17 Investing Vocabulary Words That Every Twentysomething Should Know (2024)

Investors commonly talk about their stocks and bonds as assets, but you might also hear this term applied to real estate, cryptocurrency, gold, or even fine art.

Assets can be "liquid," meaning easily transferable into cash like stocks, or "illiquid," meaning harder to turn into cash. A house is a good example of an illiquid asset because of the long process involved in selling.

Investors also talk a lot about asset classes. These are just groupings of similar assets that are covered by the same regulations. For example, stocks can be considered an asset class, and within that class, certain types of stocks might be grouped together within asset categories.

When you think of investing, stocks are probably what pop into your head. Companies sell stock as a way of making money to fuel their business. When you buy stock from a company, you own what are called shares in their business, making you a shareholder.

So what's the difference between stocks and shares? Investors tend to use the word "stock" in a general sense, referring to investments in various companies, whereas they'll talk about "shares" when discussing a particular company's stock.

There are two ways to make money from stocks: either selling your shares for a profit when the stock price goes up or by earning dividends.

Retirement accounts like IRAs and 401(k)s often get talked about in terms of "saving for retirement," but they're actually investment accounts. A 401(k) is an employer-sponsored retirement account that's funded with pretax money taken out of your paycheck. You won't pay taxes on 401(k) contributions until you take money out in retirement.

An IRA is an individual retirement account, which you can open for yourself. There are a few different kinds of IRAs, but the most common are traditional and Roth. Traditional IRAs are usually tax-deductible, meaning you don't have to pay taxes on your contributions, so this investment could lower your tax bill. Roth IRAs, on the other hand, are funded with after-tax dollars. The neat thing about Roth IRAs is that earnings and withdrawals aren't taxed, because you've paid taxes on this money already.

If you're thinking about becoming an investor, opening a retirement account (if you haven't already) is the perfect place to start. A retirement account helps you get comfortable with investing concepts and learn about the kinds of investments that suit your needs, while also doing future-you a favor. It's kind of a win-win. However, you should keep in mind that with some of these accounts, you won't be able to touch that money until you reach age 59 1/2 without paying penalties.

A brokerage account can hold stocks, bonds, funds, and other investments. Investors deposit funds in these accounts and then use them to buy and sell investments.

You can open one of these accounts with a fancy full-service stockbroker or take the DIY approach with an online discount broker like Webull or Robinhood. Once you've opened a brokerage account, you can transfer money into it from your checking or savings, and use it to invest in stocks and bonds.

An advantage of these accounts is that they're very liquid. You can sell shares and pull your money out any time. But be aware that the money you make in a brokerage account is considered taxable income.

Joe Gunn @joegunn

Me disguising myself as a hedge so that I can get funds

01:40 AM - 28 Jan 2021

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You have to pay taxes on capital gains, and these are charged at different rates depending on how long you've held an investment. FYI, short-term gains, like those from investments you've held for less than a year, are taxed at a much higher rate than long-term gains.

Capital losses can be used to offset your gains and lower your tax liability.

When investors buy on margin, they'll put down part of the cost of the investment up front, like a down payment, then borrow the rest from their brokerage. To buy on margin, investors need to set up a margin account, and they can usually only even do this if they've already invested at least $2K.

When an investor borrows from their brokerage, the funds they've already invested become collateral on that loan. This means that if they wind up suffering losses on the investment that they borrowed to buy, the brokerage can get their money back by liquidating their other investments. It's a pretty risky move, considering the fact that investors using this strategy can lose more money than they originally borrowed. In fact, many historians and economists say that widespread margin buys influenced the stock market crash in 1929, which contributed to the Great Depression.

Short selling can be a very risky move. But for investors who don't mind taking on risk, it can also be very profitable. To short sell a stock, investors borrow it on margin and sell either after a predetermined amount of time has passed or when the stock reaches an agreed-upon price.

However, if the stock you're trying to short starts to go up in price instead of down (yep, like GameStop), then your broker can liquidate your other investments to pay themselves back — and there's no cap on how much you can lose.

Day traders are investors who actively manage their own portfolios and like to buy assets at lower prices and sell them when they go up — sometimes in the same day, as prices are always going up and down. This style of trading can be pretty risky and it takes a lot of stock market know-how to pull it off.

However, you don't have to be a day trader to invest. Plenty of investors (including yours truly) prefer a more hands-off passive investing style. In this kind of investing, people put their money in assets that they plan to hold for a long time, with a focus on long-term gains rather than short-term fluctuations.