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Whilst most news covering sports and politics is written in largely easy to understand language. financial news is very often written by analysts who very often forget that their target audience is not as investment savvy. The following are definitions of basic terms that are often used in financial articles.
APR – Annual Percentage Rate. The annual cost of a loan; including all fees and interest. Expressed as a percentage.
Bear Market – A market condition where securities are falling and investors have a pessimistic outlook on the market as a whole. A downturn of 20% or more for more than two months within multiple indexes like the Dow Jones Industrial Average or the S&P 500 is considered the start of a bear market.
Bull Market – Opposite of bear market. A market condition where securities rise faster than historic averages; usually from an economic recovery, boom or spike in investor confidence.
Capital Gain – A capital gain is realized when an investment’s selling price exceeds its purchase price.
Cash Flow – One of the main indications of a company’s overall financial health. Calculated by subtracting cash payments from cash receipts over a period of time (month, quarter, year).
Credit Score – A measure of credit risk that is based on activities such as credit use and late payments. Credit scores can be obtained for a fee from a one of the three credit bureaus.
Diversification – Spreading risk by investing in a range of investment tools such as securities, commodities, real estate, CDs, etc.
Inflation – The gradual increase or rise in the price of goods of a period of time.
Interest – The fee paid for using other people’s money. For the borrower, it is the cost of using other people’s money. For the lender, it is the income from renting the good (the money).
Liquidity – The ability of an asset to be converted to cash quickly without sacrificing value or giving a discount on the price.
Recession – An economic condition defined by a decline in GDP for two or more consecutive quarters. During a recession, the stock market usually drops, unemployment increases, and the housing market declines.
Risk Averse – An investors desire to avoid risk; a more conservative approach to investing is generally upheld by risk averse investors.
Yield – The annual rate of return for an investment expressed as a percentage.
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