Investment terms can be a little confusing, especially for those new to investing. Sometimes, you may get mixed up with terms like: net worth, capital allocation and market capitalisation. ABiQ helps you make sense of investment terms.

ABiQ outlines some of the top investment terms you should know.

To ensure you understand the most important investment terms, we’ve outlined some of the top investment terms you should know.

1.Net worth

Your net worth is simply the difference between your assets and liabilities.

You can calculate your net worth by adding up all your assets (cash, savings or investment accounts, real estate etc.) and subtracting from this all of your debts (mortgages, credit cards, student loans etc.) The result will be your net worth.

2.Asset allocation

Asset allocation refers to a strategy where an individual divides their investment portfolio between different categories. The three major asset classes are: stocks, bonds and cash (or cash equivalents). Asset allocation enables an investor to limit their risk  by diversifying their portfolio across different types of assets.

3.Capital gains 

Capital gains is the difference between how much an investment is worth now, versus how much an investment  was originally purchased for. The gain, however, is unrealised until the asset or investment is actually sold. Capital gains is especially important to understand when it comes to tax.

4.Bull market

A bull market refers to a market trend consisting of strong upward momentum. During a bull market, prices tend to significantly increase over a relatively short period of time.   A market is considered to be bullish when there is a price increase of at least 20% over a two-month period.

5.Bear market

A bear market is the opposite of a bull market. During a bear market, prices tend to decline over a short period of time. A market is considered to be bearish when there is a drop of at least 20% over a two-month period. 

6.Dividend

A dividend is a share of profits that a company pays out to its shareholders. Depending on the company, dividends may be a one-time payment, made periodically, or not at all. If a company fails to make a profit, the company cannot pay dividends.

7.Market capitalisation

Market capitalisation, or market cap,refers to the total value of all a company’s shares of stock.

8.Volatility

Volatility refers to the rate at which the price of an asset increases or decreases. Volatility is used to measure the risk of investing in an asset. If the price of an asset fluctuates rapidly in a short period of time, the asset is considered to have a high volatility. If the prices of an asset fluctuate slowly in a short period of time, the asset is considered to have a low volatility.

9.Index

An index is a statistical indicator used in financial markets to track the performance of a group of assets, such as stocks, bonds, and others. Some of the most well-known indexes include the Nasdaq-100, S&P 500, and Dow Jones Industrial Average.

10.Ask/Bid price

Asset prices are often given in the Ask/Bid format. “Ask” refers to the lowest price a seller is willing to accept for an asset, while “Bid” refers to the highest price a buyer is willing to pay for an asset.

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