Investment Glossary

Diversification of your portfolio investment is one common strategy that investors use. Primarily, this strategem is done to offset the risk of investing and if done properly, can minimize the total risk of investment for up to 70%. Diversification is made by mixing up your investments, such as bonds, properties or estates and stocks, which are unlikely to all move in the same direction.

Your investment's volatility is reduced because not every asset classes, industries, and private companies rise and plummet in value at the same rate or at the same time. Portfolio diversification supports you for the potential losses if an industry, sector, or stock performs poorly. It could give you maximum investment returns when the industry, sector, or stock do well in the market.

Investors have a lot of ways to select when diversifying a portfolio. For those who lack money or interest, mutual funds are convenient alternatives. For those who are interested in single securities, you can opt for bonds and stocks that can suit your needs. Oftentimes, investors even invest in pricey antique collections, arts, rare bills and coins, and other alternatives as a way of making the value of their invested money grow and appreciate. If you choose to be a wise investor, try this technique.

Investing has become a trend even for young people who are still in their college years. Stock market has become a buzzword, and terms such as index, portfolio, and stocks have become major business lingo standouts. Sometimes, people confuse these terms. To make it clear though, I'd like to address the importance of the word 'index' - as more and more people are becoming befuddled on terms that are attached to it: e.g. misery index, index hugger, index funds, and cardboard box index.

What exactly is 'index'? We talk of Dow Jones index, NASDAQ index - but in reality, we're not looking at the company, but an appraisal of changes in a company's stock portfolio. These companies play a big hand in the US trade market. If their stock indexes soar, they are gaining profit, and the opposite, if they plummet.

In the investment lingo, misery index is measured as the company health, as visible in inflation rate and unemployment status for a specific period of time. If the index increases, the economy's going down, and the opposite phenomenon will be true if it decreases. Another term associated with index is the cardboard box index. Simply put, this means an appraisal of the industrial production's progress via the amount of corrugated boxes produced as shipping materials for consumer goods being purchased.

Some of us may have had some experience with investment procedures but have never really figured out what some market buzzwords mean. You may have heard of the word trade and profit from the changes in stock shares for instance and short sell them to another exchange, raking in profits without risk.

Another term is the "bull market" which is an optimistic market of investment trades such as bonds, commodities and currencies. Bull markets deteriorate eventually to sluggish bear markets which at one point are a bubble, and at the finale becomes a mere market crash.

Are you thinking of gifts to give your loved ones? The gift tax was originally designed to prevent people from escaping estate taxes of properties that they have given their children and families. For our purpose here, a gift is a transfer of property for less than its full value.

While Congress has remarkably reduced the estate tax (from 47% in 2005 to 45% in 2009, to 35% yet just a year later), it has nevertheless retained the gift tax. This is because the gift tax works as another preventive measure against families who rotate their assets among its members to maintain and level their income tax rates. Numbers aside, it would do us good to keep in mind that the real essence of giving gifts is making people happy.

Investing your money is the best way to boost your finances. Instead of storing it in the bank, you may roll and increase your finances through profitable businesses. One of the popular and successful investment options today is property lease such as house rentals. Should you decide to put your money into this form of business, there are certain things you need to take note of:

First, select the right properties. Your profit does not only depend on the number of your rental properties. You must bear in mind that there are certain designs and kinds of residential units that bring more income compared to the others. Be sure also that you buy properties that need the least improvement.

Second, the success of every business also depends on an effective management plan. Find the right strategy and business style that not only suits you but also ensures you the highest rate of profit.

Third, as much as you need the right property and plan, you must also see to it that you are accepting the right tenants. You can do this by checking their background particularly in terms of their finances or criminal records. Moreover, you may only accept applicants that give the most complete, detailed, and authentic document for reference.

Buying bonds is basically a type of good investment wherein you let a corporation borrow your money for a given span of time in exchange for bond coupons. Aside from the common savings bonds and T-bills, there are other different kinds of bonds that you may want to invest in. Zero coupon bonds are purchased at a discounted rate and enable the investor to pay no periodic interest. Municipal bonds are usually exempt from tax and sold by government units, cities or states. Insured bonds provide protection thereby giving low interest rates. On the other hand, there are bonds that can be transformed into stocks and these are called convertible bonds. Finally, junk bonds or high-yield bonds are the most risky type of bonds, which are handed out by governments and corporations.

