Finance Glossary
Key terms every investor should know — in plain English.
- Annual Report
- A company's yearly summary of operations and financials, filed as Form 10-K with the SEC.
- Ask
- The lowest price a seller will accept for a security right now.
- Bear Market
- A sustained decline of 20% or more in a broad market index — pessimism dominates.
- Beta
- A measure of a stock's volatility versus the market. Beta of 1.0 = moves with the market; >1 = more volatile.
- Bid
- The highest price a buyer will currently pay for a security.
- Blue Chip
- A well-established, financially sound company with a long record of stable earnings (e.g. DJIA members).
- Bond
- A debt instrument. You loan money to the issuer; they pay interest (coupon) and return principal at maturity.
- Book Value
- A company's total assets minus total liabilities — its accounting net worth per share.
- Bull Market
- A sustained rise of 20% or more in a broad market index — optimism dominates.
- Capital Gain
- The profit from selling an asset for more than you paid. Short-term (≤1 yr) is taxed at ordinary rates; long-term at lower rates.
- Dividend
- A cash payment a company distributes to shareholders out of profit. Usually quarterly.
- Dollar-Cost Averaging
- Investing a fixed dollar amount on a regular schedule regardless of price — smooths out volatility.
- Earnings (EPS)
- Net profit divided by shares outstanding. The fundamental driver of a stock's long-run price.
- ETF
- Exchange-Traded Fund — a basket of securities that trades on an exchange like a stock (e.g. SPY tracks the S&P 500).
- Expense Ratio
- The annual fee a mutual fund or ETF charges, expressed as a percentage of assets.
- Federal Reserve
- The central bank of the United States. Sets short-term interest rates (the Fed Funds rate).
- Hedge Fund
- A private investment partnership using leverage and short selling. Typically open only to accredited investors.
- Index
- A basket of securities used to measure market performance — Dow Jones, S&P 500, Nasdaq Composite.
- IPO
- Initial Public Offering — when a private company first sells shares to the public.
- Market Cap
- Share price × shares outstanding. Companies are categorized as small ($300M–$2B), mid ($2B–$10B), or large (>$10B).
- Mutual Fund
- A professionally managed pool of investor money that buys stocks, bonds or both. Priced once daily at NAV.
- P/E Ratio
- Price-to-Earnings — share price divided by EPS. Higher P/E means investors expect more growth.
- Portfolio
- The complete collection of investments you own — stocks, bonds, funds, cash.
- Prospectus
- A legal document a mutual fund or new issue must give investors. Details strategy, fees and risks.
- Short Selling
- Borrowing shares to sell them, hoping to buy them back cheaper. Profits from price declines; loss is theoretically unlimited.
- Treasury Bond
- US government debt with a maturity over 10 years. Considered the world's safest fixed-income asset.
- Volatility
- How much a security's price fluctuates. High volatility = bigger swings up and down.
- Volume
- The number of shares traded during a period. Spikes often signal news or institutional interest.
- 52-Week High/Low
- The highest and lowest price at which a security has traded during the past 52 weeks.
- Yield
- A bond's annual interest payment divided by current price, or a stock's annual dividend divided by price.