Investment Club Education Series: Investing Terms | Part 3

 Lauren Wilson

July 12, 2019

Build Your Vocabulary with These Common Investment Terms - Part 3

When beginning to invest, you will likely encounter new terms, strategies, and ways of thinking that may make your research seem daunting. There is no reason to be intimidated by investing and by learning a few key basics, you’ll quickly be able to ‘speak the lingo’ and participate in investment discussions.

In our first Investment Club Education series, we are sharing common investment terms to help you build your investing vocabulary.

In Part 3 we share some different types of investments. How many are you familiar with? 

Investment Fund: An investment fund belongs to many investors that supply capital which is used to purchase securities. While each investor retains ownership and control of his own shares, they do not make decisions about how a fund's assets should be invested. Rather, they choose a fund based on its goals, risk, fees and other factors. Types of investment funds include mutual funds,  exchange-traded funds (ETFs), and hedge funds.

Exchange-Traded Fund (ETF): An exchange-traded fund (ETF) is an investment fund traded on exchanges, much like stocks. ETFs can contain many types of investments, including stocks, commodities, bonds, or a mixture of investment types. 

Mutual Funds: A mutual fund is a type of investment fund made up of a pool of money collected from many investors to invest in securities such as stocks, bonds, money market instruments, and other assets. Mutual funds are operated by professional money managers, who allocate the fund's assets according to the stated objectives and attempt to produce income for the funds investors. 

Index Funds: An index fund is a type of mutual fund that attempts to replicate the performance of a given index of stocks, such as the Standards and Poor’s 500 Index (S&P 500) or some other investment type. Most index funds work by identifying an already well-known index, then build a fund that mimics it. Index funds generally have lower expenses and fees than actively managed funds.

Target Date Fund: A target-date fund is a fund that seeks to grow assets over a specified period. The idea is that the fund is looking to address the investors needs at some future date or “target date”. Often, investors will use a target date fund to apply to their onset of retirement however any future date event can be applied.

Hedge Funds: A hedge fund is a fancy name for an investment partnership. Generally, it makes up of a professional fund manager, who can often be known as the general partner, and the investors, sometimes known as the limited partners, who pool their money together into the fund. The very name "hedge fund" derives from the use of trading techniques that hedge fund managers use. The managers can use hedging strategies (ie. going long or shorting stocks).  These hedging strategies are employed to reduce risk, although many consider their practices to carry increased risks.

Trust Funds: A trust fund is a legally registered entity that both holds and manages assets on behalf of another individual or entity.  A trust fund comprises of a grantor, who sets up a trust and funds it, beneficiary, who is to receive the trust fund assets, and trustee, who manages the assets in the trust.

Real Estate Investment Trust (REIT): A real estate investment trust (REIT) is a company that includes own and operates commercial real estate portfolios. Individual investors can buy shares. The REIT leases space and collects rents on the properties, then distributes that income as dividends to shareholders.

Master Limited Partnerships (MLP):  A master limited partnership (MLP) A master limited partnership (MLP) is a business venture that exists in the form of a publicly traded limited partnership. A MLP issues units instead of shares. However, these units are often traded on national stock exchanges offering liquidity that a traditional partnership may not.

 

Want to learn more investing terms? We've got you covered. View all of our Investment Club Education Series: Investing Terms here.

 

Ready to try out your new vocabulary? Start your own investment club with Voleo.

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