A concise investment ABC, because knowledge is key! Read this ABC, save it, and read it again. Because with this investor ABC, you will master the basic concepts, making all articles easier to read and understand.
Shares
A certificate of participation in a company. When you buy a share you own the company for that part. The price of a stock is determined by supply & demand.
Scholarship
place where shares are traded.
Index
A collection of investments that provide an indication of a particular market. The AEX is an index. Just like the Dow Jones (America) and the BEL 20 (Belgium).
Dividend
if you own stocks, or follow an ETF, you are entitled to a share of the company’s profits. It is paid sometimes quarterly, sometimes annually. Sometimes not, and profits are reinvested in the company.
Dividend yield
The dividend per share divided by the share price. This is a handy number you can use to quickly scan whether this is an attractive investment. Is the dividend yield higher than savings rate: go for it. To name just one thing.
Price return
If the company’s value increases, then the price of the stock rises. The difference between your purchase price and the current price is then your return. Note: So this can also be negative.
Investment Funds
A kind of basket of stocks. So when you invest money in a fund you spread your risk. If one company goes down, the blow is less severe because you invested your money through a fund and bought several shares.
ETF
An ETF (exchange traded fund) is an investment product that tracks the price of an underlying asset (such as an index) as closely as possible. The original name of ETFs was trackers. The provider of the ETF buys in the appropriate proportion the stocks that are in the index it tracks. You have ETFs that track an index of an area or a market.
Price earnings ratio (KW)
Current market price of a given stock divided by its Earnings Per Share (EPS). The lower, the better, because: this number tells you how many years a company has to make the same profit to earn back your invested money. However: KW does not say much about expected profits.
Bonds
A bond is a debt instrument issued by a company or a government. With a bond, you lend money to a government or company for a specified period of time. The counterparty must pay you interest for this loan, and repay your entire investment at the end of the term. Kind of similar to a mortgage. The difference with stocks is that you don’t own a company when you issue a bond.
Volatility
mobility of a stock. This is expressed as a percentage. The more volatile a stock price, the more risk (and possible return).
Fundamental analysis
Answers the question: what to buy? When you do an FA you amass knowledge and understanding of the market and industry. For example, you look at market trends, earnings trends, a company’s history, stock volatility and the company’s financial statements.
Technical analysis
Answers the question: when should you buy? A TA is based on stock price and historical stock price trends.
Broker
The party through whom you can trade in the stock market. This can also be done through the bank.
Investors ABC
These are the terms that we ourselves use a lot and that come up most often on thisiselfin.com. Hopefully this investor ABC will help you take a step forward in your investment adventure.
