Glossary of investment terms you should know

Are you too embarrassed to ask about the difference between stocks and bonds or what it means to “diversify” your investment portfolio? Here’s a brief glossary defining some key investment terms.

Bonds: bonds are formal “IOUs” that specify how a loan will be repaid over time. Government bodies and corporations borrow money from investors to fund projects and pay them interest until the bond reaches maturity and is repaid in full.

Diversification: a diversified investment portfolio means having a mix of different assets to reduce risk. For example, you own stock in a variety of companies and also have bonds; you won’t lose everything if one company fails.

Liquidity: liquid investments can be cashed in or sold quickly. This is important if you’re investing on a short-term basis.

Mutual funds: with mutual funds, investors pool their money together into one professionally managed investment. An investing expert then determines where the money should go to generate the greatest returns for the investors.

Return on investment (ROI): the profit you make on an investment. It comes in two forms: income generated, including interest and dividends, and increases in values, which means you can sell your shares for a profit.

Stocks: stocks represent partial ownership of a company. When you buy stock, you become a shareholder and earn money when the company does well.

Now that you know some of the basic terminology, it’s time to get your feet wet and start investing.