Commission
Commission is the fee or percentage paid to a broker to execute a transaction on behalf of a customer.
Common Stock
Common stock is a security that represents equity ownership in a company. Common share holders elect the board of directors and vote on corporate policies. They also participate in a company's profits via dividend payments and capital appreciation.
Compound Interest
Compound interest is interest that accrues on both the initial principal and the accumulated interest from previous periods. Thus, over time, the principal increases exponentially. For example, a $1,000 loan earning compound interest at 10% per year would grow to $1,100 at the end of the first year. Then, based on the formula below, it would accumulate to $1,210 at the end of the second year:
Compound Sum = Principal (1 + Interest Rate) Number of Periods
$1,210 = $1,000 (1.10)2
By extension, the more frequently the compounding, the greater the yield will be.
Diversification
Diversification is the strategy of distributing investments among different securities. This practice aims to limit losses in the event of a downturn in a particular market, industry, or sector.
Exchange-Traded Fund
Similar to a mutual fund, an exchange-traded fund is a pooled investment security that tracks an underlying index, sector, commodity, or other asset. However, dissimilar to a mutual fund, an ETF is a listed security. Therefore, an investor can buy, sell, short-sell, and trade it on margin--like ordinary stock. Exchange-traded funds offer investors a low-cost way to diversify their portfolios.
Financial Advisor
A financial advisor (adviser) is a professional who provides financial guidance for compensation. These money managers offer a variety of services. For example, they can provide financial planning, portfolio management, and investor education.
Financial Asset
A financial asset is a non-physical item of monetary value. Examples of financial assets include banks accounts, stocks, bonds, and mutual funds.