Mastering Finance 🚀 A Guide to the Top Financial Terms You Need to Know in 2023

Having a solid understanding of financial impacts and being able to effectively communicate financial decisions to stakeholders can propel your career forward. Start by familiarizing yourself with these 20 essential financial terms and definitions.

An index fund is a pool of funds from individuals invested in the stock and money markets by professional money managers. It differs from a mutual fund in that it follows a set of rules to track specific investments and index stocks.

An ETF is a publicly traded investment vehicle, similar to shares and stocks, that is expert-managed with a portfolio of investments such as stocks, bonds, commodities, and money market instruments.

A mutual fund is a professionally managed investment vehicle that brings together funds from multiple investors and invests in securities like stocks, bonds, and money market instruments. Portfolio managers make investment decisions and the funds are highly regulated, investing in low-risk markets and providing lower returns compared to other aggressive managed funds.

A hedge fund is an investment vehicle that pools funds from high net worth individuals and businesses and invests in diverse markets through professional money managers. Hedge funds have complex portfolios of high-risk, high-return investments both domestically and internationally, and differ from mutual funds.

A trust fund is a specific type of legal arrangement in which an individual or organization holds assets to be distributed to another person later on. For instance, a grandparent may hold $100,000 in stocks for their grandchild, with the condition that the grandchild receive the funds when they turn 18. Trust funds provide significant benefits for asset protection and, in some cases, tax benefits. They can contain a wide variety of assets, including stocks, bonds, real estate, mutual funds, hedge funds, and even works of art.

Penny stocks are common shares of small public companies that are sold at low prices. They are also known as nano/micro-cap stocks and typically include any publicly traded share valued below $5.

Bitcoin is the original cryptocurrency based on the Bitcoin Blockchain technology. It was designed to address issues with fiat currencies, such as inflation and over-production, and can be used as online cash for purchases from bitcoin-friendly stores.

Real estate refers to land and buildings on a property, including associated rights like air and underground rights. Real estate can be classified as commercial if used for business purposes, or residential if used for non-business purposes like building a home.

REITs are companies that use pooled funds from members to invest in income-generating real estate projects. They typically diversify and invest in as many high-income projects as possible, particularly in commercial real estate like office buildings, apartments, hotels, and shopping malls.

An asset is any valuable resource that can be owned and used to generate positive value by an individual or business.

Capital gains refer to the increase in the value of a capital asset, such as shares, stock, bonds, or real estate, from its original purchase price to its current selling price. Capital gains are considered taxable income.

A broker is a middleman involved in a transaction, linking buyers and sellers and charging a fee or earning a commission for their services.

A bond is a type of loan made to an organization or government, with the promise to repay the loan plus interest at the maturity of the loan term. They can be issued by national governments, corporate institutions, and city administration and are considered an investment class with a fixed income and a specific loan term.

P2P lending is a form of direct lending where one party provides funds to individuals or institutions online. P2P lending platforms are online platforms that connect individual lenders to borrowers.

An index is a measure of change calculated from a set of data points, such as company performance, employment, profitability

IRA stands for "Individual Retirement Account". It is a type of investment account in the United States designed to help individuals save for retirement. There are several types of IRAs, including traditional IRAs, Roth IRAs, SEP IRAs, and SIMPLE IRAs, each with their own unique features and eligibility requirements. IRAs typically offer tax benefits and other incentives to encourage people to save for their retirement years.

A company that provides asset management services invests funds on behalf of others, such as clients, shareholders, or partners. For example, Vanguard's asset management arm manages the investments in its mutual funds and ETFs by buying and selling holdings. J.P. Morgan's private client division, on the other hand, creates investment portfolios for both individuals and organizations.

Portfolio managers are seasoned investment experts who combine various types of assets into portfolios they oversee, with the goal of making a profit for investors. It's important to be aware of the key concepts related to portfolio management.