Basic investing terms you need to know - Part 1
When you open a financial magazine or business section of newspaper, you might have notice some common financial terms that you don’t understand. I’ll try to provide some details of these terms. The following is the first part of the article. I'll also try to provide some figures or/and tables to help you to understand these terms.
S&P 500 SPDRS - SPY
alpha is a risk-adjusted performance measure of funds. A positive alpha means that the fund has over performed, a negative alpha means the fund has under performed. A fund can also get a negative alpha when the expenses of a fund are considered. Alpha = Excess Return -- ((Beta x (Benchmark - Treasury))
- An alpha of 0.4 means the fund outperformed the market-based return estimate by 0.4%.
- An alpha of -0.6 means a fund's monthly return was 0.6% less than would have been predicted from the change in the market alone.
Beta is a coefficient that measures a stock’s return volatility relative to a given market index
- A beta of 1 means that the market and the stock move up or down together, at the same rate. That is, 5% up or down move in the market would result in a 5% up or down move in the stock.
- A beta coefficient of 2 suggests that the stock will tend to fluctuate twice as much as the market. That is, if the market moves up 5%, then the stock would move up 10%.
- A beta coefficient of 0.5% indicates that the stock will move one-half as much as the market, either up or down.
- A negative beta indicates the stock tends to move in the opposite direction from the general market
Capital Gain Distributions
Capital gain distribution is the dollar amounts that are paid to you or credited to your account by mutual fund investments or real estate investment trusts (REITs). Typically, mutual fund will distribute any capital gains during end of the year (i.e. December)
Dividend Yield (%)
This value is the current percentage dividend yield based on the present cash dividend rate. It is calculated as the indicated annual dividend divided by the current price, multiplied by 100. Eg. SPDR S&P 500 ETF (SPY) dividend yield is 2.03% per year as of January 31, 2010.
Ex-Dividend refers to the interval between the announcement and the payment of the next dividend. An investor who buys shares of a stock or mutual fund on the ex-dividend date or after is not entitled to the dividend. Eg. SPDR S&P 500 ETF (SPY) ex-dividend on June 18, 2010 is for dividend of $0.53128. To receive this dividend, investor/trader needs to buy SPY on June 17.
Best Investing Books
Fixed Income is a type of asset class in which the investments provide a return in the form of fixed periodic payments and, at maturity, return the principal. Fixed income is also known a bond.
Fixed income refers to Municipal bonds, Treasury bonds, Treasury bills, Treasury notes, Treasury Auctions, Corporate bonds, and Agency/GSE bonds.
Good 'til Canceled - GTC
This term is mainly used when you are buying a stock/mutual fund. It is a time-in-force restriction that can be placed on the execution of an order of stock. Good 'til Canceled orders are generally good for 120 days. If the order is not executed after 120 days, the order is automatically canceled. Some plans have been granted the ability to place GTC orders without a time limit. These orders remain in effect until the order executes, or until plan rules require the order to be canceled.
High Yield Bond
Non-investment grade bonds rated below Baa3 on Moody's credit rating scale, and below BBB- or the equivalent on S&P's or Fitch's credit rating scale. Credit ratings are assigned based on an issuer's ability to pay interest and principal. High yield credit ratings denote that the issuer's financial position is relatively weak, and its bonds should be considered a speculative investment. In bond results tables, the Attribute HY is used to indicate that a particular bond is a high yield or non-investment grade bond.
Moody, Fitch, and S&P are credit agencies
A passively managed, limited-expense (advisor fee no higher than 0.50%) fund designed to replicate the performance of an unmanaged stock index on a reinvested basis.
Update 8/5/2010 - Hubnugget Winner
My article was selected as a HubNugget candidate on July 30th 2010. I managed to win with 25% of votes in personal finance category. I received the following email:
"Hi chan0512, Congratulations! With 25 percent of the vote, your Hub was selected by the HubPages community as a winner! Excited? We are!"
Thanks everyone for the votes. Thanks for Hubpages Team! Thanks Patty Inglish, MS.
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