Definition Short selling, often referred to as shorting is a trading strategy that allows investors to profit from a decline in the price of a security. This technique involves borrowing shares of a stock or asset from a broker, selling them on the open market and then repurchasing them later at a lower price to return to the lender.
Key Components of Short Selling Borrowing Shares: Before selling short, an investor must borrow shares from a broker, which often charges a fee or interest for this service.
Definition A spin-off refers to the process by which a parent company creates a new independent company by distributing shares of its subsidiary or division to existing shareholders. This strategic move is often executed to streamline operations, focus on core business areas or unlock hidden value within the assets of the parent company.
Components of Spin-Offs Parent Company: The original company that holds a controlling stake in the subsidiary prior to the spin-off.
Definition Buy and Hold is an investment philosophy that involves purchasing securities and holding them for an extended period, regardless of market conditions. It is based on the belief that, despite short-term fluctuations, the market will grow in the long run, allowing investors to benefit from price appreciation and dividends.
Components of Buy and Hold Investment Horizon: The Buy and Hold strategy requires a long-term investment horizon, often spanning several years or even decades.
Definition Corporate bonds are debt securities issued by corporations to raise capital for various purposes, such as expanding operations, financing new projects or refinancing existing debt. When an investor purchases a corporate bond, they are effectively lending money to the issuing corporation in exchange for regular interest payments (known as coupons) and the return of the bond’s face value (principal) when it matures. Corporate bonds are an essential part of the fixed-income market and offer investors a way to earn steady income with varying levels of risk, depending on the issuing company’s creditworthiness.
Definition In finance, equity refers to ownership interest in an entity, represented by the shareholders’ claim on the company’s assets after all liabilities have been subtracted. It’s a measure of the residual interest in a firm’s assets, providing a foundation for assessing a company’s financial health and the value accorded to shareholders. Equity can manifest in various forms, including stocks in publicly traded companies, private ownership shares or equity in real estate after accounting for mortgages or loans.
Definition An ETF (Exchange-Traded Fund) is a type of investment fund and marketable security that tracks an index, commodity, bonds or a basket of assets like an index fund. Unlike mutual funds, ETFs trade like a common stock on a stock exchange. ETFs experience price changes throughout the day as they are bought and sold.
Importance of ETFs ETFs are important for providing investors with the flexibility of trading stocks alongside the diversification benefits of mutual funds.
Definition Fixed income refers to a type of investment security that pays investors fixed interest or dividend payments until its maturity date. Upon maturity, investors are repaid the principal amount invested. Fixed income securities are typically used by investors seeking regular income and lower risk compared to stocks. These instruments include government and corporate bonds, treasury bills, municipal bonds and preferred stocks.
Characteristics Capital Preservation: Fixed income investments are often used by conservative investors to protect their capital, as they generally involve lower risk compared to equities.
Definition A hedge fund is a pooled investment fund that employs diverse strategies to earn active returns for its investors. Hedge funds are known for their flexibility in investment vehicles, often engaging in leverage, shorts, options, futures and other derivative strategies to manage risk and capitalize on both rising and falling markets. They cater to accredited investors and operate with less regulatory oversight than mutual funds and other traditional investment vehicles.
Definition Impact Investing refers to investments made into companies organizations and funds with the intention to generate a measurable, beneficial social or environmental impact alongside a financial return. It goes beyond merely avoiding harm by actively contributing to social or environmental good.
Importance of Impact Investing Impact investing challenges the traditional views that social issues should be addressed only by philanthropic donations and that market investments should focus solely on achieving financial returns.
Definition A Mutual Fund is an investment vehicle made up of a pool of funds collected from many investors to invest in securities like stocks, bonds, money market instruments and other assets. Mutual funds are operated by professional money managers, who allocate the fund’s investments and attempt to produce capital gains or income for the fund’s investors.
Importance of Mutual Funds Mutual funds provide individual investors access to professionally managed portfolios of equities, bonds and other securities.