About this Flash Card Set
14 Cards
by daniel_carter
A beginner's guide to investing: stocks, bonds, index funds, diversification, and risk vs. return. Plain-English definitions to start building wealth.
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Stock
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A share of ownership in a company. If the company grows, your share can rise in value; you may also receive dividends.
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Bond
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A loan you make to a company or government that pays you interest and returns the principal at maturity. Generally lower risk than stocks.
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Dividend
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A portion of a company's profits paid out to shareholders, usually quarterly.
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Index fund
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A fund that holds all the stocks in a market index (like the S&P 500). Low-cost, diversified, and passive.
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Mutual fund vs. ETF
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Both pool money to buy many investments. ETFs trade like stocks throughout the day; mutual funds price once daily.
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Diversification
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Spreading money across many investments so one loss doesn't wreck your portfolio.
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Risk vs. return
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Higher potential returns generally come with higher risk. Your time horizon shapes how much risk is wise.
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Portfolio
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The full collection of investments a person owns.
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Asset allocation
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How you divide investments among stocks, bonds, and cash based on your goals and risk tolerance.
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Bull vs. bear market
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A bull market is rising prices and optimism; a bear market is falling prices (often −20%+) and pessimism.
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Capital gain
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The profit from selling an investment for more than you paid. May be taxed.
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Compound growth
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Reinvested earnings generate their own earnings over time — the core reason to start investing early.
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S&P 500
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An index of 500 large U.S. companies, widely used to represent the overall U.S. stock market.
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Time in the market
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Staying invested over the long term historically beats trying to 'time' when to buy and sell.
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