the security. A narrower spread typically indicates a more liquid market, while a wider spread may suggest a market with less trading activity or lower liquidity. Investors and traders pay close attention to spreads when buying and selling securities, as the spread can have a significant impact on their trading costs and potential profits.

STOCK/ EQUITIES
A stock, also known as an equity, represents a unit of ownership in a company. When you buy a stock, you essentially become a shareholder in that company, which gives you the right to vote on certain corporate decisions and to receive a portion of the company's profits, known as dividends.

In the past, owning a stock was evidenced by a physical paper certificate, but nowadays most stocks are held electronically through brokerage accounts. The value of a stock is determined by a number of factors, including the company's financial performance, industry trends, and overall market conditions. Stocks can be bought and sold on stock exchanges, such as the New York Stock Exchange and the Nasdaq, or through online trading platforms.

Investing in stocks can provide a potential for high returns, but it also involves risks, as stock prices can be volatile and may fluctuate rapidly. It is important for investors to do their research and to have a clear investment strategy when investing in stocks.

MUTUAL FUND
A mutual fund is an investment vehicle that pools money from many investors to purchase a diverse range of securities such as stocks, bonds, and other financial assets. When you buy shares in a mutual fund, you are essentially buying a portion of the entire portfolio of investments.

Mutual funds are managed by professional portfolio managers who use the pooled money to buy and sell securities based on the investment objective of the fund. There are many different types of mutual funds, each with a different investment objective, such as growth, income, or a combination of the two. Mutual funds can also be actively or passively managed, depending on the investment strategy of the fund.

Investing in a mutual fund can offer several benefits, such as diversification, professional management, and accessibility. Diversification means that by owning shares in a mutual fund, you are exposed to a broad range of investments, which can help reduce risk. Professional management means that the fund is managed by experienced investment professionals who make investment decisions on behalf of the fund's investors. Accessibility means that mutual funds can be bought and sold easily through brokerage accounts, making them a popular choice for individual investors.

It's important to note that mutual funds charge fees, such as expense ratios, which are used to cover the cost of managing the fund. These fees can vary widely between different mutual funds and can impact the overall return on investment. Therefore, it's important to carefully consider the fees and investment objective of a mutual fund before investing.

BOND
A bond is a type of debt security where the issuer, usually a corporation or government entity, borrows a certain amount of money and promises to pay back the principal with interest over a specified period of time. Bonds are issued with a face value, or par value, which is the amount that will be paid back to the bondholder when the bond matures. The interest payments, also known as coupon payments, are typically made on a semi-annual basis.

Bonds are considered fixed-income instruments because they provide a fixed rate of return to investors. The interest rate, or yield, on a bond is determined by the issuer's creditworthiness and prevailing market conditions at the time of issuance. Higher-quality bonds with less credit risk typically offer lower yields, while riskier bonds with lower credit ratings offer higher yields to compensate investors for taking on additional risk.

Bonds can be bought and sold on various markets, including the bond market and stock exchanges. They are often used as a way for investors to diversify their portfolio and provide a steady stream of income through interest payments.

BLUE CHIP
"Blue chip" is a term used to describe a company that has a long history of stable earnings, regular and increasing dividends, and a strong balance sheet. The term comes from the game of poker, where blue chips traditionally represent the highest value. Blue-chip companies are generally well-established and have a reputation for reliability, stability, and quality. They are typically leaders in their industries and have a large market capitalization.

Blue-chip companies are often considered to be less risky investments because of their history of stability and consistent performance. They are also often referred to as "defensive" stocks, as they tend to perform well during times of economic uncertainty. Examples of blue-chip companies include well-known names such as Coca-Cola, Johnson & Johnson, and Procter & Gamble.

BOOK VALUE
Book value is a financial metric that represents the value of a company's assets if all liabilities were subtracted. In other words, it is the value of a company if it were to be liquidated and all of its assets were sold to pay off its debts. This is also known as the company's net asset value (NAV).

The book value is calculated by subtracting the company's total liabilities from its total assets. It is important to note that the book value does not necessarily reflect the current market value of the company, as it does not take into account intangible assets such as brand value or intellectual property. However, it can provide insight into the financial health of a company and its ability to meet its financial obligations.

Investors can use the book value to assess a company's valuation and potential for growth. For example, if the current market price of a company's stock is significantly higher than its book value, it may indicate that investors have high expectations for future growth and earnings. Conversely, if the market price is lower than the book value, it may indicate that the company is undervalued and presents a potential investment opportunity.

