Financial Health: Three Investment Terms You Should Know

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Whether you're watching the evening news or chatting around the water cooler with your co-workers, discussion about the economy is bound to come up. If you skipped business class in college, odds are you need to brush up on your financial vocabulary. In addition to being able to participate in a discussion about investing, it's important to have an understanding of these concepts since they have the potential to help you earn extra cash.

Let's start with the basics...

1. What are stocks? We've all heard the term but what does it really mean? Stocks are a type of security that gives stockholders a share of ownership in a company. Companies issue stock to get money for various things like launching new products, paying off debt, and expanding to new regions. People - you and I - buy stocks to collect dividend payments, which come when the company distributes some of its earnings to stockholders and to influence decisions that a company makes.

2. Public Companies: There are two commonly understood ways in which a company is considered public: first, the company’s securities trade on public markets; and second, the company discloses certain business and financial information regularly to the public.  Some  of our favorite brands - Chipotle, Urban Outfitters, & Apple - are public companies which means that after they've made their first IPO (learn more below) you can purchase stock in them, collect dividend payments (cha-ching), and influence decision making.

3. What is an IPO? An IPO, or initial public offering, is the first sale of stock by a company to the public. A company can raise money by issuing either debt or equity. If the company has never issued equity to the public, it's known as an IPO. An IPO helps to establish a trading market for the company’s shares. You may remember in May of 2012 when social networking service Facebook went public and held its initial IPO. At the time, the IPO was the biggest in technology and one of the biggest in Internet history.

Recap: When a company goes public, it's holds an IPO to help establish a trading market for the company's shares. After the IPO, consumers like you and I can invest in the company buy purchasing stock.

Read the next installment in this series: Finance 102: Three Finance Terms You Should Know

Want more financial health? Visit the U.S. Securities & Exchange Commission at http://investor.gov/ for more information about investing.