Investing glossary, A to Z

24 plain-English definitions. Each term has a worked example and links to the note that explains it in depth.

B

• Basis pointA basis point is one hundredth of one percentage point (0.01%). So 1% equals 100 basis points, 0.25% equals 25 basis points, and a rate moving from 4.00% to 4.25% has risen by 25 basis points.
• Bear marketA bear market is a period when stock prices are falling and investors are pessimistic. Generally, it means a broad market index has fallen 20% or more from its high over at least a two-month period.
• BlockchainA blockchain is a digital ledger copied across many computers, where records are grouped into blocks and each block contains a cryptographic fingerprint (hash) of the block before it, so past entries are hard to change without detection.
• Bull marketA bull market is a period when stock prices are rising and investors are optimistic. Generally, it means a broad market index has risen 20% or more from a low over at least a two-month period.

C

• Capital gainA capital gain is the profit you make when you sell an investment, such as a stock or fund share, for more than you paid for it. If you sell for less, the difference is a capital loss. In the U.S., the tax depends on how long you held it.
• Compound interestCompound interest is interest paid on your original money (the principal) and on the interest that money has already earned, so each period's growth is calculated on a slightly bigger base.
• CouponA bond's coupon is the interest it pays. The coupon rate is set when the bond is issued and applied to the bond's face value; the coupon payment is the resulting dollar amount, usually paid twice a year.

D

• DiversificationDiversification is spreading your money among different investments — across asset types such as stocks and bonds, and within each type — so that a loss in one holding has a smaller effect on your whole portfolio.
• Dividend yieldDividend yield is a stock's yearly dividend divided by its current share price, shown as a percentage. A $1.92 yearly dividend on a $64 share is a 3% yield. Because the price is in the denominator, the yield rises when the price falls.
• DrawdownA drawdown is a decline in an investment's or account's value from a previous peak, usually expressed as a percentage of that peak. The maximum (or worst peak-to-valley) drawdown is the largest such fall over a period.

E

• Expense ratioAn expense ratio is the percentage of a fund's average net assets used each year to pay the fund's operating expenses, such as management fees and 12b-1 fees. It is deducted inside the fund rather than billed to you.

I

• Index fundAn index fund is a mutual fund, ETF or unit investment trust that follows a passive strategy designed to earn approximately the same return as a particular market index, before fees, by holding the index's securities or a representative sample of them.
• InflationInflation is a general rise in the prices of goods and services over time. As prices rise, each dollar buys less, so inflation reduces the purchasing power of money. In the U.S. it is usually measured by the Consumer Price Index or the PCE price index.

L

• LiquidityLiquidity is how easily and quickly an investment can be bought or sold without substantially moving its price. A liquid stock trades often with a narrow gap between bid and ask; an illiquid one can be hard to sell when you want to.

M

• Market capitalizationMarket capitalization, or market cap, is a company's current share price multiplied by its total number of shares outstanding. It measures the market value of all the company's stock and is how stocks are sorted into small-, mid- and large-cap groups.
• MaturityMaturity is the date a bond comes due. On that date the issuer pays the final interest payment and repays the bond's face value. The time left until then is often also called the bond's maturity.

N

• Net asset value (NAV)Net asset value (NAV) is a fund's total assets minus its total liabilities. Divided by the number of shares outstanding, it gives NAV per share — the price, before fees, at which U.S. mutual fund shares are bought and redeemed.

P

• PrincipalPrincipal is the amount of money borrowed or lent, or the amount you first invest. For a bond, the principal is its face value (par value): the sum the issuer promises to repay at maturity, separate from interest.
• Private keyA private key is the secret half of a cryptographic key pair. In crypto, it is the code that authorizes transactions from your wallet; whoever holds it controls the assets, and if it is lost, access is permanently lost.

R

• RebalancingRebalancing is bringing a portfolio back to its original asset allocation — for example 60% stocks and 40% bonds — after market moves have pushed the percentages away from that target.

S

• StablecoinA stablecoin is a crypto token designed to keep a stable value relative to a currency, usually one U.S. dollar, typically by holding reserve assets and promising to redeem coins at that fixed value.

T

• Ticker symbolA ticker symbol is a short abbreviation, usually one to five letters in the U.S., that identifies a publicly traded stock. You use it to look up quotes and to place orders, so typing the right symbol matters.

V

• VolatilityVolatility is how much an investment's returns move up and down around their average. A common measure is the standard deviation of returns: the bigger it is, the wider the typical swings, in both directions.

Y

• YieldYield is the return an investment pays relative to its price, shown as a yearly percentage. For a bond, the simplest version is the yearly coupon divided by the price. Because the coupon is fixed, the yield rises when the price falls.