Investing Terms to Know

If you’re going to begin investing, there are some concepts you have to know to be able to navigate the space. You can think of this page as your glossary, so if you get confused you can refer back here and lessen your confusion. Most of these definitions come from me, and I’ve tried to make them as simple as possible, but if you want more in depth information, don’t fret! I’ll be highlighting all of these throughout my guide. As Marvin Gaye would say, let’s get it on.

The most basic:

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Invest – Putting your money into companies or people so they can execute their ideas. The hope is that people like their ideas/product, those people pay them, and you get some of the profits because you believed in them in the first place. It’s cute when you think of it. 🥰

Stock – One part of a company. You buy a stock, and you own a part of the company; when the company earns money, you earn some of that.

Bond – Money you let the government borrow from you. They have to pay it back to you with interest.

Trading fees – Money you have to pay to buy and sell stocks because people have to make money somehow!

Retirement account – A place where you can invest money for your future; retirement accounts have special tax exemptions. There can also be penalties for withdrawing from these accounts before you’re 59½.

Brokerage account – A place where you can invest money in general; they don’t have the same tax exemptions as retirement accounts.

Dividends – Money you receive from a company when they receive a profit.  Yay, you’re starting to build wealth!

The slightly more challenging:

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Stock market – The place people buy and sell stocks. Sometimes, lots of people are buying and companies are earning money, so prices are high. Sometimes, it seems like lots of people are losing money and trying to sell (or the Coronavirus is scaring people), so prices are low. Think of it like a farmer’s market, but not open Saturday mornings for you to walk around and feel cute and domestic.

Index fund – A group of stocks you buy as a whole. By doing this, you spread your money out among multiple companies (and often industries). Generally, buying an index fund means your money will earn and lose money in a pattern that follows the stock market. They usually have pretty low fees.

Mutual fund – Like an index fund, but usually managed by some finance guy.  They have higher fees because the finance guy actively looks at the stock market and buys and sells stocks for you, so he has to get paid. People often use mutual funds because they feel as though they’re getting an expert opinion on the market.

Robo-Advisor – Companies that use algorithms and some other stuff I don’t understand to manage your investments. They also tend to have low fees because you don’t have to pay computers (yet).

Still with me? Good!

Retirement accounts:

via GIPHY You don’t HAVE to be old to retire, but if I am, this is the energy I want

401k – An employer sponsored retirement account. The money goes into this account before taxes. When you take money out, you’re taxed on it. Many companies offer matches on 401ks as part of their employee benefits.

Employer match – Money your employer will put into your account when you put in a certain amount of money. For example, if you put in $200 and that’s 6% of your salary, an employer who matches up to 6% would also put in $200. People often think of this as free money, but you can also think of it as lost money. If you don’t put anything in, your employer won’t match it. 😢

403b – Another employer sponsored account, mostly used for those in government or non-profit careers.

Individual Retirement Account (IRA) – An account you can open apart from your employer. These come in two (main) formats: Traditional and Roth. Your contributions (the amount you can put into these accounts) to an IRA are capped at a certain amount. In 2020, the cap is $6,000 for those under 50, and $7,000 for those over 50. (Thanks Investopedia for those numbers)

• Traditional IRA – An IRA where money contributed is taxed when you take money out of the account post-retirement.
• Roth IRA – An IRA where money contributed is taxed as you put money into the account. You can take money out of this account (the money you contributed, NOT what you’ve earned) without penalty in special circumstances like buying a house and a serious emergency.

Hey, guess what? You made it to the end! Give yourself a pat on the back, a round of applause, and a drink. You’re on your way to being an investing master.

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Do you see anything I missed? Let me know down below!