Navigating the world of finance can feel like deciphering a secret language. There are different acronyms with different terms that are being used around & it can be confusing sometimes. There is a lot of financial jargon that is used among the experts & professionals that may be too complicated or less important for you to learn. In this post, I will be covering the main financial jargon that you can’t afford to ignore.
Investing Basics:
1. StocksOwning shares of a public listed company, hoping its value increases while paying you dividends. Some companies pay dividends (value stocks) & there are companies that reinvest their profit for the company’s growth (growth stocks)
2. Bonds Lending money to a company or government and earning interest like a fancy loan shark (but legal). If you are watching a recent documentary on Netflix called Man On The Run, it is where 1MDB raised a $6.5 billion bond & the money was embezzled by a group of corrupt people.
3. Portfolio Your collection of investments is like a personal museum of financial possibilities. A sample of a good financial portfolio includes investing in different assets & sectors such as stocks, bonds, cash, precious metals & different regions.
4. DiversificationNot putting all your eggs in one basket, because diversification is the way of managing risk. A good financial portfolio is related to how diversified your investment portfolio is. Do not over-diversify your investment portfolio as it may pose a different risk to your investment portfolio.
Market Moves:
1. Bull market When everything’s going up, imagine bulls snorting their way to higher prices. This is where all investors celebrate when their stock or investment portfolio increases.
2. Bear market The opposite, picture bears mauling those prices down. The tip is, always stay invested despite the market is down. As everyone’s favorite investor Warren Buffett famous quote “Be fearful when others are greedy and be greedy only when others are fearful”. It is a good quote to carry along your investment journey. When we are in the bear market, it is a good time to shop for cheap but valuable stocks.
3. Volatility The market’s mood swings, a financial roller coaster that can be thrilling or terrifying. Buckle up! Similar to the tips during the bear market, staying invested during bull markets can be a good strategy for achieving dollar-cost averaging (DCA). It can potentially help you to lower your average cost per share.
4. Compound interest It grows on top of itself like a financial snowball, making even small investments powerful. You may not see the growth in the short term but over a period of time, you can see your investment grow. For those who have yet to invest or are new to investment, the best reference for an actual compounding interest is your EPF account.
Financial Tools:
1. Mutual FundInvesting in a basket of stocks and bonds chosen by professionals. If you are investing in Malaysia, many Mutual Fund companies do charge a certain amount of transaction charges that may affect your investment return. Before you decide to invest, you may check on the investment fee & also other charges such as load fee/sales fee to decide whether it is worthwhile to invest in it or not. There is also an option where you can use your EPF account 1 to invest in it.
2. Exchange-traded fund (ETF)Similar to mutual funds, but traded like stocks, faster and sometimes cheaper. Comparing Malaysian ETF & USA ETF, there are more selections for USA ETF. If you are not sure which ETF to invest in, you can check out the S&P500 ETF where it invest in the top 500 largest companies in the USA.
3. Robo-advisorsThink of it as a financial autopilot. Answer some questions about your goals, risk tolerance, and investment timeline, and the robo-advisor builds a personalized portfolio using algorithms and software. It then automatically invests, rebalances, and manages your portfolio, all without you needing to lift a finger. StashAway & Raiz are my current choice for robo-advisors in Malaysia.
4. Private Retirement Scheme (PRS) It is a voluntary, long-term investment scheme designed to help Malaysians save for retirement. It’s the third pillar of Malaysia’s retirement framework, alongside the Employees Provident Fund (EPF) and Social Security Organisation (SOCSO). There is a list of PRS funds that you can refer to. Two immediate benefits that Malaysians can enjoy with PRS are the freedom of selecting the funds that they want to invest in, unlike EPF where it is decided by professionals, and also on their Tax Relief (up to RM3,000) which the Malaysian government has extended until 2025.
Conclusion:
Financial jargon is just words, don’t be intimidated! All you have to do is to learn the basics as your first priority & the complicated ones can be learned later. Google is the best platform that you can use to understand the jargon if you need to verify or understand further. Learning the basics helps you to make a good decision on your finances. It is a helpful tool in your financial freedom journey.
OSS!
