With the rapid development of financial markets, there are more and more professional investment terms emerging every year. For investment beginners, it’s crucial yet challenging to understand those financial jargons and terminology. This article summarizes some of the most important financial investment terminology in 2020 based on an analysis of popular investment pdfs and ebooks. By going through the key concepts and glossary, investors can quickly grasp the meanings and applications of common financial terms, which will greatly improve their investment skills.
Basic investment terms – risk, return, asset, liability, etc
Some of the most fundamental concepts in investing include risk, return, asset, liability, etc. Risk refers to the degree of uncertainty and potential for losses associated with an investment. Return is the gain or profit made from an investment. Assets are items of economic value owned by an individual or institution. Liabilities are debts or obligations owed by an individual or institution. Other important terms include diversification, volatility, liquidity, time horizon, etc.
Different types of financial securities
There are various types of financial investment assets or securities: Equities/stocks – ownership shares in a public company; Bonds – debt instruments issued by corporations or governments; Mutual funds – professionally managed investment funds that pool money from investors to purchase securities; ETFs – Exchange-traded funds that track an index but trade like stocks; Options – contracts that give the holder the right to buy or sell other securities at a specific price within a certain time period.
Laws, regulations, and compliance
The financial industry is heavily regulated to protect investors. Important regulations include Securities Act 1933, Securities Exchange Act 1934, Investment Advisers Act 1940, etc. FINRA and SEC are key regulatory organizations. Compliance refers to financial firms’ internal policies to comply with regulations. AML, KYC, fiduciary duty are crucial compliance aspects.
Technical terms in securities analysis
When researching and analyzing securities, common metrics used by investors include P/E ratio, EPS, ROE, DY, etc. Analysts produce financial models projecting future revenue, valuation, etc. Investment banks publish equity research reports to provide buy/sell ratings on stocks. Technical analysis refers to analyzing market activity and price charts to inform trading decisions.
Financial statement and valuation terms
Key concepts in financial statements and valuation include balance sheet, income statement, cash flow statement, goodwill, book value, market capitalization, enterprise value, present value, comps, precedent transactions, DCF, etc. These terms are important for understanding a company’s financial performance and determining its intrinsic value.
In summary, mastering common financial and investment terminology is crucial for investors to navigate the markets confidently. This glossary covers important concepts across securities, regulations, analysis, financial statements, and valuation. Continuing to enrich one’s knowledge of key terms will greatly benefit investment endeavors.