I’ve written several posts about stock trading terms that you all should know, like the 17 terms in this post. There are other financial terms that you guys should be familiar with as well, especially if you are a millennial. Some of these specifically involve trading, while others don’t.
Download the key points of this post as PDF.
As I’ve told you guys before, just because you aren’t an expert trader or investor or even if you know nothing about finance and the stock market doesn’t mean you can’t learn. My blog and my business are all about teaching people about trading stocks and gaining a better understanding of finance in general. Sadly, too many millennials, unlike my second Millionaire Trading student, haven’t been listening and they’ve been ignoring free stock trading videos like these and free stock market guides like this.
A majority of millennials prefer to keep their assets in cash and don’t trust the idea of putting money into the market. That’s not too surprising since many members of Gen Y started life “in the real world” right before or during the Great Recession. We saw our parent’s retirement accounts crash and burn and we know people who lost it all.
But here’s the thing: investing is still important. Leaving everything in cash over the period of your working life — just like you would leave your contributions in your invested retirement accounts over your career — will leave you with less valuable cash in the future than it was when you put it in savings. That’s due to inflation. Forget about trading and trying to grow your account exponentially like this. Simply saying, investing wisely can help you avoid losing a chunk of your nest egg to it.
If you’re in Gen Y and aren’t so sure about investing, or the stock market, start by educating yourself. See hundreds of my FREE youtube videos here — that’s the first step to feeling empowered with your finances and your investments.
And to help get you going, review and learn these 17 investing terms all millennials should understand, start thinking about having your money work for you over the course of your life, don’t just waste all this opportunity and let it pass you by due to lack of education/strategy:
Short for “return on investment.” Is a measurement that refers to the gain or loss experienced relative to the amount invested and is often expressed as a percentage. ROI is calculated by dividing the gain (or loss) by the cost of the investment. Example: An investment of $1,000 grows to $1,100 would generate an ROI of 10% ($100/$1,000 x 100).
2. Compound interest.
Compounding means that when interest is initially calculated on the principal amount invested, the added interest can then also earn interest.
A retirement-savings account that takes advantage of a specific tax code to allow deductions (i.e. deposits) to be made from your paycheck on a before tax basis. Example: If your gross pay is $900 and your 401k deduction is $100, your taxes for that paycheck are calculated on $800 instead of $900. Some employers will also make contributions on behalf of employees (called “matching contributions”). There is a limit set each year to how much can be deposited. Earnings and deposits grow on a tax-free basis until withdrawn.
4. Roth IRA.
A Roth Individual Retirement Account is a type of retirement savings vehicle. Unlike a traditional IRA, contributions to a Roth IRA do not receive an upfront tax deduction. Therefore, you can withdraw your funds tax-free in retirement since you already paid taxes when you put the money in. Another important thing to note is that you can withdraw your contributions at any time (just not the gain).
You should know the difference between a 401(k) and Roth IRA.
5. Certificate of deposit (CD).
No, I’m not talking about those compact discs I bought in high school (yes, this ages me). A CD is a type of savings account offered by a financial institution. In exchange for keeping savings in the account for a specified period of time (i.e. 1 year, 5 years, etc.) often times a higher interest rate is given than you would earn on your savings account.
6. Money market account.
A type of savings account offered through many banks and credit unions that pay higher interest, but also may require higher account balances or other restrictions, like the number of withdrawals you can make each month. However, two of my favorite money market accounts are at online banks: Ally Bank and Capital One 360.
The ability to cash out of an investment easily. Cash in your checking or savings account is the easiest to access. Money in investments needs to be sold before it can be accessed and it takes a few days for trades to settle and the cash to become available.
When you own a stock, you own a piece of that company. A stock offers ‘shares’ of a public corporation so you can take partial ownership and profit off of the company’s earnings.
This is a debt security, where investors loan money to the government or corporate entities. In exchange, companies provide interest payments at predetermined intervals to pay back the loan in full.
10. Bear or bull market.
A metaphor used to describe the investor environment primarily related to the stock market. A bear swiping its paws downward indicates a downward market; lowering of stock prices, investor pessimism, and lack of confidence. A bull with its horns pointing upward indicates investor optimism and confidence as well as a rise in stock prices.
An investment strategy that in effect avoids “putting all of your eggs in one basket.” Using this strategy, investors have a variety of investments such as stocks, bonds, money market funds to minimize risk.
12. Buy and hold.
A type of investment strategy where investors buy stocks and hold onto them, using the philosophy that long-term gains provide a nice return, regardless of short-term volatility or declines in the market.
13. Mutual fund.
Mutual funds pull funds together from several investors and are then used to buy stocks, bonds or other securities which are managed by a professional fund manager.
14. Initial public offering.
Also referred to as an IPO. An IPO occurs when a private company transforms into a public company and starts to sell shares of stocks to outside investors.
A payment of profits, typically quarterly, to shareholders who invest in a company.
An increase in the price and value of goods and services often represented as an annual percentage.
17. Expense ratio.
Expressed as a percentage the expense ratio is the annual operating expenses for a fund for such things as administrative, operating and management fees divided by the value of assets under management.
There are a lot of terms related to investing, but starting to learn the basics will help you have a better grasp on your financial life and give you the confidence to invest in your future. If you want to keep reading and learning, be sure to check out Investopedia. It’s a virtual content library and a great resource for anyone eager to find the answers to their questions.
Do you have specific questions about investing or the stock market or getting started with investing? Go apply for myand we can chat more so I can help you learn stuff I learned the hard way over the past two decades