Stock Market

Stock

A type of security that signifies ownership in a corporation and represents a claim to a part of the company's profits or losses. Companies usually issue stock to raise money for a variety of reasons, including expanding or modernizing their operations.

Rule of 72

A way to calculate how long it will take an investment to double given a specific interest rate. The formula is 72/(interest rate) = (length of time it take for investment to double).

Bonds

An IOU that a company or government sells when it borrows money. Bonds are called fixed-income investments because they pay a fixed amount of interest to the bondholder for the use of his/her money.

Tombstone Ad

An announcement appearing in financial publications such as the Wall Street Journal announcing a company's Initial Public Offering (IPO).

Issuer

An entity which issues and is obligated to pay principal and interest on a debt security.

Individual Retirement Account (IRA)

An individual retirement account (IRA) allows a person, whether covered by an employer-sponsored pension plan, 401 (k) or not, to save money for use in retirement, deferring taxes on the account's earnings until the person begins to withdraw from the account. Funds in an IRA may be invested in a broad variety of investment vehicles.

Mutual Funds

An investment instrument developed and managed by a company that pools members' money -- often millions of dollars -- to invest in a variety of stocks and bonds. Investment professionals who research companies and buy or sell stocks actively manage the funds based on what they think is best for the fund's shareholders.

Diversification

An investment strategy in which you spread your investment dollars among industry sectors.

Risk Tolerance

An investor's ability to accept loss of some or all of the money he or she has invested, based on a number of factors including age, financial stability, amount of time before the invested funds are needed for other purposes, etc.

Closed-end funds

Like open-ended mutual funds, these are collections of securities managed by a professional investment advisor. Unlike open-end mutual funds, their shares are traded on a stock exchange like ordinary stocks.

Dividend

Part of a company's profits (earnings) that it pays as money to stockholders.

Fixed-Income Investments

Pay interest on a set schedule. Fixed-Income Investments include corporate, municipal, agency, and U.S. Treasury bonds.

Stock Split

Replacing each share of stock with a larger number of lower-priced shares but keeping the total value of one's investment unchanged.

Index

Reports changes, usually expressed as a percentage, in a specific financial market. Each index measures the market from a specific starting point. Some indexes are: Dow (NYSE), S&P 500 (NYSE), Russell (NASDAQ), etc.

Revenue

Revenue is the money collected for providing a product or service.

Common Stock

Shares of a company that do not guarantee a dividend and have more risk and volatility than preferred shares. Common stock holders have the benefit of providing shareholders with the right to vote for the board of directors as well as on issues that come before the board at the annual meeting of shareholders.

Preferred Stock

Shares of ownership of of a company in which the share holder is guaranteed a dividend if one is declared and whose shares are usually not as volatile as common stock.

Investor

Someone who risks funds by purchasing financial products with the hope the investments will increase in value over time.

P/E Ratio

Stands for price-to-earnings ratio. The P/E is the relationship between a company's earnings and its share price. It is calculated by dividing the current price per share by the earnings per share.

Cyclical Stocks

Stocks of companies whose performance tends to mirror the economy. When the economy grows the stocks turn up, and when the economy falters the stocks fall. Automobile and housing sectors are good examples.

Speculative

Stocks that are highly unpredictable. For example, many dot/com stocks are highly speculative, with incredible highs and devastating lows. (High Risk)

Underwriter

Typically an investment banker, buys an entire new securities issue from the company or government offering it, and resells the issue as individual stocks or bonds to the public.

Profit

What remains after subtracting a company's costs from its revenue. Profit is a company's reward for taking a risk and successfully producing what people want people want to buy at prices they are willing to pay.

Earnings

Whatever profits or net income remains after subtracting the company's expenses from its revenue (also called a company's profit).

Rate of Return

Your annual income on an investment.

Initial Public Offering

the initial sale of stock to the public by investment bankers.

Interest Rate

Compensation paid or to be paid for the use of money. Interest is generally expressed as a percentage rate.

Conservative Risk

Fixed income and preferred stocks are considered conservative (Low Risk).

IOU

"I Owe You". It is an acknowledgment of a debt.

Company

A business or association usually formed to manufacture or supply products or services for profit.

