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Investing Terminology Quick Start Guide #investingforbeginners #terminology #howtoinvest #retirement #mutualfunds #410K

Quick-Start Guide to Investing Terms

Brand new to investing? Intimidated by all the terminology? This guide explains the basic terms and concepts to give you the foundational knowledge you need to become a savvy investor.


Stock is ownership of a company. Owning a SHARE of stock means owning a tiny portion of the company. You can buy one share or many shares. So, if you buy Apple stock, you are a partial owner of Apple. When the value of the company goes up, the value of your stock also goes up. When the value of the company goes down, the stock value goes down. Stocks are also called “equities.”


A bond is a loan that you make to the government or to a company. You purchase a bond with a promise from that government or company to pay you interest until the bond’s maturity date, which is when you receive back the full amount of the bond’s purchase price.

Mutual Fund

A virtual bucket containing lots of stocks and/or bonds. (A mutual fund can be a stock mutual fund or a bond fund, or it can contain both stocks and bonds). Investopedia has the best explanation of different categories of mutual funds that I have found. You can buy shares of a mutual fund just like you would invest in shares of stocks. But with a mutual fund, you decrease risk (and that’s a good thing) because you are investing in hundreds, sometimes thousands, of companies, instead of only one. Here is a post on how to pick mutual funds.


A fancy word for all of your investments put together e.g. “Her investment portfolio contained enough money for a comfortable retirement.”

Expense Ratio

How much you pay in fees to have your money invested in a mutual fund. It ranges from .05% to 1% or more. It might look insignificant, but it’s an important number to look at when you’re choosing a mutual fund. Here is a chart showing how much the expense ratio affects how much you pay in fees.

Load/Loaded Fund

A load is a fee you pay upfront to invest in a mutual fund. Stick to investing in “no-load” funds.


A retirement plan that your employer offers, and is tax-deferred. Sometimes there is a Roth option, which means you invest after-tax dollars, but then the money is tax-free when you withdraw it.


Literally the same things as a 401K. It just indicates you work for a non-profit or in education.


Individual Retirement Arrangement. You get one of these by calling a company such as Vanguard, Fidely, T. Rowe Price, Charles Schwab… etc, and simply open a new account (or go online and do the same thing). You can contribute up to $5,500 a year in IRAs. It’s tax-deferred just like a 401K. A Roth IRA means you contribute after-tax dollars and the money cannot be taxed when you withdraw it in retirement. You can have both a 401K and an IRA.

Asset Class

The three main asset classes are stocks, bonds, and cash. It’s just the overarching category of investment type.

Asset Allocation

The combination of asset classes that you select for your portfolio, e.g. 100% stocks, or 50% stocks, 45% bonds, and 5% cash. Here’s a post with all the details on selecting your asset allocation.


The concept of not putting all your eggs in one basket. You want your investments to be spread out, so if one fails, it’s okay because you have hundreds more that are making you money.

Re-balance your portfolio

Every six months you want to take a look at how your investments have grown (or declined) and readjust the ratios. For example, if you’re following Dave Ramsey’s recommendation to have 25% each in growth, aggressive growth, income, and international mutual funds, and the growth fund doubles, then you’re “over-weighted” in the growth fund category, and you’ll want to move the excess to your other categories to put you back at 25% each.


This stands for “Standard and Poor’s.” Standard and Poor’s is a company that rates companies for credit-worthiness, and publishes investing research. They are responsible for creating the S&P 500, which is a benchmark containing 500 largest companies in the United States. You can even buy mutual funds that are “S&P500 Index” funds. That means you’re investing same companies as what’s in the S&P 500.

Index Fund

A mutual fund that is comprised of an index (like the S&P 500) and is managed by a computer algorithm, not a human.

Managed Fund

A mutual fund that is comprised of stocks and/or bonds that a professional investor chooses based on what he or she thinks will perform best. Managed funds have a higher expense ratio (annual fee) than index funds, because you’re paying for someone’s salary.


A benchmark is a grouping of stocks that gives you an apples-to-apples comparison to indicate how well a mutual fund is performing. There are different appropriate benchmarks for different mutual funds. For example, a small cap fund (this would be your aggressive growth) can be compared to the Russell 2000 Index. A growth fund can be compared to the S&P 500. Here’s a visual example:

Dow Jones Industrial Average

A benchmark comprised of largest 30 companies in the United States. When you hear about “The Dow” this is what they mean. It’s used like the S&P 500 to get an indication of how the market is doing, but the S&P 500 mirrors the market better since it includes more companies. A lot of financial experts think the DJIA is outdated and mostly irrelevant.

I hope this gives you a quick jump-start to your journey with investing and takes the frustration out of learning the jargon! What other questions do you have about investing lingo? Comment below!

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Investing Terminology Quick Start Guide #investingforbeginners #terminology #howtoinvest #retirement #mutualfunds #410K