You hear a lot of terms bandied about when reading finance-oriented magazines like Money and Forbes and watching CNBC. The following will help familiarize you with some of these terms so you can develop a better understanding of what financial analysts and market gurus are saying:
Bear Market: the market is referred to as a “bear” when it’s not performing well. Technically, a bear market exists when the stock market drops at least 20% from its most recent high.
Big Board: a reference to the New York Stock Exchange (NYSE).
Blue Chips: large, well-established companies that combine growth and dividends to shareholders. They are typically the most prominent 100 – 200 companies, and the blue chip label refers to their long-term endurance.
Bull Market: this is when the stock market is performing extremely well. You may be referred to as a “bull” if you are openly optimistic about the market’s continuing growth potential.
Dividends: typically paid out each quarter, dividends are basically your share of the company’s profits.
Earning Per Share: calculated by dividing a company’s net income by the number of outstanding shares.
Equity: the same as a stock, representing ownership in a company–just as you own equity in your home.
Market Correction: this occurs when the market drops at least 10% from its most recent high.
Price-to-Earnings (P/E) Ratio: a measure of a company’s future earnings prospects, calculated by dividing the stock price by its earnings per share.
Tax-Advantaged: being tax-free, tax deductible, or having other tax benefits.
Tax Deferred: postponing taxes on earned income each year until money is actually withdrawn from the account.
Tax Shelter: a legal means of reducing or avoiding tax liability.