Investing terminology can be confusing. A good rule of thumb is to never invest in something you don't understand, so here are the investing terms and what they mean
Expected Inflation Rate
The percentage rate that consumer prices - things like milk, eggs, gas, and more - are expected to rise by in the future. For investing, the goal should be for your long term investment performance to outpace inflation.
The amount ofttimes you'll keep your money invested - for example, now through when you retire.
A certificate of deposit (CD) is a special kind of savings account that comes with a fixed interest rate. Keep in mind that the interest rates for CDs don't keep up with inflation, so this may not be the best tool for long-term investing.
Exchange-traded products (ETPs) are a common method for buying and selling commodities. An investing pro can help you weigh the pros and cons - but we don't recommend ETPs since we think the potential rewards don't balance out the risk.
Mutual funds are professionally managed investment portfolios that allow investors to pool their money together to invest in something. There are many different types out there that you can talk with an investing pro about. We generally recommend investing evenly across four different types of growth stock mutual funds: growth & income, growth, aggressive growth, and international funds.
Inside a typical growth stock mutual fund are stocks from dozens, sometimes hundreds, of different companies, so you’re basically buying bits and pieces of all those companies. Some of those company stocks go up while others go down, but the idea is that the overall value of the fund should go up and beat inflation over time.
Stocks represent shares (or tiny pieces) of a company. When a company goes public, they sell these small shares to people to fund growth. Picture a big ol’ sheet cake that someone cuts up into lots of small squares. If you purchase one of those squares, you own that slice. When you buy stocks, you become a part owner of the company. Although we don’t recommend single stocks, we do recommend that you invest in growth stock mutual funds.
A goal that guides your investment decisions - like trying to retire at a certain age or leave a legacy for your loved ones. Your investment goals are based on things like your personal circumstances, age, risk tolerance, and future money needs.
A bond is a type of loan between an investor and corporate or government borrower that promises to repay the money with interest. Since they are often backed by governments and guarantee a steady return. bonds are seen as a safe investment and attract a lot of investors.
Commodities are raw materials like gas, oil, beef, gold, and grains. Commodities trading is when you buy and sell these things, and there are many ways to do that. The basic principles of supply and demand typically drive the commodities markets, but factors like weather or political turmoil can play a role in prices.
Exchange-traded funds are funds that are traded on a stock market exchange. They generally mirror a market index, like the Dow Jones Industrial Average or the S&P 500, by investing in most or all of the company stocks included on that index. So they are a lot like mutual funds, except they can be traded like stocks.
Real estate investing comes in different shapes and sizes. You can purchase a home and live in it. You can purchase properties and rent them out. Or you can flip houses. The idea with any of these investment opportunities is to (hopefully) make a profit.Your real estate investing funds should be separate from your retirement savings—that’s why we don’t include real estate as part of the investment calculator.