BROKER
A broker is an individual or firm that facilitates transactions between buyers and sellers of securities, such as stocks, bonds, and mutual funds. They act as a middleman between the buyer and seller, executing trades on behalf of their clients in exchange for a fee called a commission.

Brokers can work for themselves as independent brokers or for brokerage firms, which are companies that offer a range of financial services to clients, including investment advice, trading, and asset management. They may also specialize in a particular type of investment, such as real estate or commodities.

Brokers are often licensed and regulated by securities industry organizations and government agencies to ensure they operate ethically and within the law. They are also required to act in their clients' best interests, a principle known as the fiduciary duty. Some brokers may also provide investment advice to their clients, while others may simply execute trades based on the client's instructions.

DIVIDENDS
Dividends refer to a portion of a company's profits that is distributed to its shareholders. When a company earns a profit, it can choose to retain the earnings and reinvest them in the business, or it can distribute the earnings to shareholders in the form of dividends. Dividends are usually paid out on a regular basis, either quarterly or annually, and are declared by the company's board of directors.

While dividends are not mandatory, many companies choose to pay them as a way to attract and retain investors. Dividends are usually paid in cash, but they can also be paid in the form of additional shares of stock or other securities.

Dividend payments are often seen as a sign of financial stability and confidence in the future prospects of the company. However, the amount and frequency of dividend payments can vary widely between companies and industries. Some companies may choose to pay a higher dividend to attract investors, while others may prioritize reinvesting earnings back into the business for growth.

Investors who are seeking income from their investments may prefer to invest in companies that pay dividends, as this can provide a steady stream of income. However, it's important to note that dividends are not guaranteed and can be cut or suspended if a company experiences financial difficulties.

DOW JONES INDUSTRIAL AVERAGE (DJIA)
The Dow Jones Industrial Average (DJIA) is a stock market index that tracks the performance of 30 large publicly traded companies in the United States. The companies in the index are selected by the editors of the Wall Street Journal and are considered to be among the most established and financially stable companies in the country. The DJIA was first calculated in 1896 and is one of the oldest and most widely followed stock market indexes in the world.

The DJIA is a price-weighted index, which means that the stock prices of the 30 companies are added up and divided by a divisor to calculate the index value. The divisor is adjusted periodically to account for stock splits, dividends, and other changes that affect the stock prices of the companies in the index. The DJIA is often used as a barometer of the overall health of the stock market, and changes in the index are closely watched by investors, analysts, and the media.

It is important to note that the DJIA is not a comprehensive measure of the stock market or the economy as a whole. It only tracks the performance of 30 companies in a specific sector, and does not include smaller companies or companies in other sectors. Other popular stock market indexes include the S&P 500, the Nasdaq Composite, and the Russell 2000.

EARNINGS / PROFIT
Earnings or profit refers to the amount of money that a company has made after deducting all expenses, taxes, and other costs. It is the final figure left after all the revenue generated by the company is reduced by all the expenses and taxes paid.

Earnings are an essential measure of a company's financial performance, as it indicates the company's ability to generate income and its overall profitability. A company with strong earnings over a consistent period is considered a financially stable and successful company. Conversely, a company with weak or declining earnings may indicate financial instability or a lack of growth potential.

Earnings are often reported in quarterly or annual financial reports that publicly traded companies are required to provide to their investors. These reports typically include a detailed breakdown of the company's revenue, expenses, and earnings. Earnings per share (EPS) is a common metric used to measure a company's profitability, calculated by dividing the company's net income by the total number of outstanding shares.

Investors and analysts closely monitor a company's earnings reports to assess its financial health and make informed investment decisions. A company with strong earnings and a positive outlook may see its stock price rise, while a company with weak earnings or negative news may experience a decline in its stock price.

INCOME / REVENUE / SALES
Income, revenue, and sales all refer to the total amount of money earned by a company from the goods or services it produces. While these terms are often used interchangeably, they have slightly different meanings.

Income generally refers to all the money a company earns, including revenue from sales, as well as any other sources of income such as interest or investments.

Revenue specifically refers to the money a company earns from sales of its products or services. This is the primary source of income for most companies.

Sales refers to the number of units of a product or service sold, multiplied by the price per unit. It is a key metric for businesses, as it directly affects revenue and ultimately profits.

While high sales and revenue are important for a company's success, it is important to note that they do not necessarily equate to profitability. A company with high revenue may still have high expenses that eat into its profits, while a company with lower revenue may be more profitable due to lower expenses and higher profit margins.

MARKET CAPITALIZATION
Market capitalization, or market cap, is a measure of the total value of a publicly traded company. It is calculated by multiplying the current market price per share of a company's stock by the total number of shares outstanding.

