Investing 101: A Helpful Glossary of Finance Terms

If you’re reading this, chances are you’re a beginner investor and seeking an Investing 101.

At Stash, we think the best way to learn about investing is to actually invest and learn as you go. First things first: Let’s break down the what, the why and the how.

What is investing?

You can invest in many ways; with your time, your energy, your attention. In the Stash context, we’re talking about money. When you invest on Stash, you’re buying portions of funds with an expectation of earning a return by participating in the the buying and selling of financial instruments (e.g., stocks and bonds) on an exchange (e.g., the New York Stock Exchange, NASDAQ, etc.).

Why invest?

The why of investing can often be answered by quoting the historical performance of the market. Over the last 100 years the S&P 500 Index, a leading indicator of the U.S. stock market, has averaged a compounded annual return of 5.7% without dividends reinvested, and over 10% with dividends reinvested.

So perhaps the better question is, why wouldn’t you invest? However, we understand that getting started can seem overwhelming.

One of the most intimidating things about starting to invest is often the terminology. It’s tough to invest when you don’t know how things work or what terms mean.

We’ve compiled (and explained in plain English) a few of the most common terms you’ll find in the Stash Invest ecosystem (and when investing on any platform) into this handy Investing 101 guide.

Investing 101: Glossary of Terms

ETF

A basket of investments (for example: stocks and bonds) bundled into a fund that is traded on an exchange. That fund owns the underlying assets (i.e. stocks, bonds, or even physical gold bars!) and generally tracks an index – or group of investments that represent part of the market. Most of the investments you will find on Stash are ETFs.

Stocks

Ownership interest in a company. Meaning, you own a portion (often a TINY portion) of a company. Sometimes stocks are also called shares.

Share

A company’s stock is broken down into shares. When you own shares of a company, you are a shareholder. And with platforms like Stash, you can start with fractional shares, getting ownership of a tiny portion of company, or group of companies.

Bonds

A bond is a loan, and you’re the lender. Bonds are debt instruments. Though that might bring to mind the guitars your college roommate sold to pay his tuition, they’re actually an essential part of the economy.

Portfolio

Your portfolio is the investments that you have purchased, and that you still hold (aka, that you haven’t sold). If you only have one investment (ex: Moderate Mix), then that’s your portfolio! If you’ve got a bunch of investments, all of them together make up your portfolio.

Holdings

The investments that are held by you. If your investment portfolio were a shopping bag, what would it be holding? Funds like ETFs have holdings, too.

Exposure

Anytime you are financially exposed. Exposed to downside risk and exposed to potential reward. Equity exposure (a common investing jargon phrase) is the percentage of a portfolio that is made up of equities, or shares!

Performance

The performance of an investment is a measurement of the change in value (up or down). This can be historical performance (how it has performed in the past), or potential performance (based on how much you are investing and what a reasonable expectation of return is on a particular investment). It is important to note that past performance is never a guarantee of future returns. But looking at performance of an investment over a period of time is another tool in your informed investing arsenal.

Fund Name

This is the name of the fund you are investing in. At Stash, we’ve given the investments available on our platform Stash-specific names that get to the heart of what they are. So something like iShares MSCI USA ESG Select Fund is called Do the Right Thing, on Stash.

ESG stands for environmental, social, and governance. ESG investing is all about bringing ethics into investing. But since our users might not be up on the lingo, we have re-named the fund name into something a bit more relatable. But the full fund name is always there for you to see, and research.

Last Price

This is pretty much what it sounds like. The last price is the last price at which one share of your investment was traded. This is updated every 20 minutes, during regularly scheduled hours (usually business days between 9:30am and 4:00pm EST). Remember, you might not own a full share (or you might own more than a full share) of any given investment, but this number references the price of one share.

Dividend Yield

A dividend is a payment made to a company’s shareholders, usually a divvying up of a company’s earnings. Say ‘Company X’ makes some profit. And say you own shares of ‘Company X’. If those shares pay dividends, you may get a certain amount of the profit of the company. Cha-ching! The dividend yield is that amount, expressed as a percentage of the stock price!

Expense Ratio

An expense ratio is an annualized fee (expressed as a percentage of total assets) that funds charge their shareholders. It’s actually charged daily by deducting a very small fraction of the fund’s assets. It covers management fees, administrative expenses and other costs incurred to operate the fund. These costs are baked into the price of the fund, not charged separately. This is different than than commissions or fees that a broker may charge to purchase the ETF itself. Basically, the fund sponsor has operational costs, and this percentage covers those costs.

When you invest with Stash, the expense ratio is already factored into the prices you see.

Since Inception

This isn’t a sneaky sci-fi movie reference. Inception refers to when a fund was started and became available to investors.

For instance, what we call Money Machines is Vanguard Financials ETF (this is the fund name). This fund was started by Vanguard on January 30, 2004. If you are checking out its historical performance, you can see the last 12 months, last three years, last five years, last ten years, and also the performance since inception.

Trade

Trading is the act of buying and selling goods and services. When it comes to investing, trades are the buying and selling of financial instruments, often stocks and bonds.

Fiduciary

Not only is it fun to say, (come on, say it with me: fuh-doo-shee-air-ee), but it’s also a powerful concept that defines a relationship built on trust and duty. Fiduciaries (like Stash) are required to act in their clients’ best interest.

Hungry for even more Investing 101? Here are 5 articles to get you started:

  1. Debt & Equity: What Every Smart Investor Needs to Know
  2. Now That’s What I Call an Investment! ETFs Explained.
  3. Diversification: How to Choose Investments When You Can’t Predict the Future
  4. Asset Allocation: How to Mix a Classic Investing Cocktail

 







Disclaimers
This material has been distributed for informational and educational purposes only, represents an assessment of the market environment as of the date of publication, is subject to change without notice, and is not intended as investment, legal, accounting, or tax advice or opinion. Stash assumes no obligation to provide notifications of changes in any factors that could affect the information provided. This information should not be relied upon by the reader as research or investment advice regarding any issuer or security in particular. The strategies discussed are strictly for illustrative and educational purposes and should not be construed as a recommendation to purchase or sell, or an offer to sell or a solicitation of an offer to buy any security. There is no guarantee that any strategies discussed will be effective.

Furthermore, the information presented does not take into consideration commissions, tax implications, or other transactional costs, which may significantly affect the economic consequences of a given strategy or investment decision. This information is not intended as a recommendation to invest in any particular asset class or strategy or as a promise of future performance. There is no guarantee that any investment strategy will work under all market conditions or is suitable for all investors. Each investor should evaluate their ability to invest long term, especially during periods of downturn in the market. Investors should not substitute these materials for professional services, and should seek advice from an independent advisor before acting on any information presented.

Past performance does not guarantee future results. There is a potential for loss as well as gain in investing. Stash does not represent in any manner that the circumstances described herein will result in any particular outcome. While the data and analysis Stash uses from third party sources is believed to be reliable, Stash does not guarantee the accuracy of such information. Nothing in this article should be considered as a solicitation or offer, or recommendation, to buy or sell any particular security or investment product or to engage in any investment strategy. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. Stash does not provide personalized financial planning to investors, such as estate, tax, or retirement planning. Investment advisory services are only provided to investors who become Stash Clients pursuant to a written Advisory Agreement. For more information please visit www.stashinvest.com/disclosures.