Investing does not have to be complicated, but it is filled with jargon that makes it sound like a different language. This may cause hesitation, especially among beginners to kickstart their investment journey.

If you are new to the world of investing, don’t let the jargon stop you from pursuing your investment journey. Having adequate knowledge about what you are getting into is crucial to make informed decisions. 

Here are some of the investing jargon that will make you a little less intimidated by the world of investment. 

Check out Part 1 here! 

Market Index

A market index can be seen as a hypothetical portfolio of investments that represents a portion of a financial market.  

It is an index that measures the stock market or a segment of the stock market allowing investors to use it as a benchmark. Indexes can help gauge the movement or performance of any segment. 

The methodologies behind the construction of these indexes vary but it all comes down to weighted average mathematics. Some of the examples of stock market indexes are:

1. S&P 500 (USA)
2. Nasdaq (USA)
3. Dow Jones (USA)
4. Hang Seng Index (CHINA)
5. Straits Times Index (SINGAPORE)
6. Kuala Lumpur Composite Index (MALAYSIA)

Each index has its own branches that specify which segments it is focused on, allowing investors to narrow down their decision-making process. 

Mutual Funds

A mutual fund is a pooled portfolio. Basically, investors buy a certain amount of units of the fund rather than the individual stock or share themselves. 

Each fund is unique and holds stocks from different segments of the market. The weightage of each segment varies from different funds together with its risk and returns. In addition, the portfolio is managed by a professional fund manager who oversees your investments. 

This is an ideal option, particularly for new investors or individuals who are too busy to manage their portfolios from time to time. You are free from the need to conduct thorough research and purchasing individual shares from each company as it is all taken care of by the fund manager with an added fee for his/her service.

These funds are not traded throughout the day, instead, buy and sell orders are collected for the day and executed once the markets have closed. 

Exchange Trade Funds (ETFs)

ETFs are like mutual funds except they are traded throughout the day just like stocks. They consist of all types of investments including commodities, bonds, and stocks.  Since they are traded during the day, the ETFs’ share price also fluctuates accordingly. 

An ETF holds multiple assets rather than only one like a stock. The diversification it provides makes it a popular choice. It can have hundreds of stocks from various industries or be isolated to just focus on one sector. ETF can be broken down into 4 types, which are: 

• Bond ETFs

These are used to provide a regular income to investors which depends on the performance of the underlying bonds.

• Stock ETFs

These refer to a pool of stocks. 

• Industry ETFs

It is mainly focusing on the specific sector or industry such as energy, IT, semiconductors, and so on. 

• Commodity ETFs

These include the investment in commodities like crude oil, copper, silver, soybeans, and so on. 

Essentially, it allows you to invest in multiple stocks that are pooled together, saving the hassle of buying them individually and helps to diversify your portfolio. 

Cryptocurrencies

One of the most controversial and volatile investments must be cryptocurrencies. 

In the simplest terms, a cryptocurrency is a digital currency that uses cryptography to provide security. It can be used like any other currency to make purchases given that the company accepts cryptocurrencies.

Investors, however, tend to trade cryptocurrencies by leveraging their volatility. A simple rumour can shoot the prices of a cryptocurrency up sky-high or vice versa. A good example would be Elon Musk’s tweet on Bitcoin causing a huge impact on its price. 

Despite its volatility and associated risk, crypto investment has the potential for a very high rate of return which keeps investors interested. 

Robo-advisors

Heard of names like Stashaway, Syfe, AutoWealth or EndowUs? These are Robo-advisor platforms. 

As the name suggests, there is no direct human involvement. A specialized software coupled with complex algorithms perform the trades based on the company’s knowledge of markets and investing. Hence, different companies have different performances. 

Despite no human involvement, you could however deal with a person regarding other queries. 

Robo-advisor does come with its own unique fee structure for all the trades carried out on its platform. It is advisable to properly read through their terms and conditions before starting to invest using Robo-advisors. 

Stockbroker

If you prefer the human touch rather than a clever robot guiding or performing your investments, then you would want to liaise with a stockbroker. 

A stockbroker acts as an intermediary between buyers and sellers of securities. Unlike Robo-advisors, they do not perform any form of analysis of your investment. The main role of a stockbroker is to execute trade orders that you have made, and you will have to pay a commission for their service. 

Unfortunately, there are many new “investment gurus” who are flooding through social media or entertainment platforms. Hence, it is crucial to choose a professional stockbroker who is experienced and will help to gain more insights on the markets as well as providing professional guidance. 

Know What You Are Getting Into

Knowledge is power and in the world of investing, it can help you make the right move.