If you’re new to investing, you might be feeling a little overwhelmed. There’s a lot to investing, and there’s always a risk involved when you trust someone else with your money, It’s hard to jump into such a complicated system without knowing where to start. Some of the most confusing things can be all of the terms that get thrown around, whether you’re reading a book, sitting in an adviser’s office, or talking to an experienced investor. Here are a few important terms you should know before jumping into any big decisions.
Capital is simply the initial money that you place into an investment. If you buy $1,000 dollars worth of stock, your capital before the investment was $1,000.
This is simply how much money was made on an investment over a certain period of time.
Losses are negative gains. If you lose money on an investment, it’s called a loss.
Rate of Return
This is the ratio, often expressed as a percentage, of how much money was made on the investment to how much money was invested. For example, if you invest $1,000 and after a certain period of time the investment is worth $1,100, your rate of return is 10%. A high rate of return usually accompanies high risk and vice versa. If this is not the case, be very careful about investing in that opportunity. Rate of return can also be negative.
In the world of investing, an asset is anything you have spent money on. A stock share, a piece of real estate, or a bond can each be an asset.
A term is the period of time that is being considered. This could be the term of investment, or a shorter period, for example, an amount of time over which gains or interest are calculated.
Inflation occurs when the dollar becomes worth less. Unfortunately, it’s happening all the time. Often the rate of inflation is considered when determining the effectiveness of an investment. For example, if the rate of return on an investment is less than the rate of inflation, the investment may be loosing value, even though it appears to be making money.
Looking for more answers to your investment questions? Contact us. We’re here to help!