| Investment |
The action or process of investing money for profit. In finance, an investment is a monetary instrument purchased with the intention of producing wealth or generating income. For example, purchasing stocks or mutual funds are some of the most common forms of investments. |
| Asset Allocation |
Asset allocation is an investment strategy that divides your portfolio among different asset classes, such as stocks, bonds, and cash. The purpose of asset allocation is to maximize gains and minimize risk. Asset allocation strategies vary depending on the investors' goals, age, risk tolerance, and investment horizon. |
| Return on Investment |
The return on investment (ROI) is a ratio that compares the profit or losses generated by an investment to the amount of money invested. The ROI is calculated by subtracting the investment cost from the final investment value and dividing that difference by the original investment cost. |
| Diversification |
Diversification refers to the process of spreading investments among different financial instruments, industries, or geographic areas to reduce the overall risk of a portfolio. By investing in a diverse portfolio, an investor can protect their portfolio from the full impact of volatility in any one investment. |
| Capital |
Capital refers to the financial resources an organization or individual has available to invest. Capital can take many forms, including money, buildings, equipment, and other assets. |
| Equity |
Equity is the value of the ownership interest in a business, property, or asset. In finance, it is the difference between the value of an asset and the amount of liabilities that is owed on that asset. |
| Volatility |
Volatility describes the degree of variation and unpredictability in the price or returns of a financial instrument. Highly volatile investments have large swings in price or returns over short periods, while less volatile investments experience smaller price swings over longer periods. |
| Risk |
Risk is the possibility of losing something of value. In investment, it represents the chances of losing some or all of your investment. All investments come with an element of risk. The investor's goal is to manage the risk and minimize potential losses while achieving adequate returns on investment. |
| Rate of Return |
The rate of return is the amount of profit or loss, expressed as a percentage, that an investor can expect to earn on their investment over a given period. It is calculated by dividing the total profit or loss by the initial investment cost. |
| Inflation |
Inflation is the overall increase in the price of goods and services in an economy over time. Inflation erodes the purchasing power of money over time. Investors must consider inflation when creating an investment plan because it eats into the value of investment returns. |
| Liquidity |
Liquidity describes how easily an investment can be bought or sold without affecting the asset's price. High liquidity means that there is a lot of trading volume and a large number of buyers and sellers in the market. |
| Mutual Funds |
A mutual fund is a type of investment fund that pools money from many investors and uses this capital to purchase a broadly diversified portfolio of securities. Mutual funds are actively managed by professional fund managers who seek to design a portfolio that matches the investment objectives and risk tolerance of the shareholders. |
| Stocks |
A stock is a type of security that represents ownership in a corporation. When you buy a share of a company's stock, you own a small portion of that company. Stocks offer investors the opportunity for growth and income. Stocks often are a riskier investment than other types of securities, but they also offer the potential for greater returns. |
| Bonds |
A bond is a type of debt security that represents a loan made to a company or government agency. When you buy a bond, you are effectively lending money to an entity in return for periodic interest payments and the repayment of the principal when the bond matures. Bonds are typically considered lower risk than stocks and Funds because an investor is lending money rather than buying ownership in a company. |
| Real Estate |
Real estate is a property made up of land and the buildings on it. This can include residential, commercial, and industrial properties. Real estate investments offer potential cash flow, tax benefits, and appreciation in value. |
| Portfolio |
A portfolio is a collection of investments owned by an individual or entities. It includes stocks, bonds, mutual funds, real estate, or other assets. The purpose of a portfolio is to achieve a balance of return and risk that is consistent with an investor's goals and objectives. |
| Investment Horizon |
The investment horizon is the amount of time an investor plans for their investments to be held. The investment horizon is often used to determine the appropriate asset mix of a portfolio. An investor with a long time horizon, such as 40 years until retirement, may choose to hold a more substantial percentage of stocks because they offer the potential for higher returns but also a higher degree of risk. |
| Compound Interest |
Compound interest is calculated on the original investment sum plus any accumulated interest. Over time, the interest paid on interest significantly boosts returns. While simple interest is calculated solely on the principal investment, compound interest is calculated on the initial principal and the accumulated interest. Compound interest is an essential concept in finance used in banking, insurance and investment-related activities. |
| Capital Gain |
A capital gain arises when you sell or exchange capital property. It is the difference between the price you paid for the asset and the price you sold it for. Capital gains are taxable for tax purposes. |
| Appreciation |
Appreciation is the increase in the value of any asset over time. The value of an asset, such as stocks or real estate, that increases in value is referred to as having appreciated over time. Investors can earn a profit from appreciation by holding investments over a longer period of time or selling for more than the original purchase price. Appreciation is an essential metric to help evaluate investment performance. |
| Depreciation |
Depreciation is an accounting method used to reduce the cost of an asset over its estimated useful life. The cost of the asset, such as real estate, equipment, or machinery, is allocated over its useful life to reflect the trend of its value. This is an important concept in accounting and investment as it can affect the taxable income in a financial year. |
