For a topic as complex as financial matters, it’s crucial to involve a third party who can guide you through the process because you can instantly lose money with one wrong move. If you’re looking to invest in stocks, keep on reading as this is what you just might need.
A stock is what allows you to own shares of a public company and earn money if the company and the economy are both performing well. Stock brokerages or brokerage firms are financial institutions that mediate between the buyer and seller while searching the market for investments which will suit your long-term goals. If it’s your first time investing money in stocks, it’s still best to consult firms before you do.
Nonetheless, here are some investment jargons you must know:
Alpha
This is a measure used for your investment’s performance adjusted to risk. It compares the return on an investment against a benchmark market index, which is generally the market’s movement. For instance, if your alpha is positive 1.0, then it means you have outperformed the market index by 1%.
Beta
Another measurement tool, beta deals with the risk or volatility in relation to the market. By default, the market has a 1.0 volatility. All individual stocks will then be ranked according to how much their beta deviates from the market. So if you have a beta of 2, it means that your investment risk is twice as big as that of the market.
Blue Chip
A blue chip company is a well-performing, financially stable company which has been in the market for decades. Examples of these would be Coca-Cola, IBM, and General Electric. As the jargon is derived from poker games, these companies are usually the biggest, creditworthy companies globally which hold the highest value in stocks.
Equity
Also known as “shareholders’ equity, this is the amount of money to be given to the shareholders once debt is paid of. In order to get the equity, you will need to subtract the assets with the liabilities. Therefore, the formula is as follows: Equity = Assets – Liabilities
If the difference is a negative, then it is called a deficit or when expenses/debt exceed revenue.
Dividends
A stock dividend is payment in the form of additional stocks instead of cash. Companies may have the discretion to distribute dividends among shareholders if they fall short of cash. On the other hand, a cash dividend is payment done through cash or electronic bank transfer.
Some go for the stock dividend as tax is immediately deducted after cash is given, reducing its final value. However, going for stock dividends lacks the element of immediate reinvestment options.
Apart from learning the jargon, you must keep up with the market trends too, if you want to monitor where your money’s going. Research is key in investing. If you have the basic know-how and an expert know-how to guide you, investing in stocks and ensuring returns is not going to be much of a concern.