Investing

A bond is essentially a loan you provide to a company or the government, with the borrowing entity agreeing to pay you back at a future time (i.e., the “maturity” date) along with interest at a fixed “coupon” rate. Various types of bonds are each assigned a credit rating based on credit quality; generally, the higher the credit quality, the less risky the loan.

Capital gains are the profits you earn when selling an asset such as an investment (e.g., stocks or bonds), a home, or a business. The IRS imposes a tax on these gains in specific situations, known as the "capital gains tax."

Capital gains are categorized into two types: short-term and long-term. While the former are realized from assets held for less than a year and taxed as ordinary income, the latter apply to assets held for more than a year and are typically taxed at a 15% rate—assuming your income falls below certain thresholds.

A share of common stock represents ownership in a company.

When you own at least one share, you become a shareholder of that company giving you voting rights on corporate policies and the ability to help elect the board of directors.

A dividend is a payment made by a company to its shareholders, serving as a bonus or reward for owning stock.

Dividends are typically paid on a per-share basis. For example, if a company distributes $0.50 per share and you own 100 shares, you’d receive a total of $50. Dividends are generally paid regularly, often on a quarterly basis, but not all stocks pay them. Companies can also reduce or eliminate their dividends at any time.

The DJIA is one of the most recognized and closely monitored stock market indices in the world, serving as a barometer for the overall health of the U.S. stock market and (by extension) the domestic economy. More specifically, the DJIA tracks the performance of 30 large, publicly traded companies based in the United States.

If you're keen in the performance of a market index—such as the S&P 500—but want to avoid the costs and time associated with buying each individual stock or managing investments, an ETF can help you replicate index performance at a much lower cost.

An exchange-traded fund is defined as a financial instrument that consists of a basket of securities comprised of stocks, bonds, currencies, and commodities. ETFs often track major indices such as the Dow Jones or Nasdaq Composite.

ETFs are similar to mutual funds in many ways as both allow you to invest in a diversified portfolio by purchasing just one security, though they do differ in their management and trading structures

An index fund is a type of mutual fund that enables investors to invest in a specific index such as the S&P 500, Dow Jones Industrial Average (DJIA), or other specialized indexes that focus on particular industries or segments. Index funds are designed to replicate the returns of the chosen index and typically don’t employ fund managers as (in turn) a generally cost-effective investment option.

A mutual fund is a type of investment vehicle that pools money from various investors to purchase securities. Investors buy shares or units in the fund, which are then managed and invested by a professional portfolio manager.

Mutual funds typically consist of a mix of stocks, bonds, and short-term assets (e.g., money market instruments) and sometimes focus on one category—with assets referred to as “holdings” and varying based on fund objectives. A high-risk small-cap fund may invest exclusively in smaller company stocks, for example, while a large-cap mutual fund will include larger company stocks in its holdings.

Mutual funds are popular among investors since they offer an easy way to diversify investments and spread risk across a range of assets.

The Nasdaq( National Association of Securities Dealers Automated Quotations) is one of the largest stock exchanges globally with 3,000+ publicly traded companies. While it’s primarily known for its association with the technology sector, it also includes companies from various other industries such as healthcare, consumer goods, and financial services.

The P/E ratio is a tool used to assess a company's worth, specifically indicating how much you’re paying for $1 of company earnings. If a company reports a profit of $5 per share and each share sells for $20, for example, the P/E ratio is 4—meaning the company is trading at four times its earnings.

This ratio, then, is often compared to the P/E ratios of other companies within the same industry or historical ratios for the same one. While there is no definitive guideline for what constitutes a "good" P/E ratio, the average historical median P/E for the S&P 500 is nearly 15.

Preferred stock like common stock, represents ownership in a company.

One of the main differences between the two is that preferred shareholders generally don’t have voting rights. They do, however, enjoy several advantages over common stockholders such as a higher dividend rate than typically seen for common stock issued by the same company. Preferred dividends must also be paid out before any dividends are distributed to common shareholders, who have a lower ranking than their peers in the event of liquidation.

Real estate investment trusts are companies that own, operate, or finance income-generating real estate across various sectors including apartments, hotels, shopping malls, office buildings, and warehouses.

A REIT typically collects money from sources such as rent paid by tenants or interest from investments and then distributes this as dividends to shareholders. Many REITs are publicly traded on major securities exchanges, allowing investors to buy and sell them like stocks while earning income generated from real estate without the need to own or manage properties.

The S&P 500, or Standard & Poor's 500, is a stock market index that tracks the performance of 500 of the largest publicly traded companies in the United States.

A stock split occurs when a company increases the number of its outstanding shares by issuing additional shares to current shareholders: lowering the price per share.

If a shareholder owns 10 shares of stock valued at $100 ($10 per share), and the company decides to execute a 2-for-1 stock split, for example, the shareholder will then own 20 shares of stock still worth $100 (now valued at $5 per share) post-split.