Investment Terms

The term custodial account generally refers to a savings account at a financial institution, mutual fund company, or brokerage firm that an adult controls for a minor (a person under the age of 18 or 21 years, depending on the laws of the state of residence). Approval from the custodian is mandatory for the account to conduct transactions, such as buying or selling securities. A custodial account...

Common stock is a security that represents ownership in a corporation. Holders of common stock elect the board of directors and vote on corporate policies. This form of equity ownership typically yields higher rates of return long term. However, in the event of liquidation, common shareholders have rights to a company's assets only after bondholders, preferred shareholders, and other debt holders...

A non-fungible token is a unit of data on a digital ledger called a blockchain, where each NFT can represent a unique digital item, and thus they are not interchangeable. NFTs can represent digital files such as art, audio, videos, items in video games, and other forms of creative work. While the digital files themselves are infinitely reproducible, the NFTs representing them are tracked on their...

The 52-week high/low is the highest and lowest price at which a security, such as a stock, has traded during the time period that equates to one year. A 52-week high/low is a technical indicator used by some traders and investors who view these figures as an important factor in the analysis of a stock's current value and as a predictor of its future price movement. An investor may show increased i...

The term redemption has different uses in the finance and business world, depending on the context. In finance, redemption describes the repayment of any money market fixed-income security at or before the asset's maturity date. Investors can make redemptions by selling part or all of their investments such as shares, bonds, or mutual funds. In business and marketing, however, consumers often rede...

The Sharpe ratio was developed by Nobel laureate William F. Sharpe and is used to help investors understand the return of an investment compared to its risk.1 2 The ratio is the average return earned in excess of the risk-free rate per unit of volatility or total risk. Volatility is a measure of the price fluctuations of an asset or portfolio. Subtracting the risk-free rate from the mean return...

A blue-chip index is an index that tracks shares of the well-known and financially stable publicly traded companies known as blue chips. Blue-chip stocks represent companies that provide investors with consistent returns, making them desirable investments. Blue-chip companies are considered a gauge of the relative strength of an industry or economy. A blue-chip index is a bellwether, meaning news...

A money market fund is a kind of mutual fund that invests in highly liquid, near-term instruments. These instruments include cash, cash equivalent securities, and high-credit-rating, debt-based securities with a short-term maturity such as U.S. Treasuries. Money market funds are intended to offer investors high liquidity with a very low level of risk. Money market funds are also called money marke...

Profit margin is one of the commonly used profitability ratios to gauge the degree to which a company or a business activity makes money. It represents what percentage of sales has turned into profits. Simply put, the percentage figure indicates how many cents of profit the business has generated for each dollar of sale. For instance, if a business reports that it achieved a 35% profit margin duri...

A broker is an individual or firm that acts as an intermediary between an investor and a securities exchange. Because securities exchanges only accept orders from individuals or firms who are members of that exchange, individual traders and investors need the services of exchange members. Brokers provide that service and are compensated in various ways, either through commissions, fees or through...

An asset allocation fund is a fund that provides investors with a diversified portfolio of investments across various asset classes. The asset allocation of the fund can be fixed or variable among a mix of asset classes, meaning that it may be held to fixed percentages of asset classes or allowed to go overweight on some depending on market conditions. Popular asset categories for asset allocation...

The price-to-earnings ratio is the ratio for valuing a company that measures its current share price relative to its per-share earnings. The price-to-earnings ratio is also sometimes known as the price multiple or the earnings multiple. P/E ratios are used by investors and analysts to determine the relative value of a company's shares in an apples-to-apples comparison. It can also be used to compa...

A prospectus is a formal document that is required by and filed with the Securities and Exchange Commission that provides details about an investment offering to the public. A prospectus is filed for offerings of stocks, bonds, and mutual funds. The document can help investors make more informed investment decisions because it contains a host of relevant information about the investment security....

One way to make money on stocks for which the price is falling is called short selling. Short selling is a fairly simple concept when an investor borrows a stock, sells the stock, and then buys the stock back to return it to the lender. Short sellers are betting that the stock they sell will drop in price. If the stock does drop after selling, the short seller buys it back at a lower price and ret...

An investment property is a real estate property purchased with the intention of earning a return on the investment either through rental income, the future resale of the property, or both. The property may be held by an individual investor, a group of investors, or a corporation. An investment property can be a long-term endeavor or a short-term investment. With the latter, investors will often e...

An automatic investment plan is an investment program that allows investors to contribute money to an investment account at regular intervals to be invested in a pre-set strategy or portfolio. Funds can be automatically deducted from an individual's paycheck or paid out from a personal account. An automatic investment plan is one of the best ways to save money. Numerous market mechanisms have been...

A one-night stand investment is purchased security that was intended for long-term investment but is instead sold very quickly, many times as soon as the next day. One night stand investments are often sold urgently on the trading day after purchase because the investor regrets buying the shares to such a degree that fear and panic begin setting in. This can even lead to immediate, short-term loss...

An open-ended investment company is a type of investment fund domiciled in the United Kingdom that is structured to invest in stocks and other securities. The company's shares list on the London Stock Exchange and the price of the shares are based largely on the underlying assets of the fund. These funds can mix different types of investment strategies such as income and growth, and small cap and...

A term sheet is a nonbinding agreement that shows the basic terms and conditions of an investment. The term sheet serves as a template and basis for more detailed, legally binding documents. Once the parties involved reach an agreement on the details laid out in the term sheet, a binding agreement or contract that conforms to the term sheet details is drawn up. The term sheet should cover the sign...

A structured investment vehicle is a pool of investment assets that attempts to profit from credit spreads between short-term debt and long-term structured finance products such as asset-backed securities. A structured investment vehicle is a type of special-purpose fund that borrows for the short-term by issuing commercial paper, in order to invest in long-term assets with credit ratings between...

Refunded bonds, which are a subset of the municipal and corporate bond classes, are bonds that have their principal cash amount already held aside by the original issuer of the debt. This is often accomplished through the use of a sinking fund, an account a firm uses to set aside money earmarked to pay off the debt from a bond or other debt issue. The sinking fund gives bond investors an added ele...

Medium-term is an asset holding period or investment horizon that is intermediate in nature. The exact period of time that is considered medium term depends on the investor's personal preferences, as well as on the asset class under consideration. In the fixed-income market, bonds that have a maturity period of five to 10 years are considered to be medium-term bonds. A day trader who seldom holds...

Short-term investments, also known as marketable securities or temporary investments, are those which can easily be converted to cash, typically within 5 years. Many short-term investments are sold or converted to cash after a period of only 3-12 months. Some common examples of short-term investments include CDs, money market accounts, high-yield savings accounts, government bonds, and Treasury bi...

A long-term investment is an account on the asset side of a company's balance sheet that represents the company's investments, including stocks, bonds, real estate, and cash. Long-term investments are assets that a company intends to hold for more than a year. The long-term investment account differs largely from the short-term investment account in that short-term investments will most likely be...

Fixed-term describes an investment vehicle, usually some kind of debt instrument, that has a fixed time period of investment. With a fixed-term investment, the investor parts with his or her money for a specified period of time and is repaid his or her principal investment only at the end of the investment period. In some cases, even though a fixed term is stated on the investment, the investor or...