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Financial Terms Explained

New to investing? This glossary explains common financial terms in plain, jargon-free language.
Tip: When Tendrill uses a term you don’t know, just ask! “What does P/E ratio mean?” works great.

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A

Trading that occurs after the regular stock market closes (4:00 PM - 8:00 PM ET). Prices can move significantly on after-hours news like earnings reports. After-hours volume is lower, so prices can be more volatile.
How your money is distributed across different investments. For example, “60% stocks, 40% bonds” or “30% tech, 20% healthcare.” Good allocation helps manage risk.
A professional who researches companies and makes recommendations (buy, hold, sell). Analyst reports include price targets and ratings that can influence stock prices.

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B

When the stock market drops 20% or more from its recent high. Called a “bear” market because bears swipe downward. The opposite of a bull market.
Large, well-established, financially stable companies with a history of reliable performance. Examples: Apple, Microsoft, Johnson & Johnson. Generally considered lower risk.
When the stock market rises 20% or more from its recent low, or a sustained period of rising prices. Called a “bull” market because bulls thrust upward.
When a company uses its cash to buy back its own shares from the market. This reduces shares outstanding, which typically boosts earnings per share. Generally seen as positive for shareholders.

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C

Profit from selling an investment for more than you paid. If you bought a stock at 100andsoldat100 and sold at 150, your capital gain is $50. Subject to taxes.
When your investment returns generate their own returns. Like a snowball rolling downhill - it gets bigger over time. The earlier you start investing, the more time compounding has to work.
What you originally paid for an investment, including any fees. Used to calculate capital gains when you sell. If you bought at different prices, it’s the average cost per share.

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D

Spreading your investments across different stocks, sectors, and asset types to reduce risk. “Don’t put all your eggs in one basket.” If one investment drops, others may hold steady or rise.
A cash payment that some companies distribute to shareholders, typically quarterly. If you own 100 shares and the dividend is 0.50/share,youreceive0.50/share, you receive 50. Not all companies pay dividends.
Annual dividend divided by stock price, expressed as a percentage. If a 100stockpays100 stock pays 3/year in dividends, the yield is 3%. Higher yield = more income relative to price.
When an analyst changes their rating on a stock from more positive to less positive (e.g., from “Buy” to “Hold”). Can cause the stock price to drop.

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E

A company’s profits, usually reported quarterly. “Earnings per share” (EPS) is total profit divided by shares outstanding. Earnings reports are major events that can move stock prices significantly.
Company’s total profit divided by the number of shares. If a company earned 1billionandhas500millionshares,EPSis1 billion and has 500 million shares, EPS is 2.00. Higher is generally better.
A basket of stocks that trades like a single stock. VOO holds all 500 S&P 500 companies. ETFs offer instant diversification - own hundreds of companies in one purchase.
The date that determines who receives the next dividend. Buy before this date = you get the dividend. Buy on or after = the seller gets it. Stocks often drop by the dividend amount on this date.

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F

The U.S. central bank that controls interest rates and monetary policy. Fed decisions affect all markets - rate hikes often hurt stocks, rate cuts often help them.
Money a company generates after paying all expenses and investments. Companies with strong free cash flow can pay dividends, buy back stock, or invest in growth. Generally a sign of financial health.

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G

A stock expected to grow faster than average. Often doesn’t pay dividends because it reinvests profits. Examples: tech companies, younger companies. Higher potential return but also higher risk.
A company’s prediction of its future performance. “Raising guidance” means they expect to do better than previously thought - usually positive for the stock. “Lowering guidance” is negative.

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I

A benchmark that tracks a group of stocks. The S&P 500 index tracks 500 large U.S. companies. The Nasdaq tracks tech-heavy stocks. Investors compare their performance to indexes.
A mutual fund or ETF that tracks an index. Instead of a manager picking stocks, it simply holds everything in the index. Usually low-cost and popular for passive investing.
When prices rise over time, reducing purchasing power. The Fed targets 2% annual inflation. Higher inflation often leads to higher interest rates, which can hurt stock prices.

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M

Total value of a company’s stock. Stock price × shares outstanding. Apple at 3trillionmarketcapisworthmorethanmostcountries′GDP.Large−cap(>3 trillion market cap is worth more than most countries' GDP. Large-cap (>10B), mid-cap (2−10B),small−cap(<2-10B), small-cap (<2B).
A pool of money from many investors, managed by professionals who pick stocks. Unlike ETFs, mutual funds trade once per day at closing price. Often have higher fees than index ETFs.

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P

All your investments combined. Your stocks, bonds, ETFs, and other assets together form your portfolio. Portfolio management involves choosing what to own and in what proportions.
Stock price divided by earnings per share. If a stock is 100with100 with 5 EPS, P/E is 20. Indicates how much investors pay per dollar of earnings. Higher P/E = higher expectations for growth. Average is roughly 15-20.
An analyst’s estimate of where a stock should trade in the future (usually 12 months). Not a prediction, but an opinion on fair value. Stocks often move when price targets are raised or lowered.
Trading that occurs before the regular market opens (4:00 AM - 9:30 AM ET). Like after-hours, volume is lower and prices can be volatile. News released overnight affects pre-market prices.

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R

Adjusting your portfolio back to target allocations. If stocks outperformed and you’re now 80% stocks instead of your target 60%, you’d sell stocks and buy bonds to rebalance. Usually done quarterly or annually.
Total money a company brings in before expenses. Also called “sales” or “top line.” Different from profit (earnings), which is revenue minus costs.
How much uncertainty you can handle. High risk tolerance = comfortable with big swings for potentially bigger returns. Low risk tolerance = prefer stability over maximum growth.

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S

One unit of ownership in a company. If you own 100 shares of Apple and there are 16 billion shares total, you own a tiny fraction - but you’re still a part owner.
When a company divides existing shares into more shares. A 4-for-1 split turns 1 share at 400into4sharesat400 into 4 shares at 100 each. Total value stays the same. Makes shares more accessible.
An index of 500 large U.S. companies. The most common benchmark for U.S. stock market performance. “The market was up 1%” usually refers to the S&P 500.

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U

When an analyst changes their rating from less positive to more positive (e.g., from “Hold” to “Buy”). Often causes the stock price to rise.

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V

A stock trading below what the company appears to be worth based on fundamentals. Often mature companies with stable earnings and dividends. Opposite of growth stocks in investing style.
How much a stock’s price bounces around. High volatility = big swings up and down. Low volatility = relatively stable. Tech stocks tend to be more volatile than utilities.

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Y

Performance since January 1st of the current year. “Apple is up 15% YTD” means it’s gained 15% since the year began.
Return on an investment, usually expressed as a percentage. Dividend yield is annual dividends / stock price. Bond yield is interest payments / bond price.

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