1.3 Essential terminology

What this topic covers:

  1. Common investment terms explained

Asset An asset is a resource that has economic value. Generally speaking, an asset is expected to deliver current and/or future benefits for its owner.
ASX The Australian Securities Exchange (ASX). The ASX brings buyers and sellers together to trade listed investments like shares, unit trusts, options, and some fixed interest securities.
Capital Any available cash and assets that help to shape your investment strategy.
Capital gain The difference between what it cost you to buy a parcel of shares and what you received when you sold them.
Diversification Diversification is a strategy investors use to reduce their exposure to risk. In short, it means to spread your investment across a variety of asset classes, sectors, or markets. It’s a bit like the old adage “don’t put all your eggs in one basket”. The general idea is that if one of your investments performs poorly, the effect on your overall portfolio is softened by the possibility of your other investments performing well.
Dividends When a company makes a profit, it can choose to either retain some of it for future expansion or make a dividend payment to shareholders. A dividend is a portion of a company's profit that it decides to pay out to shareholders, in return for their investment.
Equity Equity describes the investment you’ve made to buy and own a share of a publicly listed company. It’s sometimes referred to as “equity investment” or “equity security”.
ETF Exchange Traded Funds (ETFs) are funds traded on a stock exchange, just like listed shares. But unlike shares, which is an investment in one company, an ETF is an investment in a basket of companies and assets.
Portfolio An investment portfolio is essentially a list of all your investments. It can include stocks, bonds, cash, property, or other investments.
Return Investment returns can be generated from both capital growth and income. Capital growth happens when you benefit from an increase in the market price of shares, property, or units in managed funds, while income comes from interest, dividends, rentals, or distributions from a managed fund.
Risk Market risk (also known as systematic risk) is the risk you take that you may lose money when you invest in financial markets.
Settlement When you buy or sell shares, you must exchange the title or legal ownership of those financial products for money. This exchange is called settlement, and it takes place two business days after a trade occurs. That’s when the money comes out of your account (or goes in!.)
Share registry When a company lists on the stock exchange, it appoints a share registry to manage its book of shareholders and the associated administration. The share registry will contact you on behalf of the company for shareholder matters. They also manage the payment of dividends, distribution of company reports, and shareholder voting.
Stocks / Shares An equity or part ownership of a company.
Trading (Buying / selling) Share trading is a term used to describe the process of buying or selling shares in a company listed on a market or exchange.


Ready to move on to the next topic?

Now that you’ve covered the fundamentals of investing, the next part of the investment journey is defining your investment goals. In this topic, we’ll take you through why it’s important to establish your investment goals and how to go about it. If you’re ready for more, take a look now. If not, jump in when you have time. With CommSec Learn, it’s one place, your pace. Before you get started, why not complete the quick quiz?

Next Topic: 1.4 Section 1 : Quick quiz


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