When I was younger terms like ‘mutual funds’, ‘securities’, ‘the dow’ were like a foreign language to me.
I was so interested in the stock market, how it worked and how I could invest, but I had no idea where to start. What was also frustrating is that after years of schooling (which included taking calculus, geometry, trigonometry classes, etc.) I never learned about the market or the fundamentals of investing in school.
I know I’m biased, but I feel that athlete’s minds work differently. Our discipline, ability to strategize, coupled with hard work is next level! But if we don’t understand the foundations of finance, it’s really hard to set ourselves up for success financially.
Here are a few of the basics that I learned early on that can help you if you’re just getting started.
21 Investment Terms Athletes Should Know
Assets: assets are resources with economic value that an individual or business owns with the expectation that it will provide a future benefit. Examples of assets are cash, stocks, bonds and real estate.
Bonds: bonds represent a loan from the buyer (you) to the issuer of the bond. Bonds are issued by governments and corporations when they want to raise money. By buying a bond, you’re giving the issuer a loan, and they agree to pay you back the face value of the loan on a specific date. Unlike stocks, bonds issued by companies give you no ownership rights.
Bear market: A bear market is a period of high falling stock prices when securities prices suffer a 20% decline from recent highs. Bear markets are good opportunities to find and buy undervalued stocks.
Bull market: the opposite of a bear market, a bull market is a period of rising stock prices that leads to low employment, economic growth and higher levels of investment.
Compound interest: in simple terms, compound interest is interest you earn on interest. For example, with a savings account that earns compound interest, you’ll earn interest on the original (aka the ‘principle interest’) and the interest that accumulates over time.
Dividend: a dividend refers a reward that a company gives to its shareholders. Dividends can be issued in various forms, such as cash payments, stocks or any other form.
Dow Jones Industrial Average: also know as the Dow Jones or the Dow, is the stock market index of 30 prominent companies listed on stock exchanges in the U.S. Its one of the oldest and most commonly followed indexes.
Exchange-Traded Fund (ETF): ETF shares trade like stocks. With ETFs, you have a bundle of assets that you can buy and sell, diversifying your portfolio and potentially lowering your risk as an investor.
Federal Reserve: The Federal Reserve is responsible for coordinating the country’s monetary policy. The Federal Reserve is the U.S. central bank and is responsible for maintaining stable prices, ensuring as many folks are employed as possible, and oversee long-term interest rates.
Financial advisor: a financial advisor is a professional who provides services to their clients including financial planning, investment management, wealth management and more.
Home equity: Home equity is the value of a property after a mortgage balance has been deducted from the appraisal value. An example might look like this:
My home equity = the appraised value of my home (the evaluation of my house’s value at any point in time) – the remaining balance of my mortgage.
Inflation: inflation is the rise in price level and fall in a currency’s purchasing power. Inflation rates affect the real value of investments, like such as homes, cars or other entities.
Interest: interest is defined as the fee a borrower pays in exchange for borrowing money. Many people learn about interest (like I did) when it’s added onto credit card bills and student loans.
Joint venture: a joint venture is pretty much like it sounds- a business that is created by two or more parties that share the same ownership and the same risk level. Joint ventures can be attractive because they are cost-effective way to enter a market or form a business.
Liquidity: liquidity is the process or converting an asset into cash.
Mutual funds: mutual funds are pooled collections of securities such as stocks, bonds, and short-term debt.
Portfolio: a portfolio is a bunch of stocks, cash, bonds and other assets owned by an individual or investor.
Recession: a recession is a downturn in economic activity. Recessions usually include a drop in stock prices, a stark market crash and increased stress for many people. Most people are affected during a recession as it effects things like how much they pay for food, gas, homes and more.
Security: a security is a stock, bond or other investment that can be traded.
Stock: stocks are securities that represent the share of ownership in a company. They are also called shares or equities and are one of the most popular types of investments on the market.
Yield: yield can indicate positive or negative changes in the cash that an investor earns from securities.