The world of finance can be daunting with banks and investment companies seeming to speak their own language. We are here to make money simple and remove the jargon from the conversation.
Start learning the language of investing today.
Financial Glossary 🗣️💰
Stocks – An investment in a company that represents a fraction of its ownership. Stocks are also called ‘shares’ and entitle the owner to a proportion of the company's profits and assets equal to how much stock they own.
Bonds – A loan from investors often made to a borrower (usually a company or the government) in exchange for a fixed payment over a period of time. The fixed payment is known as "interest". When you buy a bond, you are effectively lending money to a company or government and, as such, are paid interest each year by the company or government in order to compensate you for lending it your money.
Interest - This is the price you pay to borrow money – or the price someone pays you to borrow money from you. When you take out a loan from a bank, you have to pay a set amount of money, e.g. 5% per annum as the cost of borrowing the money.
Alternatives – A financial asset that does not fall into one of the conventional equity/cash/bond categories. Hedge funds, property, commodities are all examples of alternative investments.
Portfolio – A collection of financial investments like stocks, bonds, commodities, and cash. This can be considered as a basket that includes a combination of these financial assets.
Diversification – A risk management strategy that mixes a variety of investments. The act of investing in different industries, areas, countries, and financial instruments, to reduce the chance that all the investments will drop in value.
Returns – The money made or lost on an investment. Every investment will either make a profit or a loss (or in some circumstances, you will get back exactly how much you invested).
Risk – Risk is defined in financial terms as the chance that an investment's actual gains will differ from the expected return. Risk includes the possibility of losing some or all of an original investment. This can be measured on a scale of 1-10 based on how likely the fund may rise and fall (volatility). 1 represents a low risk and a typically cautious investor. 7 represents a high risk and typically a more aggressive investor. Moderate investors would be somewhere in the middle.
Volatility - A statistic that measures the differences between returns of an investment over a given time period – a greater difference means greater volatility. Generally, the higher the volatility, the more risky an investment is considered to be. Note that volatility refers both to positive and negative moves, but the nature of markets is such that negative moves typically occur more dramatically than positive moves (and, therefore, high volatility is often associated with negative performance).
Asset allocation – Its an investment strategy that aims to balance risk and reward by apportioning a portfolio's assets according to factors like risk, time horizon or goals.
Multi-Asset Fund – This is a type of fund where you invest across a combination of asset classes such as equities, bonds and cash. They provide greater diversification than investing in a single asset and reduce an investor's overall exposure.
ETFs (Exchange-traded fund) – An investment fund that explicitly tracks the value of an asset like the price of oil or the value of UK stocks (as determined by the FTSE 100 or another large index). Investors can buy and sell ETFs just like normal stocks – which makes them easy to invest in. Typically, ETFs have low fees as they simply track the value of something else, i.e. they don’t require investors trying to pick winning stocks.
Index Funds – These are a portfolio of stocks designed to mirror the collection of companies and performance of a financial market index, such as the FTSE 100.