Do you love to save or spend?
If you are the former, then this article is for you. We have been taught since childhood that saving is the key to financial freedom. The reality is that the secure way to achieve financial investment is through smart stock investments.
However, most people need the guts to invest in the stock market due to fear of loss. Therefore, before making any investments, it is necessary to understand investment terms clearly, so that you do not end up being broke.
The Importance of Understanding Stock Investment Terms
This article will break down the major investment terms in the most easily understandable way. Without any further delays, let us dive in!
What is Investment?
Simply investment is the asset acquisition to generate money. For example, if you purchase a house and put it for rent, your house is the investment, and the rent is the cash flow income from the investment. Some of the most known investment examples are:
- Buying stocks to earn dividends and capital gains.
- Depositing money into savings accounts to gain profit/interest.
- Purchasing any property or car and renting it out to someone.
- Issuing bonds or buying the issuer’s bonds.
What is Stock?
In finance, stocks are also known as capital stocks; they are all the shares by which the holding of a company is divided. Stock is an equity instrument meaning that the stockholder will acquire the business profits, not the fixed recovery. For example, if someone buys one share of Apple Inc., they become the company’s owner as an investor.
Another term used commonly with stocks is shares. Shares are stock units, and they are traded in a regulated platform known as the stock market.
A stockbroker is a firm in the stock market where investors can open accounts.
What is Bond?
An obligation to pay a particular amount of money is known as a bond.
A bond is issued for a fixed period along with the original amount with interest. Consider that purchasing the Vanguard bind worth $100 for one year at 5% interest means recovering $105 after one year.
What is a dividend?
The amount of profit distributed among the firm’s shareholders is knowns as the dividend. Read More.
What is Compounding?
In the investment domain, one of the most effective terms is compounding. It is the money growth year by year by re-investing the returns on the original investment.
For example, if someone invests $1000 in year one and gains $100 at the end year at 10%, return. Again, if they invest $1100 at the end of year 2, it will become $1210. Compounding earned $10 more for the investor and on and on.
What is the trick to choosing any Investment?
Before making, any investments consider these five points.
- Get to know the risk level of investment.
- Understand the complete phenomena of investment.
- Check out the regulations regarding investments.
- Go through the protection coverage in the loss and default case.
- After doing all your research, seek professional financial advice.
Conclusion:
The article explains the importance of smart stock investments as a secure way to achieve financial freedom. To help readers understand investment terms and avoid financial losses, we break down key concepts such as investment, stocks, bonds, dividends, and compounding.