Now that you have an idea of the types of bonds, you can now choose your own way of putting your money to good use. The only thing to hope for is that the returns will exceed your expectations.

Certainly, the name Martha Stewart rings a bell especially in the corporate world. After serving her term for some fraud charges, she is back in the limelight. Apparently, her prominence grows as evidenced by her hosting of the top rating reality show The Apprentice. Interestingly, talks revolve around Hollywood townthat some producers are up to something regarding her life.

What is surprising is the fact that Martha Stewart is deciding on the fate of hopefuls who are determined to work for her company. In the show, contestants are taught how to be corporate leaders and practice corporate ethics. Perhaps Martha could help as her ethics were non-existent when she was found guilty of a corporate malpractice.

The show might be affected as viewers may find the reality hard to swallow. However, Martha Stewart deserves a lot of credit because of her resiliency after facing an investment scam.

BPO is short for business process outsourcing. In the last two decades, outsourcing has been the best way for Western companies to save financial resources. BPO follows in the footsteps of mergers, and has also had its fair share of controversies. But for people in the Third World countries like India, China and the Philippines, outsourcing has been a crucial source of additional high-paying jobs.

Off shore labor force is not only cheap, they are usually composed of people that because of their financial circumstances and culture are better suited to the jobs being outsourced. Outsourcing has become a necessity for most multi-national companies. This is mainly due to cheapness of offshore skilled labor. But there are other factors taken into consideration. Compared to China, for instance, the US has fewer degree holders. The Philippines has a huge amount of college-educated labor pool that is bound to grow bigger. Another reason is skill distribution. Some countries have a higher concentration of a specific skill that other countries lack. A good example would be programmers. There's a huge demand for programmers in many Western nations, more than nation's educational system can provide. Outsourcing, then, becomes a good alternative to importing highly skilled foreign nationals.

The term hedge fund comes from the phrase “hedging one’s bets”, which, as the name, implies ensures that one’s bets always reap in profits no matter what the market conditions are. This is deftly possible through balancing out one’s transactions and choosing the right stocks to act on at the most auspicious time.
From the time the first hedge fund was created by investment mastermind Alfred Winslow Jones, hedge funds have now evolved to become more than just a steady guarantee of profit. For the most part, hedge fund is any unregulated fund invested in unconventional methods. Some common hedge fund strategies include trading stock options and bonds, buying or selling highly undervalued securities, and arbitrage. For its sense of secrecy and cunningness, most hedge funds are better off owned by partnerships then rather than by corporations.

As the role of households in the society changes, so are the opportunities that are provided to them. In the economic world, there is a great chance that an economic entity acquires the characteristics of other entities. For instance, households were not deemed to make a healthy participation in the market. However, the rise in family income would result to more savings. The savings allow households to venture into something that will make their money earn.

In the area of financing, it is suggested that families should turn their extra income into something useful. In short, families should invest. Investing is the act of accumulating something, specifically an asset hoping that such asset will be productive. The productivity will soon translate to income further boosting the financial capabilities of households and helping the economy as well.

Mutual funds differ from hedge funds in that they use only bonds or only equities to generate returns, as indicated in their investment mandate, whereas hedge funds allow a wider variety of asset classes: equities, debt, commodities and derivative products.
Hedge funds enjoy a lack of transparency too (unlike mutual funds) since they don’t have to regularly disclose their positions and performance to their investors and the SEC. This works to the hedge fund managers’ advantage since they can operate in a sort of smokescreen, exploiting proprietary trading strategies based on market inefficiencies before other companies can pirate them.
As anyone well knows, in the cutthroat world of investment, secrecy is a virtue.

When a company begins to earn and progress, it's often a common practice to expand and, subsequently, offer more shares of stock for sale by creating more shares than what was originally offered. In order to avoid having their shares diluted by the creation of more stock, the original investors exercise what is called the preemptive right. The preemptive right is the right of a shareholder to buy a proportional number of stocks from the newly created stock in order to avoid having their stocks shrink in the light of the new numbers of stock. Confused yet? Better use an example, then.

