When you’re just getting started with investing, it’s easy to become confused by the jargon. And unfortunately, the overwhelm this creates is enough to convince many new investors not to get started at all. Instead, they convince themselves that investing is too complicated and better left to the pros.
But the truth is that investing is for everyone. Not only is it available to everyone, but it’s a necessity if you plan to retire someday.
Investing isn’t just for the experts. Knowing the right terms can help make investing more accessible and help you reach your financial goals.
To help remove some of the confusion and overwhelm from investing, we’ve rounded up some of the top investing terms. These will help you through from your very first steps, to some of the more advanced investing strategies out there.
Investing Terms You Might Want to Know
1. 52-Week High
The 52-week high of a particular security is the highest point it’s traded at during the past year. It’s based on the security’s price at the close of the trading day. The 52-week high is considered a technical indicator, meaning investors and analysts can use it to predict future price movements.
2. 52-Week Low
Just like the 52-week high, the 52-week low is a technical indicator that can be used to predict the future price movements of a security. But rather than the security’s highest price during the past year, the 52-week low represents its lowest trading price during the past year.
3. 401(k) Plan
A 401(k) plan is a tax-advantaged retirement account offered by many private employers in the U.S.. It allows workers to make tax-deferred contributions to an investment account, which can grow during their working years. Then, the funds can provide a taxable income to the investor during retirement.
4. Asset Allocation
Asset allocation refers to the mix of securities within your investment account. When you decide on your asset allocation, you’re dividing your assets across different stocks, bonds, funds, and other investments based on what you think will best meet your financial goals. In most cases, your asset allocation will change over time based on your time horizon.
APR — or annual percentage rate — is the price you’ll pay to borrow money from a bank or lender. The APR on a loan is the interest rate and other fees combined. In the case of credit cards, your interest rate and APR are usually the same numbers.
Just as your APR is the amount you’ll pay to borrow money, your APY — or annual percentage yield — is the amount you can earn on your money. APY refers to the rate of return in savings accounts and certificates of deposit. APY usually takes into account the compound interest you’ll get on your interest earnings.
7. Bear Market
A bear market is a period of sustained price declines in the stock market. A bear market is generally used to describe a drop of 20% or more. They often indicate a larger economic event, such as a recession.
8. Blue Chip
Blue chip is a term used to describe certain stocks issued by established companies. The firms that issue blue chip stocks have usually been around for a long period and have shown they can bounce back from economic downturns. They have more public confidence than many other companies in the market.