# Basic investing terms you need to know - Part 1

Updated on March 14, 2011

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.

## Alpha

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

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

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.

## Fixed Income

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

## Index Funds

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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• Cruncher

4 years ago from UK

A useful resource. Thanks. And well done.

• AUTHOR

chan0512

7 years ago from Camarillo, CA

Thanks Emdi, I do like index funds as well.

• emdi

7 years ago

• AUTHOR

chan0512

8 years ago from Camarillo, CA

8 years ago from Saint Louis, MO

Great intro to investing - I look forward to the next part.

• Lori J Latimer

8 years ago from The River Valley, Arkansas

Congratulations Chan0512 on your nomination. You have a gift for explaining financial terms in plain talk - Thank you... : 0)

• Michelle Simtoco

8 years ago from Cebu, Philippines

I think this is the part what I need to study-investment terms! LOL

Congratulations on your Hubnuggets nomination. This is ripplemaker reporting live from W-HUBN news and the news gets better and better. http://hubpages.com/hubnuggets6/hub/HubNuggets-The...

• AUTHOR

chan0512

8 years ago from Camarillo, CA

Denise & Fetty,

Thanks for your feedback. I really appreciate it.

• fetty

8 years ago from South Jersey

Great graphics with very good, clear language. I agree with Denise about how difficult this subject is for me to understand. But I keep trying. Congratulations on your nomination and welcome to HubPages.

• Denise Handlon

8 years ago from North Carolina

Hi Chan0512-welcome to the hubpages community. Congratulations on your hubnugget nomination.

Loved the hub! Am almost blindly stupid about investments and am always appreciative of useful information that is easy for my brain to comprehend. I don't know why I think the financial world / investments, etc all speak another language that I don't understand, but that is what it is like for me.

Regardless, I trudge forward slowly making progress. :) Good luck in the contest.

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