Do you ever feel like your friends who aren’t in the film industry have no clue what you’re talking about? I mean, why don’t they get it when you say something like “The grip screwed up the boom, so I’ll be late meeting you,” or “My whole week has been like a series of jump cuts”? Oh…that’s because you’re speaking in film jargon.
Every business has its jargon, and we financial professionals are no exception. But have no fear, I will help you understand what we’re saying. Here are a few terms you may want to know:
What’s a stock? A stock is a share of ownership in a company. Industry people might also refer to stocks as “equity”. Being in Atlanta, when I think of stocks, I think of Coca-Cola: if you own a share a of Coca-Cola, then you have a share of ownership in The Coca-Cola Company. Every stock has something called a “ticker” associated with it, which is just the cool, street nickname for that stock. For instance, Coca-Cola’s is KO. You make money on a stock by either selling it for a higher price than you bought it and/or some stocks will pay you out cash periodically called dividends.
Fun with taxes: If a dividend is considered a “qualified dividend” then you get special tax treatment. (Sorry – the recovering accountant in me couldn’t help myself. I will have another post explaining taxes and investments another time…try not to get too excited.)
What’s a bond? (Insert your own clever 007 joke.) In financial terms, a bond is a debt instrument, and its stage name is sometimes “fixed income”. If you own a bond, you own part of someone’s debt, and your bond is valuable because it’s collecting interest. For instance, think of a mortgage on a home. Someone loans you money to buy a home, but it’s not because they are good humanitarians… they are making interest off of you in addition to being paid back their loan.
Mutual funds and ETFs. For you acronym lovers, ETF means exchange-traded fund. Both of these are investment vehicles that hold a collection of stocks and/or bonds. Instead of investing in just one stock or bond, you can get a whole collection of them. Some of these have “active managers” with basically a director (manager), or even a whole team, deciding who gets in their exclusive fund. Sometimes these are “passive” investments and follow an established index. For instance, you can buy a fund that follows the largest 500 publicly traded companies in United States, represented by and index called the S&P 500, but there are other indexes out there. Oh, industry folks aren’t just speaking bad English. They just decided to call them indexes instead of indices, so we just roll with it.
So what’s the deal with “index funds”? Oh, those are just “mutual funds” following a “passive” strategy. Now you are totally in the know!
I think that’s enough jargon for now, so that’s a wrap… or the closest thing we have in finance, the closing bell!