Learning Some Financial Terms

 Managed funds or mutual funds, as they are also called, are a great way for common people to get into the stock market. When you invest your money in a particular fund, you are linking your money with other investors who otherwise would not be able to invest directly in the stock market. There are some fees associated with these funds that pay for the services of the fund manager.

Diversity

This is when you spread your money to reduce risk, rather than putting a lot of eggs in a few baskets. During the 2008 GFC, there were stories of investors losing all their life savings when a financial company sank. These people invest all their money in one company, rather than spreading their money across different assets and types of investments, a process known as diversification.


Instability

Volatility refers to the up and down movement of the markets; This also applies to investments in gold and cryptocurrencies.

Experienced investors know that the market can be volatile during times of uncertainty. Investors should develop the right mindset during this time as the market will take even the smartest investor on a roller coaster ride.


Risk profile

It is related to how much risk you are willing to accept before panicking about your investment. It is easy to become a growth fund investor when the market is going up, but as seasoned investors know, the stock market is volatile, so you should invest according to how much volatility you can tolerate.


Average

Averaging is a strategy where you buy a small batch of shares on a regular basis instead of a lump sum. This is possible with Internet commerce applications. The advantage of this is that as the stock value moves up and down, you have bought at least some of the stock at the lowest price. To find the average amount you paid for the share, add the total amount you paid for the share and divide that figure by the total number of transactions. This will give you the average amount per share. Average can also be used when buying bitcoins.

Active

An asset is something that generates income for you. Examples of an asset are interest-bearing accounts, stocks, mutual/managed funds, assets, etc.


Inactive

A liability is something that costs you money. If you’re paying for something, it’s a liability. Items purchased from HP, a credit card or finance company are liabilities because they are costing you money. Smart money managers have little responsibility because they know the interest payable on borrowed money is “dead money” because they are not getting anything real for their money.


Dividend

Companies pay dividends to shareholders. The dividend comes from the profits of the company. Many investors prefer to reinvest the money received from dividends; Others prefer to receive it as income. It all depends on whether you invest for long term income or capital gains.


Capital gains

A capital gain is an increase in the value of an investment, be it stocks, mutual/managed funds, assets, gold, or cryptocurrencies.

In this article it is important to understand the financial terms to become more financially strong and I have put the most common terms here.

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