Understanding Investment Terms

Friday, February 24, 2023

In an earlier post, we looked at what investment is, why we need to invest, and the kinds of risk associated with investments.

An impediment to understanding investments and becoming a better investor is the knowledge of terminologies in the field. It is also not out of place to hear people use words like capital markets, return on investment, treasury bills, shares, and bonds while talking about the economy and investments. These are all terminologies used by persons in the field to describe happenings in that sector.

To that end, continuing our education on what we mean by investment, we will be taking a look at terminologies associated with investments. You should know that this is not an exhaustive list of the terms associated with investments. However, it is totally fine if you do not grasp them all at the onset as a novel investor. With time and consistency, the language of investment would become a second language.

Understanding Investment Terms


This is an increase in the value of an asset over some time.


These are things with economic value that are owned by an individual or company like; resources, properties, cash, etc. for investment purposes, assets are bonds, stocks, cash, etc.

-Asset class:

These are investments with similar features. E.g Bonds, stocks, real estates are in the same asset class.

-Asset allocation:

This is a strategy to divide investments in assets to optimize the balance between them subject to your risk and reward appetite. 


This is a person or firm that handles transactions on behalf of others. They also offer advisory services


This is a form of I.O.U between a lender and a borrower that contains details of a loan, and the payment schedule for the principal and interest. It is often issued by Governments and corporate entities as a means of raising funds.

-Bear markets:

This is a situation where investors sell because they believe that asset prices will fall.


Is a standard against which the performance of a security, mutual fund, or investment manager is measured.


These are high performing companies whose dividend payments have not diminished over time and also have a large market capitalization. E.g. Cocacola

-Bull markets:

As against a Bear Market, a Bull Market happens when investors buy more as opposed to selling because they expect prices to rise.


These are funds invested in an organization or company on a long term basis to finance its duties.

-Capital gain & loss:

When you sell a stock for an amount higher than the purchase price, a capital gain has occurred. A loss occurs when the price of the sale is lower than the purchase price


These are raw materials consumable directly and can be interchanged for other commodities. E.g agricultural products and precious metals.

-Corporate bond:

A bond issued by a corporate body to raise capital from outside.


A bank that maintains records of financial assets and pays out all portfolio trades while calculating the Net Asset Value.

-Dow Jones Index:

Is an indicator used to monitor how 30 Blue-chip US companies traded during a trading session


As the name implies, they are securities that derive their value from underlying or primary securities.


When you have more than one security in your portfolio to minimize risk, it is called a derivative.


This is what a company pays its shareholders from the profits it made in a fiscal year. 


They are also known as Stocks and Shares. They are used to indicate ownership in a company and are determinants of how much the shareholder gets when the company winds up.

-Exchange-Traded Fund (ETF):

They are a kind of mutual fund that accommodates other securities and trade throughout the whole day.

-Hedge fund:

Is a kind of collective fund that is used to invest on behalf of the investors whose contributions make up the fund.


They are used for tracking stocks, mutual funds, investment vehicles, and securities.

-Individual Retirement Account (IRA):

Is an account that offers tax incentives when saving for retirement

-Initial public offering (IPO):

This is an offering done by unlisted companies to get on the stock exchange by selling shares in its securities to the public for cash.

As mentioned earlier, the list is not exhaustive but serves as a precursor to investment practices.