Topic 02 · 4 min read

Basic terms

Nine words. Learn these and most investing articles stop being scary.

Asset

An asset is anything that holds economic value and can be owned or controlled to produce a benefit. In investing, common assets include cash, stocks, bonds, mutual funds and real estate.

Stock

A stock represents ownership in a company. When you buy a stock, you own a small part of the company’s assets and earnings. Stocks, also known as equities, can grow in value over time, offering both appreciation and dividends.

Stock market

The stock market is a system for the organized buying and selling of stocks on stock exchanges.

Capital gain

Refers to the profit from selling an asset, such as a stock or real estate, for more than its purchase price.

Capital loss

Selling an asset for less than you paid for it results in a capital loss. These losses can offset capital gains, reducing your overall tax burden.

Returns

The net combination of all the capital loss and gains.

Portfolio

A portfolio is a collection of investments held by an individual or institution. A well-diversified portfolio typically includes a mix of asset classes to manage risk and maximize profits.

Diversification

Diversification means spreading investments across different assets and sectors to reduce exposure to any single risk. By holding a mix of investments that don’t move in sync, investors can potentially reduce portfolio volatility and improve long-term performance.

Compounding

Compounding is the process of generating earnings on both your original investment and the interest or dividends previously earned. Over time, compounding accelerates growth, making it a powerful tool for long-term investors.