Investment is one of the strategic steps to plan a financial future that is not only potentially profitable but also sustainable. However, behind every good investment decision, strategy and goals alone are not enough. It requires a strong understanding of basic terms and concepts in the investment world.
Many beginners overlook this aspect of understanding, which is an important foundation in developing an effective investment strategy. With this knowledge, investing can be a smart way to manage your finances in the long run.
Investment Development in the Modern World
Advances in technology and access to information have made investing easier and more affordable. Now, anyone can start investing anytime and anywhere through online platforms, financial applications, and social media. Despite being more accessible, these advancements also present their own challenges.
The sheer volume of information and complex investment terms can be confusing for beginners, and can even be misleading if not properly understood. Therefore, it is important for those who are new to investing to not only follow the trends but also understand the meaning behind the terms used so that every decision made is well-founded.
Investment World Terminology for Beginners
When starting out in investing, understanding some basic terms is a step that should not be skipped. It will help you understand how the market works, analyse information and make more informed decisions.
1. Yield
A term used to refer to the level of profit or return earned on an investment, usually expressed as a percentage. Yield helps investors see how much income the investment is generating compared to the amount of money invested.
For example, in bonds, yield shows the percentage of interest received each year based on the purchase price of the bond.
2. Capital Gain
The profit made from the difference between the selling price and the buying price of an investment asset. If you buy a stock at a low price and sell it at a higher price, the difference is called capital gains.
3. Dividend
Dividends are the distribution of company profits to shareholders as a form of appreciation for their share ownership. The amount of dividends received depends on the number of shares owned and the company’s policy in distributing profits made after the Annual General Meeting of Shareholders (AGMS).
4. Blue Chip Stock
Blue chip stock is a term for stocks of large, well-known companies that have a good reputation and stable financial performance over the long term. Due to their characteristics that tend to withstand market pressures, blue chip stocks are often the choice of investors who prioritise safety and long-term growth.
5. Cut Loss
Cut loss is a strategy of selling investment assets, such as stocks, to limit losses when the price drops below the purchase price. This step is taken when an investor decides to stop potentially larger losses by selling stocks that continue to decline in value.
6. Deposit
A sum of money deposited into an investment account as a mandatory first step before making a purchase transaction of financial instruments such as shares so that investors can access various products in the capital market. These funds serve as capital that will be used to start investing, and usually need to be deposited on the platform or securities where the investor opens an account.
7. Diversification
This investment strategy involves spreading funds across a variety of stocks from different industry sectors. The main objective is to minimise the risk of loss by not relying on investing in just one type of stock or sector, thus maintaining portfolio stability and reducing the impact of market fluctuations.
8. Liquidity
Liquidity is the ease and speed with which an investment can be liquidated into cash without having to sell it at a price much lower than its original value. Investments that have high liquidity are usually easier to sell at any time without a big loss. Liquidity is important to consider so that we can more easily manage our finances, especially when we need sudden funds.
9. Issuer
An issuer is a party, whether a company, individual, or organisation, that obtains funds from the capital market by issuing and selling securities, such as stocks, bonds, or other securities to the public through an exchange. The funds obtained are generally used for business development, debt repayment, or other business needs.
10. Volatility
Volatility describes how often and how much the price of an investment changes in a given time. If the price of an investment often goes up and down drastically, it means that the investment has high volatility. This can be an opportunity for greater profits but also increases the risk because prices are difficult to predict.
11. Investment Portfolio
An investment portfolio is a collection of various investments that a person has, such as a combination of stocks, gold, mutual funds, or property. This portfolio keeps you from relying on just one type of investment, thus minimising the risk of loss.
12. Stock Price Index
A stock price index is a number that shows whether the general market price of stocks is rising or falling. This index is often used by investors to gauge the direction of the market before making a decision to buy or sell shares.
13. Stock Exchange
An official organisation that organises and provides a place to buy and sell investment products, such as stocks and bonds. The stock exchange acts as a liaison between companies that want to sell their shares and investors who want to buy. So, when you buy shares of a company, the transaction takes place through the stock exchange.
14. Lot
A lot is a unit used to calculate the number of shares traded on an exchange. In the Indonesian stock market, 1 lot means 100 shares. Whenever buying or selling shares, transactions are made in multiples of lots, not per share.
15. Suspension
A suspension refers to the temporary halt of trading for a particular stock due to unusual price movements or violations of regulations. This measure is implemented as a form of sanction to maintain market order and protect investors.
16. Mutual Fund
A place or platform to collect funds from many investors which are then managed professionally by investment managers. The collected funds will be invested in various instruments such as stocks, bonds, or money markets. Mutual funds are often an option for beginners because they offer diversification that reduces risk and are managed by experts.
17. Bonds
Bonds are debt securities issued by companies or governments. By buying bonds, investors lend money to the bond issuer and will get returns in the form of interest and return of principal at an agreed time.
18. Investment Manager
A party or company whose job is to manage investors’ funds by placing them into various investment products such as stocks, bonds, or other instruments. They are responsible for developing strategies and deciding where the funds will be invested in accordance with the agreed investment objectives.
To carry out this task, investment managers must have an official licence from the Financial Services Authority (OJK) so that fund management is carried out professionally and supervised.
19. Market Cap
Market cap is the total value of a company’s outstanding shares on the stock exchange. This value is obtained by multiplying the current share price by the number of shares outstanding. Market cap is often used as a reference to see how big or small a company is in the stock market.
20. Return on Investment (ROI)
ROI is a measure to calculate how much profit or loss is obtained from an investment compared to the capital invested. It is usually expressed as a percentage. The higher the ROI, the greater the profit earned compared to the capital invested.
Optimizing Opportunities with an Understanding of Investing
As the world of investing becomes more modern and accessible, the opportunities to reap the benefits of investing are more than ever. However, you need to remember that investing is not just about putting funds into the market, but also about understanding what we are doing.
Understanding the key terms in the investment world is a key ingredient to managing risk, strategising and capitalising on opportunities. With a strong understanding, investing can be a means to support the achievement of financial goals and a more secure future.
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