Aug 29, 2022

Getting Familiar With Investment Concepts

— At first, the world of investment can seem complex but, as one delves more into the use of these concepts, they become easier to understand and apply in our financial journey.

3 minutes

By ODP

At first, the world of investment can seem complex but, as one delves more into the use of these concepts, they become easier to understand and apply in our financial journey. Below are some key concepts that will ease your financial journey less complicated: 

 

Alternative Funds  

These are investment options that are not typical or conventional instruments. Conventional instruments include stocks, bonds, or cash.  

 

Asset Allocation 

This is the process and decision of how to split your capital between financial instruments. The intent behind this strategy is to balance the benefits of risk and reward. 

 

Bear Market  

This is a period when there is a prolonged decline in stock prices. Although experienced investors take this period as an opportunity to purchase quality assets at a discounted price, the period is usually characterized by feelings of panic and withdrawn investments. 

 

Bond 

Bonds are a corporate IOU, issued by the debtor to the holder (creditor), with an agreement on time, the interest rate, etc. 

 

Bull Market 

This is the opposite of the bear market period, characterized by a rise in stock prices. Investors are most confident within this period and would typically hold financial assets to continue to yield interest or sell them off at a price higher than at purchase.

 

Capital 

In investment terms, capital or principal refers to money or financial assets which are used to purchase more assets, to gain more value over a period. 

  

Dividends 

These are the distribution of a company's profits to its shareholders. 


Dollar Cost Averaging 

This is an investment strategy which involves buying less shares when prices are high and buying more when prices are low. 

 

Equity 

 The term 'equities' are often used synonymously with 'stocks'. They are a certificate of ownership which indicate that the investor owns a fraction of the company's profits.

  

Financial Instruments 

These are essentially contracts with monetary value, between two parties, which can be created, sold or bought. Some examples of financial instruments are cheques, stocks, bonds and more.

 

Financial Market 

 As the name implies, the financial market refers to the system for the purchase, sale and management of financial assets.

 

Inflation 

It is simply the general increase in the price of goods and services. This happens when the purchasing power of the currency declines. 

 

Investment Strategy 

Investment strategy refers to a plan of action, designed to achieve long-term or overall financial goals, through investment choices. 

 

Liquidity 

This is the term used to describe the ease with which you can buy or sell off your investment without affecting the price of the security.  A 'liquid' asset is one that can easily be converted into cash, in a short period of time.

 

Mutual Fund 

A mutual fund is a professionally managed pool of funds that are then invested into various investment options, such as Treasury Bills, Commercials Papers, Banker’s Acceptance, etc.,  

 

Portfolio 

An investment portfolio refers to the individual’s collection of investments like stocks, bonds, commodities, cash, and cash equivalents.

 

Return on Investment 

Return on Investment, or ROI, is essentially the formula or benchmark for measuring the overall performance of investments. ROI is calculated by dividing the original cost from the difference of the current and original cost: CC-OC/OC.

 

Risk  

Risk is the amount of uncertainty that an investor is willing or able to take in the pursuit of financial gain. There are 3 degrees of risk in investment – high, moderate, and minimal risk.  

 

Securities 

These are secure financial assets, which have monetary value, can be bought or sold. 

 

Stocks 

Stocks are a form of financial securities which indicate that the holder owns a fraction of the issuing company or assets which they have invested in. 

 

Time Horizon 

This refers to the period of time which the investor intends to or lets their investment to run, before withdrawal. The time horizon, which can run for months to years, is usually set based on the investor's financial goals, short or long-term.


Yield

This is the amount of money or interest growth which your investment accrues, outside of the principal.

 

Volatility 

This is a term used to describe the unexpected or sharp changes that may occur in the financial market, over a given period. These sharp changes could be a rise or fall in prices. 


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