A list of common investment terms to help you better understand your investments.
Want to delve into the exciting world of investing, but stymied by technical terms and jargon? Don’t worry, investments are quite easy to understand, once you know what all those obscure terms really mean.
Here’s a glossary of some common investment terms to help you get started.
The expected returns from an investment, based on its inherent value.
Refers to the extension of figures originally covering less than 12 months to allow them to cover a one-year period.
Annualised rate of return (aka compound growth rate)
This refers to the average return of an asset across multiple years, with the effect of compounding accounted for.
Refers to gains in the value of an asset.
The lowest price for an asset an owner is willing to accept.
Anything that has money-earning potential, or may be reasonably expected to do so. Examples of assets include stocks, bonds, real estate and commodities.
To divide investments among different asset classes, according to investment needs, so as to achieve optimal risk/reward balance.
Securities that share similar features. Some common examples include stocks, bonds and cash equivalents.
Average maturity (aka average weighted maturity)
A measure of volatility for a bond fund, derived from the average of the stated maturity dates of the underlying debt securities. Bond funds are sensitive to interest-rate changes, and bonds with a longer average maturity date have a higher chance of encountering interest rate changes, translating to greater volatility.
Conversely, shorter average maturity tends to reduce price fluctuation, which results in less volatility.
A statement that must show what a company owns, what its liabilities are, and outstanding shareholder equity.
A market in which prices are showing a downward trend. Opposite of bull market.
An indication of an investment’s volatility. 1 is neutral. Above 1 is more volatile. Less than 1 is less volatile.
The highest price a buyer is willing to pay for an investment.
A term borrowed from poker, where blue chips have the highest value. Used to indicate a high-quality, relatively low-risk investment. The term is most commonly used in the phrase ‘blue chip stock’, referring to stocks of well-established companies with a proven history of good performance.
An IOU issued on the promise to repay the full amount of a loan on a specific date, with a specified rate of returns at specific time intervals. May be issued by a corporation or a country’s government.
A mutual fund comprised exclusively of bonds.
Calculated as part of an evaluation. Derived from subtracting a company’s liabilities from its assets and common stock equity.
A mutual fund investor who makes sufficient dollar investment to reach the breakpoint becomes eligible for a discount in sales fees. Breakpoints may be reached via a single purchase or accumulated over multiple ones.
The entity that buys and sells investments on your behalf, usually in exchange for a fee. Different brokers have different sales charges and fee structures.
A market in which prices are showing an upward trend. Opposite of a bear market.
Capital gain (or loss)
The difference between the price you bought an investment and the price you sold it. A capital gain means you sold for a higher price than you bought. A capital loss means the opposite, that you sold for a lower price than you bought.
The Central Depository Account (commonly known as ‘CDP’) which is required for trading on the Singapore stock exchange. Shares and stocks bought are kept in your CDP account.
A dividend is a payment to shareholders by a company from a portion of its earnings. Dividends may be one-off, or paid over regular intervals. For example, if a company announces a dividend of $0.30 per stock, a shareholder with 100 stocks will receive $30.
Indicates a mutual fund’s annual percentage of returns. It is derived by dividing the annual dividends per share by the current net asset value or price of public offering.
Diversity in a portfolio refers to selecting multiple asset types, or investments in different sectors, industries or locations. Portfolio diversity is a popular way to mitigate risk arising from overexposure to a narrow range of markets or asset classes.
Dollar cost averaging
A popular practice that involves making fixed investment amounts at regular intervals over time, purchasing more shares when prices are low, and lesser shares when prices are high. Dollar cost averaging is an acknowledged strategy to help reduce overall cost of investing.
Dow Jones Industrial Average (aka The Dow)
A price-weighted list of 30 blue-chip stocks, popularly commonly referred to as an indicator of the health of the stock market as a whole.
A place or platform where investments such as bonds, commodities, stocks and shares are bought and sold.
ETF (Exchange Traded Funds)
A popular investment product comprised of a bundle of securities that tracks an underlying index. ETFs are listed on stock exchanges and traded throughout the day like ordinary stocks.
