Thursday, September 07, 2006

Eight Key Investing Terms

Stuart Kahan of CPA Wealth Provider quotes economist Benjamin Graham as saying that investors need to make thoughtful, dispassionate analysis on each expenditure to make sure that they are investors and not speculators. Eight investing terms that Stuart believes are critical to accomplishing this are: annual return (change in value of investment); asset allocation (organizing investments in attempt to meet or exceed return expectations while minimizing risk); benchmark (standard of quality for a given type of investment); bond (debt security issued by an organization. Usually long-term and usually with multiple holders/investors. Conservative investment used to control risk.); capital gains (growth in value of investment after acquisition. Often a tax-advantaged form of return--both because tax deferred until sale and frequently because of favorable tax rate); diversification (using multiple investments to control risk); dollar-cost averaging (continuing to invest regularly regardless of whether market is favorable or unfavorable); stock (means of determining proportionate ownership in a corporation). Kahan does not promise that knowledge of these terms will quickly make you richer, but he does say that knowing them will make you a smarter investor.

Most terms here are cut-and-dried for the average personal finance blog reader, though some may not know asset allocation or dollar-cost averaging. It nevertheless is important to remember that a number of investors have been burned over the years by thinking that they knew (or pretending to know) some investing term or phrase without truly understanding it.


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