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Investing FAQ

by: ShareBuilder Staff

What is a brokerage firm? Brokerage firms are licensed by the Securities and Exchange Commission (SEC) to buy and sell securities for clients and for their own accounts. Brokerage firms frequently maintain research departments for their own and their clients’ benefit, and they often provide a range of financial products and services, including financial planning, asset management and educational programs. (Lightbulb Press)

What is a stock? A stock is an investment that represents part ownership in a corporation and entitles you to part of that corporation’s earnings and assets. There are two main types of stock: common and preferred. Common stock usually entitles the owner to vote at shareholders meetings and to receive dividends. Preferred stock generally does not have voting rights, but has a higher claim on assets and earnings than the common shares. For example, owners of preferred stock receive dividends before common shareholders and have priority in the event that a company goes bankrupt and is liquidated.

In the past, as a shareholder you received a paper stock certificate verifying the shares you owned. Today, share ownership is usually recorded electronically, and the shares are held in street name by your brokerage firm. (Lightbulb Press and Investopedia.com)

What is an investment portfolio? An investment portfolio is a collection of stocks, bonds and/or other investment assets. If you own more than one security, you have an investment portfolio. A portfolio may be owned by an individual, a group of people or a company, and it can be made up of a few different types of investments (like those owned by individual investors) or hundreds of different investments (like those owned by mutual funds, pensions and large companies).You build the portfolio by buying additional stocks, bonds or mutual funds, or other investments. (Lightbulb Press and Investopedia.com)

What is a dividend? Corporations may pay out part of their earnings as dividends to shareholders as a return on your investment. These stock dividends are usually in the form of cash, stock or scrip and are typically paid quarterly. Mutual fund companies also pay dividends to their investors, based on a fund’s earning. The dividend is most often quoted in terms of the dollar amount each share receives (i.e. dividends per share or DPS). It can also be quoted in terms of a percent of the current market price, referred to as dividend yield. (Lightbulb Press and Investopedia.com)

What is investment return? Investment return is the profit you make on the sale of a security or other asset divided by the amount of your investment, expressed as an annual percentage. For example, if you invested $5,000 and got $7,500 back after two years, your annual return on the investment would be 25%.(Lightbulb Press)

What is dollar-cost averaging? An investment strategy in which securities are purchased in fixed dollar amounts at regular intervals, regardless of what direction the market is moving. With this strategy, you buy more shares when the share price is lower and fewer shares when the share price is higher.* (ShareBuilder Corporation)

*Disclaimer – There is no guarantee of results or market return, and is one style of investing.