Investing terms can often feel confusing, especially for beginners. This glossary is designed to give you clear, simple definitions of the most important concepts in fundamental investing so you can understand how markets work and make better financial decisions.
Fundamental investing focuses on analyzing businesses based on their financial performance, competitive advantage, and long-term value. To do that effectively, you need to understand the language investors use—from basic terms like assets and cash flow to more advanced concepts like return on invested capital (ROIC) and discounted cash flow (DCF).
In this investing glossary, each term is explained in plain language with a focus on real-world understanding—not technical jargon. Whenever possible, definitions are connected to broader investing concepts so you can see how each idea fits into the bigger picture.
You’ll learn key terms related to:
Financial statements and accounting concepts
Business analysis and valuation methods
Stock market fundamentals and investment strategies
Risk, return, and long-term decision-making
If you’re just getting started, this glossary is the perfect place to build your foundation. If you’re already learning, it will help reinforce and clarify the concepts that matter most.
Start with our complete guide: What Is Fundamental Investing
Then explore deeper topics in Investing Basics and Business Analysis
Diversification is an investment strategy that spreads capital across multiple securities, asset classes, industries, geographic regions, or other sources of risk to reduce dependence on any single investment. The core idea is simple: “Do not let one investment determine the outcome of the entire portfolio.” Diversification can reduce company-specific risk and concentration risk, but it
Asset allocation is the process of dividing an investment portfolio among different asset classes, such as stocks, bonds, cash, and real estate, based on an investor’s goals, risk tolerance, time horizon, and income needs. Asset allocation helps determine how much of a portfolio is exposed to growth, income, liquidity, inflation, interest rates, and market volatility.
A portfolio is the collection of investments owned by an individual, institution, fund, or other investor. An investment portfolio may include assets such as: Investors build portfolios to pursue financial goals while balancing expected return, risk, income, liquidity, and time horizon. A portfolio is more than a list of investments. The way those investments work
A basis point, often abbreviated bp or bps in the plural, is a unit equal to 0.01 percentage points, or one one-hundredth of a percentage point. Basis points are commonly used in finance to describe small changes in: The conversion is: For investors, basis points make it easier to describe small percentage changes precisely and
A credit spread is the difference in yield between a bond or other debt security and a benchmark security with similar maturity, typically used to measure the additional return investors demand for taking on credit risk. For corporate bonds, the benchmark is often a U.S. Treasury security of comparable maturity. The basic idea is: If
A municipal bond, often called a muni bond, is a debt security issued by a state, city, county, public authority, or other governmental entity to finance public projects, infrastructure, or government operations. Municipal bonds commonly fund projects such as: Investors who buy municipal bonds are lending money to the issuer. In return, the issuer generally
A corporate bond is a debt security issued by a company to borrow money from investors. In exchange, the company generally promises to make interest payments and repay the bond’s principal, or face value, at maturity. When investors buy corporate bonds, they become creditors of the company rather than owners. Unlike common shareholders, bondholders do
A junk bond is a bond with a credit rating below investment grade, meaning the issuer is considered to have greater credit and default risk than an investment-grade borrower. The term junk bond is an informal name for what the fixed-income market more commonly calls a high-yield bond or speculative-grade bond. These bonds generally offer
A high-yield bond is a bond with a credit rating below investment grade, meaning the issuer is considered to have greater credit risk than an investment-grade borrower. High-yield bonds are also commonly called speculative-grade bonds or junk bonds. They generally offer higher yields than investment-grade bonds because investors require additional compensation for the greater risk
An investment-grade bond is a bond issued by a government, corporation, or other borrower that receives a relatively high credit rating, indicating that rating agencies consider the issuer to have a comparatively strong ability to meet its debt obligations. For corporate bonds, investment-grade ratings generally begin at BBB− or higher from S&P Global Ratings and
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