25 Stock Market Terms Every Investor Needs to Know

25 Stock Market Terms Every Investor Needs to Know

Before you start investing, you need to have a baseline understanding of what certain stock market terms mean. These are 25 stock market terms that you should understand so when you come across them when you are investing, you will not be confused:

  1. Shares = A unit of stock. When you buy 1 share of Apple, you become part owner of the company.

  2. Common Stock = Common stock is a type of security that represents ownership in a company. Holders of common stock are able to vote on matters like corporate policies and elect directors within that company.

  3. Market Capitalization = The total dollar market value of a company's outstanding shares of stock. It is a formula to find this number: Total # of outstanding shares * share price.

  4. Bond = Essentially an IOU. Companies (or governments) may issue bonds to raise money. They agree to pay you interest over the lifetime of the bond + the principal.

  5. Exchange Traded Fund (ETF) = Exchange Traded Funds let you invest in a basket of securities all at once. ETFs often have lower fees than other types of funds.

  6. Mutual Fund = A Mutual Fund lets you pool your money with other investors to "mutually" buy stocks, bonds, and other investments. They're run by professional money managers who decide which securities to buy (stocks, bonds, etc.) and when to sell them.

  7. S&P 500 = An index introduced in 1957 (the year they added 500 companies) that tracks the 500 largest publicly traded companies in the USA, based on market cap. One of the most commonly followed indices.

  8. Dow Jones = The Dow Jones Industrial Average (DJIA) is a stock market index that tracks 30 large, publicly owned blue chip companies trading on the New York Stock Exchange (NYSE) and Nasdaq.

  9. Blue Chip Stocks = A blue chip stock is stock issued by a large, well-established, financially-sound company with an excellent reputation. Normally, such companies have operated for many years, have dependable earnings, and usually pay dividends to investors.

  10. Dividends = A dividend is the distribution of a company's earnings to its shareholders and is determined by the company's board of directors. Companies are NOT required to pay dividends.

  11. Bull Market = The condition of a financial market (think stock market) in which prices are rising or are expected to rise.

  12. Bear Market = This is when a market experiences prolonged price declines. It typically describes a condition in which securities prices fall 20% or more from recent highs amid widespread pessimism and negative investor sentiment.

  13. Compound Interest = The most powerful thing on the earth. When both your principal + accumulated interest in previous periods earn even more interest.

  14. Asset Allocation = Asset classes are categories of assets, such as stocks, bonds, real estate, or cash. What % of your money is in stocks? What % of your money is in bonds? What % of your money is in real estate?

  15. Dollar Cost Averaging = Dollar Cost Averaging (DCA) is investing equal amounts of money at regular intervals, regardless of the price of a security.

  16. Stock Buyback = A stock buyback is when a company repurchases outstanding shares to reduce the number of shares on the market and return profits to their investors, resulting in an increased value of the remaining shares.

  17. Capital Gains = Capital gains refers to the profit earned after selling an asset or investment for a higher price than you paid for it.

  18. Dividend Yield = A dividend yield is a dividend expressed as a percentage of its stock price. $4 dividend / $100 stock price = 4% dividend yield

  19. Expense Ratio = This is the cost of owning a mutual fund/ETF. The ratio is measured as a percentage of your total investment. Example: If expense ratio is 0.10% & you have $10,000 invested in the fund, your fee is $10.

  20. Growth Stocks = A growth stock is a common stock of a company whose revenues are expected to grow at a significantly higher rate than what’s average for that industry.

  21. Initial Public Offering (IPO) = An IPO refers to a previously private company that becomes public by selling shares on the stock market.

  22. Preferred Stock = Preferred stock is a type of stock that combines characteristics of both common stock and bonds. Owners of preferred stock receive different rights than common stockholders but they generally don’t come with corporate voting rights like common stocks do.

  23. Recession = A period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.

  24. Stock Split = A stock split occurs when a corporation increases the number of its outstanding shares by distributing more shares to current stockholders. A stock split changes the price per share, but does not change your % ownership in the company.

  25. Value Stocks = Value stocks are shares of companies selling at bargain prices that investors expect to rise because the company’s financial fundamentals suggest the shares are actually worth more than the current value.

Real quick, my podcast called The Decade Investor Podcast releases new episodes every week. This week I dropped three new episodes:

  1. From Immigrant at 15 to Nearly $200,000 Net Worth at 24 | The Money Cruncher

  2. The Most Powerful Investment Account | The Roth IRA

  3. Dave Ramsey Says You Can Withdraw 8% Of Your Portfolio in Retirement, Can You? | Conversation with Jay Disberger

You can listen to them on any podcast playing app here: https://thedecadeinvestorpodcast.buzzsprout.com/share

The goal of my newsletter, my podcast, my social media is to help educate you on money & make sure you set yourself + your future generations up for success with money!

I want to help you too. I will be able to help you… soon. Stay tuned, I have something coming VERY SOON that will revolutionize the game for Decade Investors.

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Thank you so much for reading & I will see you next week! Until then, keep buying assets.🙂 

- Decade Investor

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