8 Terms To Know Before You Invest

While we’re working hard to prepare for our seats at the table, we also need to mind our money. What’s the point of making money if we’re not making it work for us?

For the next few weeks, we’re dedicating #memomonday to getting our financial futures in better shape. We’re passing on gems we’ve learned along the way to make you better informed, and to make your hard-earned money (on your way to the C-Suite) work better for you.

By: Minda Harts, CEO, The Memo

“Women aren’t afraid of money, we have to learn how to establish a new relationship with it. Money is sexy.”

A colleague said this to me once, and I couldn’t agree more, sister! It’s important to empower women around financial literacy. Last week, we told you how to start investing. In the final part of our series, we want to share 8 terms every woman should know once you’re ready to start investing.

1) Asset Allocation: This is a five-dollar word for your investment strategy. You can choose to put your money into three buckets: cash, bonds and stocks.

2) Cash: This is money, you know what this is, but if a finance professional tells you to move your cash into a portfolio they could be referring to CD’s, also known as certificates of deposit, treasury bills or money market accounts. Some certified accountants say that cash has the least risk and also provide the least amount of return.

3) Bonds: When you decide to invest in a bond, you are basically loaning money to a company or the government. If everything works out with that company, you can cash in the bond on its maturity date and collect interest. Think of it this way, bonds are riskier than cash, and less risky than stocks.

4) Stocks: When you buy stock from a company, you’re purchasing a piece of ownership (might be tiny, but it’s yours). The better the company does, the more your share is worth. And on the flipside, if the company is not performing well, then your stock may be worth less.

5) Mutual Fund: This can be viewed as a bunch of money that comes from a lot of investors like you and is invested in assets, like stocks and bonds. A mutual fund could hold hundreds of stocks and spreads out your risk.

6) Expense Ratio: To run a mutual fund it costs money, so investors should expect to pay an annual fee -- this is known as an expense ratio. Experts say this is the percentage of your money that goes to the manager of the mutual fund that you’re investing in. The bigger the expense ratio, the less money you're going to make. The expense ratio also covers other expenses, such as administrative fees, record-keeping fees and even ads promoting the mutual fund.

7) Index Fund: This is one of the most popular mutual funds, because its costs are generally low. Indexes are a collection of stocks that represent a piece of the economy. By tracking the performance of the collection of stocks, indexes give investors a sense of how the stock or bond market, or a portion of it, is doing. And by investing in an index fund, you are essentially betting on the success of the collection of companies it contains.

8) Prospectus: This is a legal document that contains details about stocks, bonds, a mutual fund or whatever you're planning to invest in. For example, if you're wondering what the expense ratio is on your mutual fund, you could find it in the prospectus. You can ask your financial advisor for a prospectus, or search online to find one.

Final Thoughts:
Money is sexy and investing your money is sexy. If you have more Christian Louboutins than you do cash, stocks, or bonds, then we've got some work to do!