5 Key Terms Every Investor Should Know

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“It takes money to make money” is a common catchphrase in the world. At one point that was simply all it was, but in the past few years more and more people have taken this phrase and have chosen to apply it to their everyday lives. The most common way of doing so is by investing their money into things such as stocks and bonds.

If done correctly, investing your money could be a wonderful decision and a good way to make your money work for you while you focus your attention elsewhere, but if done incorrectly it will be a quick way to lose your hard earned money. Nothing is guaranteed when investing in stocks but the more you know, the safer you could be when making your decision on what to invest in. Here are some keywords you should know of before you begin investing.

1. Stocks

Well, first thing that you should know is that there are actually two types of stocks. When investing you could choose to do either common stocks or preferred stocks. Here are the differences.

  • Common Stocks: These are your most commonly used stocks. When you put your money in common stocks you are essentially buying a piece of ownership into the company. You are allowed to make managerial decisions and have an actual decision on what is done within the company. The power of your voice and opinion are based on how many shares (individual stocks) that you own. These prices typical fluctuate up and down and can do so at a rapid pace.
  • Preferred Stock: These stocks are a little more stable. The price of these stocks isn’t as flexible, but your rate of return isn’t as high. They are kind of like the bonds of companies. You are locking yourself in for a certain fee, but you may or may not have a managerial say so on what’s actually going on.

2. Balance Sheet

This is the record of the company’s performance in the past. This sheet keeps track of all assets, debts, liabilities and other responsibilities of a company. When deciding on what company to invest in this is one of the first documents that you should look into. Study the corporation’s past business history to see how they play out. You would not want to invest in a company whose stock is constantly going up and down. Instead look for companies who have shown steady growth and consistent numbers.

3. Assets

Assets are basically anything of value that a company can bring to the table. It can come in many shapes and forms. It could be cash, accounts receivable, inventory, or other properties. It is mainly all the positives in the company. The more assets the company has, the better off they are and the safer you should feel in investing.

4. Debts / Liabilities

Debts and liabilities are essentially the other end of the pole when it comes to a company’s financial standing. It refers to all the bills, accounts payable, loans, and any money they borrowed to run the company and later have to repay. Avoid those whose debts and liability are substantially high because those are the ones that typically tend to go up and down the most which can cause you to lose a lot of money in the long run. Forbes profile of Ken Fisher, CEO of Fisher Investments states that if the debts are higher than earnings to avoid buying into.

5) Outstanding

When you hear someone say outstanding, this is how many shared of stock the company has out on the market. Most companies are sure to maintain full control of the company. They do this by making sure that they never release more than 49 percent of the company out on the market. You can figure out your percentage of the company by taking the number of shares that you own and dividing it by the amount of shares outstanding.

These are only a few of the terms in the investing world. They will help you get through some of the basics but as you should do with any subject you are not knowledgeable of, do your research! You will learn a lot more by taking your time to look up the full works of the stock market and how it’s run.

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Money

Derek

AUTHOR Derek

My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.

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