For example, if a company has 10 million shares outstanding and the current market price of each share is $50, then the company's market capitalization is $500 million ($50 x 10 million).

Market capitalization is an important metric for investors and analysts because it provides a rough estimate of a company's size and value. Generally, companies with higher market capitalizations are larger and more established, while companies with lower market capitalizations may be smaller or in their early stages of growth.

Companies are often categorized by their market capitalizations, with large-cap companies having market capitalizations of over $10 billion, mid-cap companies between $2 billion and $10 billion, and small-cap companies having market capitalizations of less than $2 billion.

Market capitalization can also be used to calculate important financial ratios such as price-to-earnings (P/E) ratio and price-to-sales (P/S) ratio, which can help investors make investment decisions based on a company's valuation relative to its peers.

P/E RATIO
The price-to-earnings (P/E) ratio is a valuation metric used to compare the market price of a stock to the earnings generated by the company per share. It is calculated by dividing the current market price of the stock by its earnings per share (EPS) over the past 12 months.

The P/E ratio is often used by investors to determine whether a stock is undervalued or overvalued. A high P/E ratio may suggest that the stock is overpriced relative to its earnings, while a low P/E ratio may indicate that the stock is undervalued.

However, it is important to note that the P/E ratio is just one of many factors that investors should consider when making investment decisions. It is also important to look at other financial metrics such as the company's revenue growth, profit margins, and debt levels, as well as the broader economic and market conditions.

SECURITIES
Securities are financial instruments that represent ownership or debt in a company, organization, or government. These can include stocks, bonds, mutual funds, exchange-traded funds, options, futures, and other financial derivatives.

Stocks are a type of security that represent ownership in a company. When an investor buys a share of stock, they are essentially buying a small piece of ownership in the company, and they have the potential to earn profits if the company's value increases.

Bonds, on the other hand, are a type of security that represent a loan made by the investor to the issuer, usually a corporation or government entity. The issuer pays interest to the investor at regular intervals, and when the bond matures, the issuer returns the original investment to the investor.

Mutual funds are a type of investment company that pools money from multiple investors to purchase a portfolio of stocks, bonds, or other securities. The value of a mutual fund's portfolio is divided among the investors in proportion to their investment.

Exchange-traded funds (ETFs) are similar to mutual funds in that they are a collection of stocks, bonds, or other securities. However, ETFs are traded on an exchange like individual stocks, and their prices can fluctuate throughout the trading day.

Overall, securities provide investors with opportunities to invest in a variety of assets, potentially earning returns on their investment. However, they also carry risks, such as market fluctuations, issuer default, and other factors that can affect the value of the security.

VOLUME
Volume refers to the total number of shares of stock that are traded during a specific period of time, typically a day. Volume is a measure of market activity and reflects the level of buying and selling in a particular stock.

The volume of a stock is calculated by adding up the total number of shares that are bought and sold during a trading day. For example, if 1 million shares of stock are bought and sold during a trading day, the volume for that stock on that day is 1 million.

Volume is an important indicator of market sentiment and can be used by investors to assess the strength or weakness of a trend. High volume is generally seen as a positive sign, as it suggests that a large number of investors are buying and selling a particular stock, which can be an indication of positive news or strong market sentiment. Conversely, low volume can be a warning sign, as it may indicate a lack of interest or a lack of confidence among investors.

Volume can also be used to gauge the liquidity of a stock. High volume stocks are generally more liquid, meaning they can be bought and sold easily without affecting the price of the stock. Low volume stocks, on the other hand, can be more difficult to buy and sell, as there may not be enough buyers or sellers in the market to match orders.

YIELD
Yield is a financial term used to describe the return on investment for a particular security or asset. It represents the percentage of income earned on an investment relative to the price of the investment. The yield is usually expressed as an annual percentage rate.

When it comes to stocks, yield specifically refers to the dividend yield. A dividend is a payment made by a company to its shareholders, usually as a way of distributing a portion of its profits. The dividend yield is calculated by dividing the annual dividend payment by the current stock price. For example, if a stock is trading at $50 per share and pays an annual dividend of $2 per share, the dividend yield is 4% ($2/$50).

The yield is an important metric for investors to consider when evaluating an investment. A higher yield can indicate a higher return on investment, but it can also indicate higher risk or lower growth potential. A low yield, on the other hand, may indicate a stable or growing company with strong fundamentals. Investors may use yield as a way of comparing different investment options or evaluating the potential income from an investment portfolio.