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
Credit risk is the risk that a borrower or debt issuer will fail to make required interest or principal payments, resulting in a financial loss for the lender or investor. Credit risk applies to investments and obligations such as: The greater the perceived chance of default or financial distress, the more compensation investors generally require
Subordinated debt is debt that ranks below senior debt in repayment priority if a borrower enters bankruptcy, restructuring, or liquidation. Because subordinated creditors are paid only after higher-ranking creditors have been satisfied, subordinated debt generally carries more credit risk than senior debt issued by the same borrower. It may also be called: The key feature
Senior debt is debt that has a higher priority claim on a borrower’s assets and cash flows than subordinated or junior debt. If a company enters bankruptcy, restructuring, or liquidation, senior creditors are generally entitled to repayment before lower-ranking creditors and shareholders. Senior debt may be: The defining feature is priority, not necessarily collateral. Why
Unsecured debt is debt that is not backed by specific collateral. Instead of relying on pledged assets, unsecured lenders depend primarily on the borrower’s overall creditworthiness, cash flow, and ability to repay. Examples of unsecured debt may include: If a borrower defaults, unsecured creditors generally do not have a direct claim on specific pledged assets
Secured debt is debt backed by specific assets or collateral that a lender may have a legal claim on if the borrower fails to repay. Examples of collateral can include: Because secured creditors have claims on pledged assets, secured debt generally ranks ahead of unsecured debt in a liquidation or restructuring. Why Secured Debt Matters
A debt covenant is a contractual requirement or restriction in a loan, bond, credit agreement, or other debt contract that limits a borrower’s actions or requires the borrower to maintain certain financial conditions. Debt covenants are designed to protect lenders and bondholders by reducing the risk that a borrower takes actions that weaken its ability
A covenant is a contractual condition in a loan, bond, or other debt agreement that requires a borrower to take certain actions, avoid certain actions, or maintain specified financial standards. Covenants are designed to protect lenders and bondholders by limiting behavior that could increase credit risk. Common examples include requirements to: In investing, covenants are
Unsystematic risk is the risk of loss caused by factors specific to an individual company, industry, or security rather than the overall market. It is also called: Examples include: Unlike systematic risk, unsystematic risk can be reduced substantially through diversification. Why Unsystematic Risk Matters Unsystematic risk helps investors answer: “How much of this investment’s risk
Systematic risk is the risk that an investment or portfolio loses value because of broad market-wide forces that affect many securities at the same time. It is also commonly called market risk. Examples of systematic risk include: Systematic risk cannot be fully eliminated through diversification because the underlying forces can affect large portions of the
Market risk is the risk that an investment or portfolio loses value because of broad changes in financial markets, economic conditions, interest rates, investor sentiment, or other market-wide forces. Unlike company-specific risk, market risk can affect many securities at the same time. Examples include declines caused by: Market risk is also commonly called systematic risk
