When it comes to the stock market it can feel like there is so much to learn.
This makes the thought of investing feel overwhelming, to say the least.
The stock market has been an imperative part of building wealth long term for decades. So, we want you to gain the knowledge necessary to give you the confidence to press forward and start somewhere.
So we put together this list of some of the top terms for understanding the stock market, taking you from newbie to guru in no time!
Bull Market
The broad definition of a bull market is a sustained period of time where stocks are rising in value — usually months or years.
So basically, we're seeing the markets strong and appreciating over a period of time. The economy is usually growing during bull markets and consumer sentiment is good.
Bear Market
A bear market is a condition in which stock prices fall 20 percent or more from recent highs amid widespread pessimism and negative investor sentiment.
Since the stock market is cyclical, you may experience both bull and bear markets throughout your investing life, which is very normal contrary to what many people think.
Securities
Securities can be traded (bought and sold).
The two main types of securities are stocks (ownership in a corporation), and bonds (debt issued by a government or corporation that pays you regular interest).
IRA
IRA stands for “Individual Retirement Account” and is an account designed for building retirement savings.
Unlike an ordinary bank savings account, it allows you to purchase investments, such as stocks and bonds and offers tax breaks that can save you thousands of dollars over the life of the account.
There are a few different types of IRA accounts depending on if you're self-employed, or if your IRA is provided by your employer.
ETF
ETF Stands for “Electronically or Exchange Traded Fund”.
It is essentially a basket of different stocks or bonds packaged together in a single fund. They offer easy ways to diversify with multiple companies in one ETF versus just buying one single corporation (stock).
ETF's are traded on major stock exchanges, so they're easily bought and sold.
ETF's have become very popular over mutual funds due to them not requiring a minimum investment, and having lower fees than mutual funds.
Mutual Fund
A mutual fund is an investment vehicle made up of a pool of money collected from many investors.
Those funds are invested in securities such as stocks and bonds. They are very similar to ETF's in the sense that they are both funds consisting of a diversified basket of assets.
Mutual funds are operated by professional money managers.
They may require investment minimums (anywhere from $3,000 or more), and they tend to have higher fees than ETF's.
Passive Investing
Passive investing is when you're not actively picking stocks to try to beat the market.
The most common passive
These funds are diversified into many different stocks or bonds and pay you a dividend or interest payment regularly.
Passive investing is popular for people looking to hold a portfolio for a long time horizon. Usually, unless you're an active trader or investor in the stock market, you're utilizing passive investing strategy in a retirement plan.
There is usually a small annual fee for holding these types of investment vehicles, but that is because an investment firm is managing it for you.
Active Investing
Active investing is an investment strategy that involves ongoing buying and selling activity by the investor. Usually, active investors are researching specific stocks (companies) constantly.
They are looking to beat the overall market returns which average around 7% per year after inflation is accounted for.
Stock Ticker
A stock ticker is a special set of letters assigned to a publicly traded company to be able to identify it on the stock market exchanges.
For example, Facebook has a stock ticker of “FB”. Google has the stock ticker of “GOOG”.
Hopefully knowing some of these terms now will help you kickstart your investing knowledge!
