Learning to invest starts with understanding common investment terms. When you’re new to investing, the words uses to describe financial concepts, products and strategies can be overwhelming.
You don’t know need to know everything. This list explains complex words simply and provides a starting point to understanding investment articles and make sound investment decisions and hold investment conversations.
Top Investment Terms Explained Simply
Auto-Invest
A feature that lets you automate your investments each month
Example: I auto-invest $2300 into the stock market every month.
Brokerage / Broker
A platform or company that lets you buy and sell investments (like stocks and ETFs) usually via an app or website.
Example: Interactive Broker, Tiger, Moomoo, Syfe Trade. The broker I use to buy ETFs is Interactive Broker.
IBKR
Acronym for Interactive Broker
Example: Why do you choose IBKR as a broker instead of moomoo?
Capital Gains
The profit you earn when you sell an investment for more than you bought it
Example: I bought Gold at $100 and sold it for $150. My capital gain is $50.
Interest
Money earned (or paid) over time when you save, borrow or invest.
Example: I have $100 000 in my bank which earns 3% p.a.
Compound Interest
Money earned on your principal plus the interest earned.
Example: I have $100 000 in my bank which earns 3% p.a. It compounds over 5 years and I now have $1159.28
| Year | Amount at Start of Year | Interest Earned (3%) | Total at End of Year |
|---|
| 1 | $1,000 | $30 | $1,030 |
| 2 | $1,030 | $30.90 | $1,060.90 |
| 3 | $1,060.90 | $31.83 | $1,092.73 |
| 4 | $1,092.73 | $32.78 | $1,125.51 |
| 5 | $1,125.51 | $33.77 | $1,159.28 |
Dollar-Cost Averaging
Investing a fixed amount of money regularly no matter the market price.
Example: I dollar-cost average $300 into Amazon shares each month. If the price is $150, I get 2 shares. If it is $100, I get 3 shares.
Dividend
Money paid out by companies or ETFs to shareholders.
Example: DBS pays 4% per share each year. I own 100 shares. Each shares cost $50. 4% x $5000 = $200. I get $200 in dividends that year.
ETF (Exchange-Traded Fund)
A fund (pool of money) used to invest in a particular group of assets (stocks, bonds, commodities).
Example: Vanguard S&P 500 ETF allows investors to invest in stocks listed in the S&P 500 Index representing 500 of the largest US companies. This is helpful because investors don’t have to buy 500 different stocks.
Index
A financial index produces a score that tracks the performance of a group of assets.
Example: Standard & Poor’s 500 Index tracks performance of the top 500 companies in the US. S&P 500 Index is a common benchmark for the U.S. stock market.
FIRE (Financial Independence, Retire Early)
A movement where one saves and invests enough to stop working and living off retirements earlier than traditional retirement age.
Example: I aim to FIRE at 55 with 1.5million of liquid assets.
Liquid assets
Things you own that can be quickly sold or cashed out.
Example: The cash in my bank account and stocks I have bought are my liquid assets.
Portfolio
All your investments grouped together
Example: My investment portfolio is made up of stocks, ETFs and commodities.