Before you go throwing money into the world in investing, it’s good to know what exactly you’re investing in. Let’s start by defining some important terms that everyone should know.
Asset: Any item of economic value owned by an individual or corporation, especially that which could be converted to cash.
Liability: An obligation that legally binds an individual or company to settle a debt.
Equity: Total assets minus total liabilities; also called net worth or book value.
Working Capital: Current assets minus current liabilities.
Investment: In finance, the purchase of a financial product or other item of value with an expectation of favorable future returns. In general terms, investment means the use money in the hope of making more money.
Finance: To raise money through the issuance and sale of debt and/or equity.
Portfolio: A collection of investments all owned by the same individual or organization.
Whew! That's a whole lot of information that probably didn't clear up a whole lot. Don't worry—as you learn more about investing, you'll become more familiar with this terminology. Print this email and keep it with your financial documents as a cheat sheet. Don't worry, we won't tell!
BONUS TIP: Investopedia.com has an online dictionary that features a new investing word every day.