For a mutual fund, it is the ratio of operating expenses for the year and the average value of its net assets.
Issued by a corporation as a representation of partial ownership or shares in a company. Equities do not offer guaranteed income as they do not pay fixed interest rates. This means that equities carry some inherent risk.
A mutual fund whose principal investments are in stocks. May be a suitable investment choice for those without very large budgets.
Fixed income fund
A fund that primarily invests in bonds. Fixed income funds do not carry a maturity date or a repayment guarantee.
Fixed income security
A security that pays out a fixed interest rate on a regular schedule. A common example of fixed income security are bonds.
Money pooled together from many different investors for the purpose of buying investments. Funds may be managed by a fund manager, who charges a service fee in exchange.
Commonly defined as shares in a successful company that is undergoing rapid growth in revenue, and usually do not pay dividends (or very little).
An investment fund that aims to achieve future gains, usually by investing in stocks that outperform the current market and by focusing on rapidly growing sectors and leading companies with consistent growth.
An alternative investment using pooled funds, hedge funds are set up as a limited partnership or LLC, and are commonly restricted to accredited investors with high net worth.
A tool used to measure the progress of a group of stocks, bonds or other assets that share common characteristics.
A class of mutual funds that mimic the movement of an underlying index. Generally, index funds are more passive investments with lower fees.
Interest rate (bond)
A fixed amount promised by a bond issuer to be paid to bondholders, and is commonly a percentage of the face value of the bond.
The possible reduction in the value of a security as the result of a rise in interest rates. Bonds are especially susceptible to interest-rate risks.
An entity hired by a mutual fund for professional advice in investment and management practices.
A term used to indicate bonds suited to prudent investors.
The stated goal of a mutual fund. Some common examples of investment objectives are growth, income, or both.
A bond with a credit rating of BB or lower. Generally, junk bonds are considered riskier but provide higher yields.
Large-cap companies are companies with market capitalisation valued at $10 billion or greater.
The degree of ready access to invested money. Investments with higher liquidity are easier to cash out than investments with lower liquidity.
Loads (back-end, front-end and no-load)
Another term for sales charges on mutual fund trades. Back-end loads are charged at redemption of units, front-end loads are charged at the time of purchase and no-load funds do not carry sales charges.
When an investor buys shares of a stock, making a profit if the stock rises.
Borrowed money for investment purposes, which may take the form of credit from a broker, allowing you to buy more than you have the money for. Ideally, you’ll make enough money from your investments to repay the margin. Otherwise, you’ll have to pay back from your own pocket.
Derived by multiplying a company’s share price by the number of outstanding shares.
An asset’s prevailing price.
Buying and selling securities in anticipation of certain market conditions. Regarded as a high-risk strategy as this usually involves a lot of guesswork. May be considered the opposite of dollar cost averaging.
The specified date on a bond or note on which the debt becomes due and payable.
Mid-cap companies are companies with market capitalization between $3 billion to $10 billion.
An actively managed investment fund pooled from money from multiple investors, which may hold individual stocks or bonds. Typically comes with higher fees than other investments.
National Association of Securities Dealers Automated Quotations. A US stock exchange based in New York. May also refer to an index of stocks traded on the NASDAQ exchange.
Net Asset Value per share (NAV, aka share price)
For mutual funds, the current dollar value of a single share. Calculated daily by subtracting the fund’s liabilities from the total assets, and then divided by the number of shares outstanding. A mutual fund’s NAV does not include sales charges.
The share price of a stock divided by its book value per share.
Refers to the original amount paid for a bond and the amounts to be repaid at maturity.
Simply put, a selection of investments owned by a corporation or individual, and managed with the aim of achieving specific outcomes.
The party in charge of making investment decisions for a portfolio in order to meet stated investment goals and objectives.
When a bond or stock sells above its par value, the difference is known as the premium.
Price-to-earnings (P/E) ratio
The price of a stock divided by its earnings per share. This is used as an indicator of how much investors pay for each dollar the company earns. Higher P/E ratios indicate potential for higher earnings.
