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Investment Terms to Know

If you are thinking about getting involved with investing there are a few terms you will want to familiarize yourself with. Here are a few of those words to help you not sound like a rookie.

BONDS

A bond is simply an IOU. It is an agreement under which a sum is repaid to an investor after an agreed period of time.

A bond can be issued by anyone but is, generally, a certificate issued by a government or a public company to repay money borrowed.

These loans normally repay a fixed rate of interest over a specified time and then also repay the original sum at par in full after an agreed period - when the bond matures.

BROKER

(1) An individual or a firm that charges a fee or commission for executing buy and sell orders submitted by another individual or firm. (2) The role of a brokerage firm when it acts as an agent for a customer and charges the customer for its services.

BROKER-DEALER

A securities firm that is acting as either a broker and/or a dealer. Most securities firms act in both capacities.

BEAR MARKET

A declining market, may refer to entire market or individual security.

BULL MARKET

A rising market.

DIVERSIFICATION

Spreading of risk by putting assets in several categories of investments or with a broad range of stocks in one portfolio.

DIVIDEND

A distribution of the earnings of a corporation. Dividends may be in the form of cash, stock or property (other securities owned by the corporation). A dividend can only be paid by declaration of the board of directors of the corporation.

EX-DIVIDEND DATE

Four business days before the record date. On the ex-dividend date the purchase of stock no longer carries with it the right to receive the dividend previously declared.

JUNK BONDS

High-risk bonds, usually promising a very high indicated return coupled with a larger risk of default.

RECORD DATE

Stockholders owning the stock on the holder-of-record date are entitled to receive a dividend. In order to be listed as an owner on the corporate books on the holder-of-record date, the investor must have bought the stock before the ex-dividend date.

PAYMENT DATE

The day on which a stockholder of record will receive his or her dividend.

EQUITY (in a brokerage account)

The market value of securities (long market value minus short market value) minus any debit balance and plus any credit balance.

INDEX

A statistic to measure market performance. A popular index is the Standard & Poor's 500(S&P 500), which incorporates a broad base of 500 stocks, including 400 industrial companies, 20 transportation companies, 40 utilities, and widely considered the benchmark for large stock investors. Some of the stocks in the index have a greater influence on the direction of the market than other stocks do, so the S&P 500 is calculated by giving a greater weight to some stocks.

MARKET PRICE

The last reported price at which the stock or bond sold, or the current quote.

PENNY STOCKS

Low price stocks trading in the over-the-counter market. Typically refers to shares trading below one dollar a share.

PORTFOLIO

Holdings of securities by an individual or institution. A portfolio may contain bonds, preferred stocks, common stocks and other securities.

SEC

The Securities and Exchange Commission, established by Congress to help protect investors.

STOCKS

Ownership shares in a corporation.

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