COMMON INVESTMENT TERMS EXPLAINED: Part 14

Here’s another round of investment terms for you! Let us know if you have questions about this batch.

Penny Stocks: Low priced stocks, usually around $1/share. They are not found on the major stock exchanges and usually carry high risk.

Preferred Stock: Similar to common stock, but the owners have additional rights not given to owners of common stock. Among these rights is a first call on dividends.

Price/Earnings Ratio (P/E): This shows how a company’s earnings relate to the stock price. The P/E is the current price of the stock divided by the annual earnings per share. The higher the P/E, the more earnings growth investors will expect.

Recession: An economic condition defined by a declining standard of living and rising prices. Technically, a recession is defined by a decline in the nation’s gross national product for two consecutive quarters.

ROI or Return on Investment: A measure of how good the investment is or was. ROI is calculated by subtracting the cost of the investment from the gain of the investment. That total is then divided by the cost of the investment.

• For example, if you bought a house for $100,000 and sold it for $120,000, the ROI would be ($120,000 – $100,000) / $100,000 = 20%.
• Is 20% a good ROI? That really depends on how long it took to make that 20%.

Thanks for checking out another post!