20 Key Investing Terms

Learning always involves grasping new terms, and gaining finance knowledge is no different. The ever-evolving landscape of finance and real estate investing demands the investor master key investment terminology. 

Join us as we demystify 20 key investment terms and equip you with the knowledge to make informed decisions and excel in finance. 

Here we go!

Common Types of Investments

When you invest your money, you’re making it work for you. If you’re new to investing, it seems as if there’s a whole new language to learn. Let’s first look at investing terms you will want to be familiar with.

Types of Financial Investments and Definitions

• Bonds

When governments and corporations want to raise money, they will issue bonds. When you purchase a bond, you are loaning the bond amount to the government or corporation, who, in turn, agree to pay back the original investment and pay you periodic interest. Bonds are issued for a period of time with a stated interest rate. Bonds do not represent ownership, and investors don’t benefit from company growth like they do with stocks. On the other hand, bonds are low-risk and a good beginning investment.

• Stocks

Unlike a bond, when you purchase a stock, you own a share in the company and are called a shareholder. Investors buy stocks they believe will increase in value and sell for profit. The stock market is highly volatile - easily influenced by outside factors such as politics, the economy, and global events like wars and pandemics. This volatility of stocks means it is a riskier investment.

• Exchange-traded funds

Another one of the investment terms to know is exchange-traded funds, also known as ETFs. These are SEC (Securities Exchange Commission)-registered investment companies that track specific industries, commodities, or indexes such as the S&P. They offer a way for investors to pool their money in stocks, bonds, or other assets and are considered a solid, low-risk investment for beginners.

• Mutual funds

Mutual funds is one of the most common investment terms you’ll hear. A mutual fund pools money from several investors and then invests that money in a portfolio. Mutual funds are professionally managed so that, as an investor, you don’t have to worry about researching and choosing which investments are best. Mutual funds are priced and traded at the end of each trading day based on their net asset value - unlike ETFs, which can be traded like a single security on the stock exchange.

• Real Estate

Now is a great time to learn real estate investing, with many opportunities within reach for the beginner investor. Commercial or residential real estate investing can be short-term, where houses are revitalized and quickly sold for a profit, or long-term, where investors buy into developments or rental properties.

Benefits of Understanding Investment Methods

Knowledge is power. When you have a solid grip on investment terminology, you’re better positioned to make sound financial decisions for yourself and those you love. Some positives of thoroughly understanding investment terms include:

• Increased confidence to make informed decisions

• Recognition that a diversified portfolio’s greatest strength is reduced risk

• Well-managed risk and income

• Portfolios tailored to investment goals

• Liquidity awareness

• Financial independence

• Discipline over the long-term
  
  

Common Investing Terminology

There are many investment terms to learn when you start as an investor, and if it seems like you’re learning a whole new language, you are! However, just as learning a language opens doors to new cultures and experiences, understanding common investing terminology unlocks a world of possibilities and benefits. Here are some standard investing terms you’ll want to understand.

• Asset - something you own (stock, bond, real estate, etc.) that is expected to earn you money.

• Margin of Safety - the difference in price between the intrinsic value of an investment and the current market price. The margin of safety is expressed as a percentage.

• Return on Invested Capital (ROIC) - the percentage return from the cash invested in a business. 

• Asset Allocation - investments are divided into classes, and the goal is to have different assets perform opposite each other. 

• Cash Flow - money that is moving in and out. More money coming in than going out is a positive cash flow. A negative cash flow indicates higher spending.

• Interest - payment from a borrower to a lender above the principal (initial sum) and at a particular rate. 

• Principal payment - a payment on a loan that reduces the original loan amount. 

• Diversification - a strategy that minimizes risk by investing across assets, sectors, geographic locations, or industries.

• Liquidity - the ease with which an asset can be converted to cash without affecting the market price. 

• Portfolio - the range of investments held by an investor or company.

• Payback time - the time it takes to get your ROIC.

• Stock - a share in a public company that an investor can purchase.

• S&P 500 - an index of the 500 best stocks currently on the market. The S&P is a measure of how the stock market is doing.

• Recession - when a country experiences negative economic activity for two consecutive quarters. 

• Yield - the ratio between a stock’s price and the dividend paid out.

• Index - measures the progress of a group of stocks that share characteristics.

• Index fund - a type of fund that mimics the trends of an index. 

• 401(k) - a retirement account funded monthly by a portion of your pre-tax salary.

• Roth IRA - a retirement fund that is built on investment money that has already been taxed. You aren’t taxed on these funds again.

• Margin - borrowed money used for investing.

Connect Invest Terms to Know:

We’ve covered a lot of important information, and there’s one more investment opportunity we’d like to cover. It’s time to learn real estate investing! Connect Invest short notes offer opportunities to jump into vetted private commercial and residential real estate projects that generate a passive income. 

Let’s first discuss some of the terms you’ll need to know.

• Alternative Investments: Simply put, an alternative investment does not fit into conventional categories such as stocks, bonds, and cash. Alternative investments include private equity, hedge funds, art and antiquities, and real estate.

• Short Notes: Also known as promissory notes, are debt securities with a short maturity. Short notes are issued by borrowers needing short-term financing.

• Real Estate Debt Securities: A debt security is a financial asset that defines the terms of a loan between a borrower (issuer) and the lender (investor). Real estate becomes an asset when we talk about real estate investing.

• Collateral-backed real estate loans: In the event of a default on the loan, the real estate is taken back through foreclosure and then sold to recover the capital investment.

• Passive income: This cash flow requires little to no effort on the part of the investor to maintain. The IRS considers this unearned income because it’s not tied to active employment.

• Risk tolerance: This is the amount of risk an investor is able or willing to tolerate when looking at the volatility of an investment.

Connect Invest’s short notes function in much the same way that mutual funds do. The short notes (minimum investment of $500) are funded by investors supporting various real estate projects. Connect Invest manages these short notes and invests them in a diversified commercial and residential collateral-backed real estate loan portfolio. During the life of the short notes, investors earn monthly interest payments and, upon completion of the loan term, are paid back their original investment.

The short notes have terms of 6, 12, and 24 months and a defined exit date. These high-yield, short-term investments also offer high liquidity to eligible investors. Short notes are a great, low-risk way for new and established investors to build wealth.

Parting Thoughts

As we noted earlier, knowledge is power in the world of investing, and mastering common investment terminology is your key to unlocking that power. Smart investing puts your money to work. By understanding the language of investments, you become a more informed and confident investor.

Are you interested in alternative investments? Is your goal to establish passive income? Connect Invest offers short-term, high-yield investments in real estate short notes that can help you reach your financial goals. With low minimums and investment terms ranging from 6 to 24 months, the Connect Invest model gives investors from all walks of life the opportunity to invest and earn passive income.

Get started here by opening your Connect Invest wallet. It takes just a few minutes.