Investment Terms You Should Know to Prepare You for Investing!Investment terms are complicated and confusing at times, but just a basic knowledge of what they are and what they mean will help you go a long way with your investing. Knowing is half the battle. If you have further questions with any of the terms, research them more thoroughly until you understand them completely. Learning all of the terms of investing will help you understand the how and why of investing. There are so many different terms out there that it is impossible to cover them all. But I have listed some of the more common terms on my site to help you understand words you will hear when it comes to investing and how you can use them to your advantage. Words are powerful tools when it comes to getting what you want in life. If you are trying to buy a house, understanding the investment terms involved with real estate would be a very good thing to study. If you are interested in investing in the stock market, you should study up on the words and terms associated with trading and investing in the stock market. Just like with anything else you study, investments involve complicated terms that do not always have obvious meanings spelled out for you. Some of these words can be confusing and when misused, you can actually cause more harm to your investment activities than good. Below are a few investment terms and definitions to help you understand some of the questions you may have about things associated with investments.
Adjustable Rate Mortgage (ARM): If you don't know what an Adjustable Rate Mortgage is, you must learn as much about it as you can. You want to avoid these evil loans at all costs. An ARM is a tool lenders use to make it easy for middle to low income families to buy a home with a low interest rate and special payment terms. Over time, an ARM's interest rate will rise and fall with the current market, ranging from between 5% to 12% or even higher. Amortization: Amortization is one of the more common investment terms you may have heard. It is the repayment of any non-interest or interest bearing loan in regular installments for a set amount of years. It is usually broken down showing the total payment each month, interest paid each month, and principle paid down each month. Appraisal: An Appraisal is a valuation or estimation of the value of a property by people who are neutral (have no ties to the property) and who possess proper qualifications. It is the process of best guessing the value of an asset or liability that requires an "expert" opinion. To appraise is to determine the value of assets and liabilities. Appreciation: Appreciation is the difference between your property value from when you purchased it if the value of the property goes up over time. Asset: An asset is something that you own or are making payments for that you are earning cash flow from. This is one of the most important investment terms you can learn about because it will drive your cash flow. If you own real estate and rent it out, if the rent you are receiving is more than the mortgage you are paying out, then it is an asset. There are many forms of assets out there including real estate, businesses, your network (in network marketing), and various paper investments (stocks, bonds, CDs). If your money is making you money, it is an asset. Assignment: Assignment is the process by which a contract or a right is transferred from the original owner (the assignor) to a new owner (the assignee). An Assignee is a person to which a transfer of interest is made. For instance, if an Assignee of an Agreement of Purchase and Sale purchases a property. they can enforce the contract in the same fashion as the original party. Assignor is the person who makes an assignment to the assignee. Cash Flow: Cash flow is a very important among the money making terms you must understand thoroughly. This is what actually makes you wealthy. Cash flow is the amount of money you are making from your assets minus your asset's expenses. In a job, your cash flow is generally steady, never goes up, never goes down. When you get a raise at your job, your expenses usually go up proportionally and your cash flow stays the same. Your goal to becoming wealthy is to continually raise your cash flow while maintaining your expenses in order to build wealth. When it comes to real estate investing, it's not how much income you have but how much cash flow you have that makes the difference. Leverage: Leveraging is one of the most useful terms of money you will find. This very important word in investment terms should be part of your vocabulary no matter what. Leverage is defined as the act of getting more out with less in. You work less for more work out. Your time is very important to you and if you ever want to retire, you need to work less and have more money coming in with little to no work required. This is done by leveraging your time, money, and tools available to you. Liability: A liability is something that you owe money on and that doesn't produce cash flow. If you own a house and rent it out, if the rent you are receiving is less than the mortgage you are paying out, you have a liability. Yes, the house you are buying and living in is a liability, not an asset. Passive Income: Passive Income is income that is made without you having to work for it continually. Passive income can be made through investments, royalties from books/albums, and businesses. This income is there because you used some form of leverage to create an income source. Return on Investment: You may have heard "you want to make the most return on your investment", but do you really understand what that means? Return on Investment or ROI is how much money you make from the money you put into an investment. If you put little to no money into a major purchase and make twice as much money with a resale, then you double your ROI. There are many more investment terms, but these will get you started. More investment terms will be added regularly, so keep checking back. To learn more investment terms, study some of the laws of money. |
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