For example, Investor Joe has 10% of stock in a company that makes golf balls. This company then expands and decides to offer more stock publicly, but the issuance of more stock will make Investor Joe's shares shrink proportionally. In order to avoid this, Investor Joe exercises his preemptive right and buys enough of the new stock to maintain his hold over 10% of the company.

The preemptive right helps make sure that investors don't get the short end of the stick when it comes time for the company to expand.

Today, insider trading is considered a crime and looked down upon by many people. But did you know that in the early parts of the 20th century, insider trading was seen as a "perk" of being a company's executive?

But what is insider trading? Legally, it's defined as someone trading from an inside tip (that is, information not made public) with an intent to gain from it, and that someone is connected to the company that's trading. "Someone" is defined as all officers, managers, directors and 10% owners of the company.

But now there are safeguards against this type of skullduggery, but they are by no means perfect. But still, the law is finally getting wise to the tricks of these inside traders.

Stocks and bonds are often mentioned in the same sentence that it seems that they're one and the same. The truth is, they're not. They are in fact very different from each other in terms of payoff and risk.

Stocks are parts of a company that are purchased by an investor, and these are represented by slips of paper called Stock Certificates. Bonds are a loan by the company to you, the investor. Stock value tends to go up and down depending on the market, while bonds are generally safe and from these fluctuations. But the payoffs are greater for stocks than bonds, as their value depends on the performance of the company, which can go either sky-high or down low. Bonds are never that profitable, but are definitely safer. It's up to you to decide whether you want to purchase either a stock or a bond from a company like Prosperity4 for your future.

If you're investing in a business, and you would really like to see it grow, then why not suggest that it apply for incorporation? Being incorporated brings with it a number of advantages, such as:

- A longer life than any of its owners. A business is dependent on the willingness of the family to continue the business after each generation. An incorporated business doesn't have this problem, as it can be sold to other interested parties if need be.

- Retirement funds like a 401k are more easily set up using a corporation than with a business that isn't.

- The ownership of a corporation is easily transferable.

- Capital for expansion, research, etc. can be easily raised by the sale of stock in the company.

Becoming incorporated also means that the business is indeed booming and ready to play with the big boys.

You might have heard over the business news or read in the paper that So-and-so company was in a merger with This-and-that company. Or you might have heard that another company was in a hostile takeover bid for another company. No, they're not declaring war on each other (at least not in the traditional sense) but going through a sometimes ugly, sometimes painful, and mostly entertaining business deal. But just what are consolidations, mergers and hostile takeovers?

A consolidation is when a company joins with another to form a new financial and corporate entity.

A merger is similar to a consolidation, and can also refer to when a company purchases another, even if the companies do not consolidate their products.

A hostile takeover is when an outside investor (usually another company) attempts to buy out a company's shares against the wishes of the management, board of directors or other shareholders.

It's important to know these terms as they can affect your investments.

The practice known as shorting stock involves a very savvy business sense, knowledge of the ups and downs of the stock market, and a whole lot of guts. To short stock, one borrows, or more accurately, loans a number of stock shares from another investor, promising to pay them back at some point in the future. Let's say Investor A borrows 10 shares of stock from Investor B. Investor A believes that the prices of the stocks he borrowed will fall soon, and sells the borrowed stock at the current price of $10 a share. And when they do fall to a price of $6 a share, Investor A then buys 10 shares of the stock for $60, and pays back Investor B the shares he borrowed, making a profit of $40.

As tempting to short stock as it is, the trend can easily go the other ways. What if the stock rose to a price of $12 a share? That's a payout of $20 in addition to the $100 you've already spent. Shorting stock, like any investment venture, is fraught with potential for high profit and large losses. It's up to you to decide if you should take this risk.

Blue chip stocks are, as everyone knows, the most desirable stocks out there. And choosing one to invest in can be a tricky and difficult task. Add that to the often higher than average price of your typical blue chip stock and you've got an investment well out of reach of the ordinary investor.