P/E Ratio (1 yr trailing) (long position)
Share price divided by the company’s latest year’s earnings.
P/E Ratio (1 yr forecast)
Share price divided by projected earnings in the coming year.
Document that acts as a formal written offer to sell securities. When issued by a company, it usually sets forth the proposed business plan for new enterprises or necessary facts about an existing company for investors to make an informed choice.
When issued by a mutual fund, usually contains information required by law, such as history, background of managers, fund objective, risks and fees.
Public offering price (POP)
The purchase price of a single share of a mutual fund. Includes sales charges.
Used to measure the credit quality of bonds, based on the likelihood of timely repayment of loan and any stated interest. Ratings are mostly supplied by independent ratings agencies.
An economic downturn, indicated by two consecutive quarters or more of decline in gross domestic products.
Redemption (mutual fund)
To sell off your mutual fund shares.
Regular savings plan (RSP)
A type of investment plan which entails regular investments over a period of time. RSPs are beginner-friendly products that do not require large investment sums and take advantage of dollar-cost averaging.
Describes how much volatility you can accept when investing. Higher volatility products are riskier, but carry potential for greater returns.
Standard & Poor’s 500 (S&P 500)
An index that tracks a selection of 500 companies in the United States.
The technical term for investments, such as commodities and stocks. Originates from the documents certifying ownership of stocks or bonds.
Singapore Stock Exchange, our national trading floor where brokers buy and sell investments.
Straits Times Index. An index that tracks the top 30 companies listed on the SGX.
A share is a unit of ownership, specifically, of a company. However, shares and stocks carry the same meaning and may be used interchangeably.
Share classes, offered within the same mutual fund, charge different fees. This allows investors to choose a fee structure that suits their preferences.
A risk-adjusted measure used to indicate reward per unit of risk. A higher sharpe ratio is preferable.
When an investor sells shares of a stock they do not own but have borrowed, making a profit if the stock falls.
Small-cap companies are companies with market capitaliSation less than $3 billion.
Or shareholder; an entity who owns stocks and shares of a corporation.
A method used in calculating an investment’s return, which includes accounting for changes in share prices and dividends.
An entity – often a commercial bank – appointed to monitor, keep and update records of stocks, bonds and investors.
Investments issued by the U.S. Treasury Department and backed by the U.S. Government. Treasury securities are negotiable debt obligations that come in T-bills (one-year or less), T-notes (one year to ten years), or T-bonds (10 years or beyond).
An individual or entity who is ultimately responsible for the activities of a fund.
Refers to the portion of holdings in a mutual fund that is sold in a specified period. Expressed as a percentage.
An estimation of how much a company is worth. May also refer to the price assigned to an individual stock.
An investing strategy that focuses on buying stocks that are believed to be trading below their true value. A value investor profits when these stocks appreciate to their real value.
Describes an overlooked or underpriced company that is not yet trading at its true value.
Funds that primarily consist of undervalued stocks. May also include sound companies with inexpensive stocks that are trending upwards.
How much and how often an investment undergoes changes in price or value.
YTD total return
The year-to-date return on an investment, with appreciation, dividends or interest included. When fees or charges are deducted, this is known as ‘YTD total return with load’.
In dividend investing, the ratio between stock price paid and dividend earned. Indicates the annual percentage rate of return on capital.
Yield to maturity
Describes the rate of return on a long-term, interest-bearing investment when held to the maturity date.
Yield to maturity distribution
Describes the average rate of return on a bond that is held to maturity.
Read these next:
Robo-Investing vs DIY Investing: Which One Should You Choose?
Best Investment Sign-up Promotions In Singapore (2021)
Dollar-Cost-Averaging vs Lump Sum Investing In Singapore: Which Should You Choose?
5 Best Robo Advisors To Auto-Pilot Your Investments In Singapore
ETFs Versus Unit Trusts: What Should You Invest In?
By Alevin Chan
An ex-Financial Planner with a curiosity about what makes people tick, Alevin’s mission is to help readers understand the psychology of money. He’s also on an ongoing quest to optimise happiness and enjoyment in his life.