Beta Number

A calculation that helps measure the level of risk in investing in a stock.

Portfolio

A collection of investments owned by one individual or organization.

Corporation

A company legally separate from stockholders who own it and the managers.

Partnership

A company owned and managed by two or more people who share its profits or losses. A partnership is not separate from its owners, who are liable for the company's debts.

Sole-proprietorship

A company owned and run by one individual who receives its profits or bears its losses. A proprietorship is not separate from its owner, who is liable for the company debts.

Private Company

A company that is owed by a person, family, or small group of investors that does not sell shares of stock in the company to the public.

Public Company

A company that is owned by investors who buy shares of stock, partial ownership of the assets of a business, in the corporation usually through one of the stock exchanges.

Private corporation

A corporation that doesn't sell shares to the public. You can't buy shares of a private company in the stock market.

Record Date

A date set by the company on which an individual must own shares to be eligible for dividends.

Industry

A group of companies producing similar products or services.

Sector

A group of stocks, often in one industry. The performance of any single stock in a sector can be measured against the performance of the group. Pharmaceutical companies are considered in the health care sector for example.

Market Capitalization

A measure of the value of a company, calculated by multiplying the number of outstanding shares by the current price per share. For example, a company with 100 million shares of stock outstanding and a current market value of $25 a share has a market capitalization of $2.5 billion.

Entrepreneur

A person who organizes, operates, and assumes the risk for a business venture.

401(k) Plan

A retirement savings plan funded by employee contributions and (often) matching contributions from the employer. Contributions are taken from pre-tax salary and the funds grow tax-free until withdrawn.

Share

A share is a unit of ownership in a corporation or mutual fund.

Certificate of Deposit (CD)

A special form of deposit offered by banks that generally pays compound interest for a fixed period of time.

Money Market Account

A special savings account that usually pays interest rates comparable to those offered by money market mutual funds. These accounts also offer check-writing privileges.

Investment Grade Bonds

Bonds that are sold by a very reliable issuer, the government, a large corporation, or a government agency that is most likely to repay the loan and the interest as promised.

Distribution date

Date on which the dividend payment is made.

Default

Failure to pay principal or interest when due. Defaults can also occur for failure to meet non-payment obligations, such as reporting requirements, or when a material problem occurs for the issuer, such as bankruptcy.

Open-end funds

Funds that usually sell as many shares as investors want to buy. Sometimes open-ended funds stop selling shares to new investors when they grow too large to be managed effectively. Investors, who want to sell shares of their open-end funds, sell them back to the mutual fund.

Exchange-Traded Funds

Funds whose shares, like closed-end funds, are traded on a stock exchange. These invest in stocks or bonds that closely follow an index.

Moderate Risk

Include growth stocks - particularly young companies with great potential. (Between Low and High Risk).

Volatility

Indicates how much and how quickly the value of an investment, market, or market sector changes.

IPO

Initial Public Offering

Compound Interest

Interest added to a principal at regular intervals so that each subsequent interest calculation is based on the original principal and the added interest.

Earnings

The amount of money that remains after subtracting the company's expenses from its revenue.

Risk

The chance of losing all or part of an investment.

Maturity

The date when the principal amount of a security is payable.

Trade date

The date when the purchase of sale of a bond is transacted.

Principal

The face amount of a bond, payable at maturity (also referred to as face or par value)

Volume

The number of shares traded in a company's stock. Unusual market activity, either higher or lower than average, is typically the result of some external event.

Par Value

The principal amount of a bond of note due at maturity (also referred to as face value).

Yield

The rate of return on an investment paid in dividends or interest and expressed as a percent.

Public corporation

The stock of a public company is owned and traded by individual and institutional investors. In contrast, the stock is held by company founders, employees, and sometimes venture capitalists.

Prepayment

The unscheduled partial or complete payment of the principal amount outstanding on a mortgage or other debt before it is due.

High-Yield Bonds

To attract investors, the issuers of these bonds pay a higher rate of interest than investment grade bonds with the same maturity. They are rated below investment grade bonds and are also called "Junk Bonds."

Net Income

Total earnings after all expenses and taxes have been paid.