A crash course in investing vocab to impress your folks – lesson one
Finance jargon can be tough to keep up with, here’s the basic lingo to sound like you know what you’re talking about:
ETF (exchange-traded funds)
If you have money in a Raiz account, it’s invested in ETFs. Put simply, ETFs are just funds that are traded on an exchange. ETFs are usually made up of a bundle of stocks, bonds or other investment instruments, which are then wrapped together into one product. For example, if you buy shares of an ETF which tracks the ASX 200, you are actually buying a tiny amount of each company that makes up the ASX 200. ETFs can help investors gain exposure to a range of investment strategies, geographic regions and asset classes.
In a sentence: “I didn’t want to put all my eggs in one basket, so I invested my birthday money in an ETF”.
Capital gains/losses
This is the money you gain or lose when you sell your investment. This gets brought up a lot around tax time as you’ll need to pay tax on any gains you make from your investments. Typically, short-term gains, like those from investments you’ve held for less than a year, are taxed at a much higher rate than long-term gains, while capital losses can be used to offset your gains and lower your tax liability.
In a sentence: “I was stoked my investments did so well this year, shame the tax man took a bit off the top.”
Dividend
A dividend is a company’s way of passing on a share of its profits to its investors. Often dividends are distributed on a quarterly basis, though not all companies issue dividends. Many companies (especially newer and less established ones like start-ups) choose to reinvest their profits back into the company instead.
In a sentence: “I had some good divvies come through this week, every little bit helps!”
Dollar-cost averaging
This is what it’s called when you make consistent, regular investments over a long period of time. By dollar cost averaging, you end up buying fewer shares when stocks are expensive, and more shares when stocks are cheaper. Ever heard the phrase; “it’s about time in the market, not timing the market”? Dollar-cost averaging is the opposite of timing the market since you maintain the same strategy regardless of what the market is doing. Investing small amounts regularly, one of the core principles of the Raiz philosophy, can help build a healthier balance over the long run.
In a sentence: “The market’s all over the shop, good thing I dollar cost average!”
Liquidity
Liquidity describes how easy it is to convert an investment or asset into cash. The money in your bank account is usually the most liquid since it’s instantly available to you. On the other hand, physical assets like real estate or your car are far less liquid, since it could be difficult and time-consuming to sell them and recover your cash.
In a sentence: “I’d love to get the bill for dinner but I’m not very liquid right now”
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