Learn the Lingo

The Lingo

Alternative Finance

  • Alternative finance refers to financial systems or products that have emerged outside of the traditional finance system such as regulated banks and capital markets. Some examples of alternative investments are: real estate, private company stock, private debt, oil and gas partnerships, precious metals, horses, etc.

APR

  • An annual percentage rate (APR) is the annual rate that is charged for borrowing (or earned by investing), expressed as a single percentage number (such as “12%”) that represents the actual yearly cost of the money over the term of a loan. This includes the cost of any fees (like loan origination fees) associated with the transaction.

Asset Class

  • An asset class is a group of securities that exhibit similar risk/return characteristics, behave similarly in the marketplace, and are subject to the same laws and regulations. The three main asset classes are equities (stocks), fixed-income (bonds) and cash equivalents (money market instruments).

Capital Markets

  • The part of a financial system concerned with raising capital by dealing in shares, bonds, and other long-term investments.

Crowdfunding

  • The practice of funding a project or venture by raising small amounts of money from a large number of people, typically via the Internet. Sometimes this money is an investment where the supporter gets a financial return, other times the supporter is backing a project in more of a pre-sale model just to get the product for which the crowdfunding campaign is raising money.

Equity

  • The value of an asset less the value of all liabilities on that asset.

Equity-crowdfunding

  • This term refers to a specific type of crowdfunding activity which allows companies to solicit business capital from individual investors, usually in smaller increments (ex: $1,000 per person instead of $100,000). It is a model of crowdfunding where the business that is raising funds is offering a financial return to those who support their funding campaign. Equity Crowdfunding does not include "rewards based" crowdfunding platforms such as Kickstarter or Indiegogo where a tangible product is given instead of shares of stock ("equity") or other financial interest.

IRA

  • An individual retirement account (IRA) that allows a person to direct pretax income, up to specific annual limits, toward investments that can grow tax-deferred (meaning no capital gains or dividend income is taxed).

Kickstarter

  • A popular rewards based crowdfunding platform most known for posting fund raising campaigns for creative types (artists, musicians, film makers, inventors, etc.) allowing ordinary folks to support these campaigns with donations in exchange for "thank you" gifts (usually the product or service the project owner is trying to raise money to produce).

Loan Note

  • A loan note is an extended form of an IOU from one party to another that enables a payee/recipient to receive payments, usually with interest, over a set period of time, ending with the date at which the entire loan is to be repaid.

Market Place Lending

  • Marketplace Lending is a term that has recently come into play. The term is synonymous with P2P Lending and encompasses all of the forms of p2p lending on various platforms.

Nest Egg

  • A sum of money saved for the future. Example -"I worked hard to build up a nice little nest egg but my student loan payments depleted it"

Peer to Peer Lending

  • Peer-to-peer lending, sometimes abbreviated as P2P lending, is the practice of matching borrowers and lenders through online platforms. Borrowers are often able to gain access to funds quickly and typically at lower interest rates than banks making it an attractive loan alternative to banks. The loans issued are often comprised of many different investors (buying small pieces of the loan) ranging from individuals to institutional investors.

Peerfolio

  • A word we created to mean a collection of investments ("portfolio") only in products that your peers/other humans generate such as loans or shares in their private companies.

Portfolio

  • a range of investments held by a person or organization.

Private vs. Public Company

  • The principal difference between public and privately held companies is that public companies have shares that can be publicly traded on a stock market (also anyone 18 or older can buy the shares). A privately held company is usually owned by the founders, a small number of wealthy investors, and/or employees of the firm. A private company can become a publicly held company by conducting an initial public offering, which is the offering of shares of the company to the public.

Reg A+

  • A new regulation as part of The JOBS Act allowing companies to raise up to $50 million per year through from accredited (wealthy) and non-accredited individuals (general population/retail investors). Those filing under the status of Reg A+ essentially become non trading public reporting companies. More information on the guidelines can be accessed on the Internet or by contacting the advisers at peerbackers.com.

Retail Investor

  • A retail investor is a person who purchases securities (stock or other product) for his or her own personal account rather than for an organization. Retail investors typically trade in much smaller amounts than institutional investors such as mutual funds, pensions, or university endowments.

Return

  • The profit from an investment (also known as “yield” or “gain”) for example interest paid on money invested or deposited.

Return on Investment (ROI)

  • The income one earns on their investment. For example, a $25 investment into the purchase of loan notes will yield 5% annual interest over a 3 year period or the equivalent of $3.75 in earned interest over 3 years. In this example your ROI is 15%.

S&P500

  • The Standard & Poor's 500, abbreviated as the S&P 500, or just "the S&P", is an American stock market index composed of 500 large companies (400 industrial stocks, 40 financial stocks, 40 public utility stocks and 20 transportation stocks). Many consider it one of the best representations of the U.S. stock market and a gauge for the U.S. economy as a whole.

Security

  • A security is a negotiable financial instrument that represents some type of financial value. It represents an ownership position in a publicly-traded corporation (stock), a creditor relationship with governmental body or a corporation (bond), or rights to ownership as represented by an option. The company or entity that issues the security is known as the issuer.

Self-Directed IRA

  • A Self-directed Individual Retirement Account is an Individual Retirement Account (IRA), provided by some financial institutions in the United States, which allows alternative investments for retirement savings. The IRS requires that a qualified trustee, or custodian, hold IRA assets on behalf of the IRA owner. The account owner chooses among the investment options allowed by the IRA custodian. IRA custodians are allowed to restrict the types of assets they will handle in addition to Internal Revenue Code (IRC) restrictions.

Start-up

  • Refers to a new company, generally in business less than 1 year and sometimes having little or no customers or revenue.

Uncorrelated Asset Class

  • Asset correlation is a measure of how investments move in relation to one another in the financial markets. When assets move in the same direction (increase or decrease in value) at the same time, they are considered to be highly correlated. If two assets are considered to be non-correlated (or uncorrelated), the price movement of one asset has no effect on the price movement of the other asset. It’s important to have a variety of assets that are not correlated in your portfolio to reduce the overall risk and do well in any market. If there is zero correlation or negative or non-correlation, one asset will go up when the other is down, and vice versa.