But thanks to Morgan Stanley Dean Witter, even the average investor can now put his money in a blue chip company. They introduced the blue chip basket, where instead of buying just one stock with your money, you buy instead a share of a basket which includes fractions of shares of blue chip companies. One share, for example, could contain 1/6th of Coca-cola, 1/7th of Microsoft, etc.

Blue chip baskets are an excellent way to spread out your investments and save the investor time and money.

We've often heard the news reports that mention the Federal Reserve. The "Fed" as it is sometimes called, is an important part of the American economy. But just what does the Federal Reserve do?

The Federal Reserve System was established in 1913 and is run by the Federal Reserve Board based in Washington, D.C. It is the highest power when it comes to the monetary system of the United States and is composed of 12 Federal Reserve Banks located throughout the nation. The Federal Reserve is the only power that can regulate monetary policy (e.g. money supply, interest rates, etc.) as a means of keeping the economy stable. The primary function of the Federal Reserve System is to control inflation.

Stocks, in order to confuse you further, come classified into two more classes: Class A and Class B. These divisions are all about voting rights in the business direction of the company. Class B stocks have more voting rights, being entitled to ten votes per share in the company to a Class A's one vote per share. But as a trade off, Class A stocks pay a higher dividend (up to 10% greater) than a Class B stock.

So if you just want to get the money and not have a say in the way a company operates, get some Class A stocks. But if you want a greater hand in the destiny of a corporation, go with Class A stocks.

We've all heard the term "trust fund," and we all know it refers to something rich folks set aside for their children so that they can grow up into rich spoiled brats, but what is it, really?

A trust is defined as an agreement which is bound by law in which a person gives a trustor the control of his cash, investments, property or other assets so that it can be managed by the trustor for the benefit of the trust's beneficiaries. In shot, you give somebody control of your money, lands or whatever for that somebody to manage or propagate your assets for your or your beneficiaries' benefit.

Having a trust fund is an excellent way to manage your own or your children's future.

Investors are often told about the potential earnings that they might have had if it were not for the payment of taxes, fees, and whatnot. This creates sympathy for the company and encourages the investors to hold on to their investment and stick with the company. This will often come in the form of a number caled the EBITDA. EBITDA in an acronym that stands for Earnings Before Interest, Taxes, Depreciation and Amortization. As you can probably tell, it is meaningless in the long run because it is only an maginary figure, with nothing to do with the bottom line of investing: Profits.

A wise investor would ignore this number and focus instead on whether or not his investment is indeed maing him a profit.

A Day Trader is a sock market broker who will only buy and sell stocks during the day, basing his profit on the daily movement or on the movement of the stock he or she is selling throughout the day. He or she will only hold a stock from anywhere from a few seconds or a few hours, depending on the stock's movement, but they will never hold it for more than a day at most.

The object of day trading is to get in and out of a stock for a profit that can go as little as a few cents per share to several shareholder points per share.

There are two styles of day trading. The Scalper style involves the selling and purchase of large volumes of stock within a short period of time, usually seconds or minutes. Minimum risk for minimum profit is the objective here.

The Momentum style involves studying the pattern of a stock so that traders can sell high and buy low at the most profitable times according to their observations.

Blue chip stocks are the best of the best when it comes to stocks. Their value and prestiege are unmached in the business world. It is often a signal honor for a stock or company to be declared a blue chip stock.

Yes, we've often heard companies whose business is booming and is well-respected a "blue chip" company. But why "blue chip" ?

The term "blue chip" comes from the famous card game of poker. In the game of poker, the chips one uses as they place a bet come in many different colors, with the highest and most important being of the color blue.

We've discussed the Bear Market as a great way to clear a room full of stock market brokers and investors, and now we're going to discuss a good way to make them come back: The Bull Market.

The words "Bull Market" sound like music to a broker's ears because it's when the prices of stock go through a period of rising prices. It takes its name from the action a bull does when attacking some poor matador stupid enough to get him angry: It lifts the unfortunate man (or woman) up into the air by his horns. Thus rising horns = rising stock prices.

The Bull Market is every investor's dream financial situation. Unfortunately, like many dreams, they end all too soon. The wise investor is surely prepared for that fact.