This guide aims to break down confusing finance jargon and investment terminology, particularly if you’re looking to invest long-term in the stock market. Test your knowledge and see how many you can nail down!
The guide is organised from the must-know fundamentals to least important. Terms are grouped roughly according to your investing style:
I have picked out the most relevant finance and investment terms from Investopedia’s Financial Terms Dictionary so you can get a quick handle on what’s important to know and what isn’t.
This is going to be especially handy if your plan is a “buy and hold” investment strategy and you want to start off by investing in ETFs that track an index.
Who is this guide for?
So you want to see what the whole “investing” thing is that everyone’s been talking about. But you worry your scant financial vocabulary is too patchy to start investing in shares. You start googling one or two terms, but there are just too many. Which terms are the important ones?
When you start investing, it feels like there are so many stock market terms to know. For beginners, even basic finance terms can seem super daunting. Especially if you’re a woman.
You’re swimming in an alphabet soup of stock terminology and finance jargon. Maybe you need to earn a degree in cryptography or maybe sticking with French would have been easier.
Well, you’d be shocked to know that sometimes even people who do finance for a living don’t understand it either.
101: The fundamentals
Here are the 50 most useful stock market terms to know for beginners thinking of investing in a few index ETFs for retirement. How many do you know?
202: Helpful terms
Some more helpful stock terminology to round out your investing knowledge. If you know most of these already, I’m guessing you’re pretty familiar with the business news on TV (when you’re not on Netflix).
202: Picking individual stocks
If you want to start picking individual stocks, then these are stock market terms to know. For beginners who only plan to buy ETFs in their stock portfolio, you don’t have to learn any of these to be able to start investing.
- Income Statement / Profit and Loss Statement (P&L)
- Balance Sheet
- Cash flow statement
- 10-K (US companies)
- Economic Moat
- Porter’s 5 Forces
- Strength, Weakness, Opportunity, and Threat (SWOT) Analysis
- Capital Expenditure
- Growth Investing / Growth Stocks
- Value Investing / Value Stock
- Shares outstanding
- Preference Shares
- Insider Trading
- Initial Public Offerings (IPOs)
Price and earnings
- Earnings Per Share (EPS)
- Price-to-Earnings Ratio (P/E Ratio)
- Price/Earnings-to-Growth (PEG) Ratio
- Price-to-Book Ratio (P/B Ratio)
- Price-to-Sales (P/S)
Balance sheet metrics
- Return on Assets (ROA)
- Return on Equity (ROE)
- Return on Invested Capital (ROIC)
- Return on Investment (ROI)
303: Complicated and risky
These terms are more relevant for people interested in trading or “beating the market”. These kinds of complex trading instruments are either pretty complicated or pretty risky if you want to invest for the long term.
That said, it’s good to have a broad sense of what they are. So for example, I don’t know about all the types of derivatives out there, but once I know it is a derivative, I have a good idea of the level of risk it entails.
Complex trading instruments
Borrowing to invest
Hmm, smells scammy
Featured image: Andrea Piacquadio