Some Investment terms you just need to know

Hi to everybody! Well, I just got back from a couple of days vacation. For those who are waiting for step #6 in our series, I am so sorry because I will first tackle on important words you need to know when investing or when talking to financial advisers. I promise to make it a very short list so just stay with me for a couple of minutes. Smart and sensible investment choices can be fully explained using these words.

• I'll start the topic with stocks, the investment you hear about the most. Stocks represent a tiny bit of ownership in a corporation. If you own 100 shares of Apple, for example, you own 100 bits of its profits, dividends, and its underlying value. When a company excels in the market, the market price of its stock goes up. If the company is not doing well at all, the price of its stock goes down. You won't know how a particular company's stock will perform in the long run. But, stocks tend to build more wealth than other investments do and because of this most investors put a large sum of money there.
• The general word for ownership interest is equity. When you say "I have invested in an equity mutual fund" or "I have invested in equities", this means you have invested in stocks or have bought stocks.
  
• A dividend is a small piece of profits that companies pay out to investors.
  
• Bonds represents debts. When you buy a bond, you are lending money to the entity that issued it may it be a government body or a corporation. You earn interest which is usually paid out twice a year.
• Bonds are scheduled for a fixed period of time. At the end of the period, the bond then matures. This means that you will get your money back. When the issuer repays before the bond matures, this is known as a call.
• There are a lot of different kinds of bonds. Treasury bonds are bonds issued by the federal government. Municipal bonds are issued by cities, states, or various public authorities. Corporate bonds are issued by corporations.
• A mutual fund is a big pool of money, contributed by thousands of people who invested in it. The manager of that money invests it in stocks, bonds, or even both. Your share in the fund gives you a tiny ownership in all the fund's investments so you are actually spreading your money around. As a mutual fund shareholder, you receive a piece of the dividends that the fund's investments earn.
  
• A security is a term used for a "paper" investment, such as stocks or bonds as opposed with "hard" investments such as golds or real estate.
  
• An asset is anything you own that has monetary value. All your investments and bank accounts are considered assets. So are your home, cars, jewelries and any other real estate investments.
  
• Asset allocation is a term used to describe how you have split your money among various types of investments.
  
• Diversification means spreading your money over many different kinds of investments. Doing this reduces risk because when one market value goes down, another will probably go up.
  
• Your portfolio refers to all the investments you own. It is a word that means "everything".
• The market refers to the activity of buying and selling products or services.
  
• A trade happens when you sell a certain stock or bond and buy another. The buyer believes that the price of the stock is going up while the seller thinks otherwise.
• The economy refers to general business conditions and everything that affect our spending and our standard of living.

Well, there you have it. Throw in a couple of these words out when talking about investments and you'll probably get through without being cheated at. This is to help you out with advisers who guide you to investments with FAT, Hidden fees.

Well, I'm going to write Step #6 next so please stay with me here at Compound Savings Interest!