Something that really bothers me in the broader financial world is how some people behave as though investing is something akin to the Holy Trinity- unknowable to mere mortals.
This attitude perpetuates a lot of things, mostly convincing people that they need to pay someone a lot of money or pay high fees to invest their money.
It also perpetuates the idea that only a certain type of person can be an investor. That you must look and sound a specific way to start investing, and certainly to be good at it.
You Can Be an Investor
Yes you, reading this right now. You can be an investor even if you don’t wear a suit, or have a multiple six-figure job. You can be an investor even if your parents never talked about the stock market at the dinner table growing up. Investing is accessible to you, and you have the ability to learn and participate in it.
Six Investing Terms, Explained
To that end, here are six investing terms broken down for you. The next time you hear one of these thrown around in casual conversation, I want you to saunter in and be a part of it! Use this knowledge to continue to widen the conversation and get more people involved in the wide world of investing.
1. The Stock Market
‘What is the stock market’ could easily be a question for a philosopher, but I will try my best here.
When people talk about the stock market in the US, they generally mean the Dow Jones and the S&P 500. These are both stock indexes, AKA a collection of the biggest publicly owned and traded companies in the US. The S&P (which stands for Standard & Poor), tracks 500 companies, so that’s why that number is there.
The Dow Jones tracks 30 companies. Think: Apple, Nike, McDonald’s, and Goldman Sachs.
So basically, the stock market is people tracking the biggest companies in the country. Stock market fund advisors and managers are trying to predict what the market will do so they can make the most money off of it.
2. Stock
A stock is also known as an equity or a share. They all mean the same thing: a tiny piece of ownership in a publicly held company.
When you ‘buy stock’ you are buying a teensy, tiny, part of the company, making you what we call a ‘shareholder.’ Get enough shares, and you could get to make calls on what goes on in the business!
3. Bond
You buy bonds, but they operate like loans. A bond is basically a loan from a certain entity. You’ve probably heard the term ‘municipal bond’ or ‘government bond’ or even ‘war bond.’
What they mean is that you lend the issuer (like the government or a municipality) a fixed amount of money for a certain amount of time. In exchange, you get regularly scheduled interest payments, at an agreed-upon interest rate.
4. Market Correction
A market correction is NOT a crash. It’s not a recession. It’s not a bear market (see below.)
A stock market correction is a 10% drop in the market from the most recent peak. Corrections happen for many reasons, just like all stock market movements.
Trump tweeted something crazy? The market might correct. Apple gets a new CEO? The market might correct. New trade tariffs go into effect? THE MARKET MIGHT CORRECT.
What’s important here is to know that if someone says a correction is happening, it’s NOT a recession. Don’t freak out.
5. Bear Market
A bear market is a shorthand phrase to mean that the stock market (and bond market) is generally headed down, and investors are feeling Not Great about the market in general.
There’s no *one* definition of a bear market, but generally speaking, it’s a term that gets used when there’s a 20% or more drop in the market over a stretch of time. (AKA not just a one-day drop that recovers the next day.)
6. Bull Market
And shocker! A Bull market is the opposite! This is a term that generally means the market is UP, things are going well, and investors feel positive about the market and investing opportunities.
There are a lot of other things that go into investing, but these terms give you a breakdown of how it all works and more importantly, how these pieces all work together.
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