Financial jargon made simple.
Confused by those technical terms your financial advisor lobs relentlessly at you? Cut through the noise with this quick and dirty guide we’ve put together with help from Anna Haotanto, financial expert from The New Savvy.
Equities are also known as stocks, securities or shares. When you buy the equities of a company, you have ownership interest of a company after the company pays off its liabilities. Equities are considered the easiest way to invest in listed companies.
A unit of ownership interest in a corporation or financial asset.
A stock is a type of security that signifies ownership in a corporation and represents a claim on part of the corporation’s assets and earnings.
A bond is like a loan from you to an entity (typically corporate or governmental), which borrows the funds for a defined period of time at a variable or fixed interest rate. At the end of this period, the entity “pays back” its debt to you. Value investing comes from leveraging on the inverse relationship between bond prices and interest rates.
An ETF, or exchange traded fund, is a marketable security that tracks an index, a commodity, bonds, or a basket of assets like an index fund.
Also known as time deposits, this is a type of investment that will help you earn interest over a fixed term. When you deposit money into this account, you will not be allowed to withdraw from it until after it matures. Over this time, the money will earn interest. The interest rate on fixed deposits is higher compared to the rates offered to traditional savings accounts.
Fixed income is a type of investing or budgeting style for which a periodic income is received at regular intervals and at reasonably predictable levels. Fixed-income investors are typically retired individuals who rely on their investments to provide a regular, stable income stream. This strategy is often used to overcome the inflation rate and bond is one of the most common fixed-income security under this category.
A dividend is a distribution of a portion of a company’s earnings to a class of its shareholders. When a dividend yield is high, it signifies a higher income for investors. It means the stocks that you invested in a company pay out a high percentage of the value of a share. The higher the yield, the more money is earned during a dividend payout.
Market capitalisation refers to the total dollar market value of a company’s outstanding shares. This is a good measurement for the size of a company. Commonly referred to as “market cap”, it is calculated by multiplying a company’s shares outstanding by the current market price of one share.
Liquidity means the ability to convert assets into cash or equivalents by selling them on the open market. A liquid asset is cash on hand or an asset that can be readily converted to cash.
This refers to the general risk in any kind of investment. Investors base their decisions on different factors – technical analysis, fundamental analysis, and assumptions. Some even base it on luck – which is also a kind of risk.
Companies are built not solely on the money of their owners but also the money of some lenders. In a sense, if you are investing in a company that has debt, you are also owners of that debt. Credit risk is the possibility for the company to default on the debt, making you lose your money as an investor.
Healthy Cash Flow
The company can pay out dividends even if there is a decrease in revenues and the assets exceed the liabilities.
Investment-linked Insurance Policies
Investment-linked Insurance Policies are a mixture of what insurance policies and different investment vehicles can give you. Investing in Investment-linked Insurance Policies allows investors to buy investment units of their choice using the premiums they pay for their life insurance policy.
This story was originally published in the June 2017 issue of Her World magazine.