A-Z of Investing: An Investment Glossary
Rachael Panteney
Giving you expert financial advice on pensions, mortgages and insurances.
There are a lot of buzzwords when it comes to investments, and we don’t want the financial language to put you off beginning your investment journey.
To help, we’ve put together an A-Z of investing, a glossary to help you better understand the jargon that surrounds the subject of investments…
A
Asset Allocation: The process of spreading investments across different types of assets (like stocks, bonds, and property) to manage risk effectively.
Annualised Return: The average yearly return of an investment over a period.
Alternative Investments: Non-traditional assets like commodities, private equity, or hedge funds.
Accumulation Fund: A fund where income is reinvested, increasing the value of your investment over time.
B
Bonds: Loans made to companies or governments, where you earn interest over time and get your capital back at maturity.
BR (Business Relief): A tax relief that reduces inheritance tax on certain investments, including AIM-listed shares.
Balanced Portfolio: A mix of investments designed to balance risk and return.
Bear Market: A market condition where prices are falling, often by 20% or more, over an extended period.
Bid-Offer Spread: The difference between the price at which you can buy and sell an asset.
C
Capital Gains: The profit made from selling an investment for more than you paid.
Compounding: The process where the earnings on an investment generate their own earnings, accelerating growth over time.
Capital Preservation: An investment strategy focused on avoiding losses and protecting the value of the initial capital.
Collective Investments: Funds like unit trusts or mutual funds where investors pool their money.
D
Diversification: Spreading investments across various asset types and sectors to reduce risk.
Dividend: A share of profits paid by a company to its shareholders, often in cash or additional stock.
Drawdown: The process of taking income from your pension while keeping it invested.
Derivatives: Financial instruments that derive their value from an underlying asset, like options or futures.
Discounted Cash Flow: A valuation method that estimates the value of an investment based on future cash flows.
E
Equities: Shares in a company, giving you partial ownership and the chance for growth through capital gains and dividends.
ETF (Exchange-Traded Fund): A type of investment fund traded on stock exchanges, offering exposure to various assets.
Ethical Investing: An investment strategy that considers both financial returns and social/environmental impact.
Emerging Markets: Economies that are developing and growing, often providing higher returns but with increased risk.
F
Fixed Income: Investments like bonds that provide regular, fixed payments of interest.
Futures: Financial contracts obligating the buyer to purchase, or the seller to sell, an asset at a predetermined future date and price.
Front-End Load: A sales charge or commission paid upfront when buying a fund.
FTSE 100: An index that represents the 100 largest companies listed on the London Stock Exchange.
G
Growth Investing: An investment strategy focused on companies that are expected to grow significantly over time, often with reinvestment of profits.
Gilts: UK government bonds, considered low-risk investments.
Gross Return: The total return on an investment before taxes and fees are deducted.
Global Funds: Investment funds that diversify across international markets.
H
Hedge Fund: A fund that uses advanced strategies to achieve high returns, often involving high-risk assets.
High-Yield Bonds: Bonds that offer higher interest payments to compensate for increased risk.
Holding Period: The length of time an investor holds an asset before selling it.
Hybrid Investments: Investments that combine aspects of both debt (bonds) and equity (stocks).
I
ISA (Individual Savings Account): A tax-efficient way to save or invest, with no capital gains or income tax on returns.
Income Fund: A fund that focuses on providing regular income, typically from dividends or interest.
Index Fund: A type of mutual fund or ETF designed to track a specific index, like the FTSE 100.
Inflation Risk: The risk that inflation will erode the purchasing power of your investment returns.
J
Junior ISA: A tax-efficient savings account for children, which can be invested in cash or stocks and shares.
Joint Account: An account shared between two or more people, allowing joint management of investments or savings.
K
Key Performance Indicator (KPI): A measurable value used to assess how well an investment or business is achieving its objectives.
KIID (Key Investor Information Document): A document providing essential details about an investment product, including its risks and costs.
L
Liquidity: The ease with which an investment can be quickly bought or sold without affecting its price.
LTV (Loan to Value): A ratio used in mortgages, representing the loan amount as a percentage of the property value.
Leverage: Using borrowed money to increase potential returns, but also increasing risk.
M
Mutual Funds: Investment funds that pool money from multiple investors to invest in a diversified portfolio of assets.
Market Capitalisation: The total value of a company’s shares on the market.
Money Market Fund: A type of mutual fund that invests in short-term, low-risk securities.
N
Net Asset Value (NAV): The total value of a fund's assets minus its liabilities, usually expressed per share.
Nominee Account: An account where shares are held in the name of a nominee, typically for easier management by a broker.
O
Options: Contracts that give the buyer the right, but not the obligation, to buy or sell an asset at a specified price before a certain date.
Offshore Funds: Investment funds located outside the UK, often in jurisdictions with favourable tax regulations.
P
Pensions: Long-term savings plans designed to provide income in retirement, often benefiting from tax relief.
Private Equity: Investments in private companies not listed on a public exchange.
Passive Investing: A strategy of tracking a market index or sector rather than actively picking stocks.
Q
Quantitative Easing (QE): A monetary policy used by central banks to increase the money supply by buying government bonds or other financial assets.
Quarterly Earnings: Reports that companies issue every three months to show their financial performance.
R
Risk Tolerance: The level of risk you are comfortable with when investing, balancing potential losses with potential returns.
Real Estate Investment Trust (REIT): A company that owns, operates, or finances income-generating real estate.
Return on Investment (ROI): A measure of how much you earn relative to the amount invested.
S
Stocks: Shares in a company, representing ownership and a claim on part of the company’s profits.
Standard Deviation: A statistical measure of the range of investment returns over time, indicating volatility.
Share Buyback: When a company buys its own shares from the market, often to reduce the number of shares available and increase value for remaining shareholders.
T
Trusts: Legal entities that hold assets on behalf of beneficiaries, often used in estate planning to manage wealth transfers.
Tax Deferral: A situation where taxes are postponed until a later date, often seen in pensions or investment accounts.
Target Date Fund: A fund designed to grow assets for a specific time horizon, usually retirement, and automatically adjusts its allocation as the date approaches.
U
Unit Trust: A type of collective investment where a fund manager pools investor money to buy a diversified range of assets.
Unlisted Stock: Shares of a company that are not listed on a stock exchange and are harder to buy or sell.
V
Volatility: The degree to which the value of an investment fluctuates over time, often used as a measure of risk.
Value Investing: An investment strategy focused on buying stocks that appear undervalued relative to their intrinsic value.
W
Withholding Tax: A tax withheld at the source of income, such as dividends or interest, for non-resident investors.
Weighted Average Cost of Capital (WACC): A calculation of a company’s cost of capital, used to evaluate investment opportunities.
X
XIRR (Extended Internal Rate of Return): A metric used to calculate the annualised return of a series of cash flows from an investment.
Y
Yield: The income return on an investment, usually expressed as a percentage of its current price.
Yield Curve: A graph showing the relationship between interest rates and bond maturities, often used to predict economic trends.
Z
Zero-Coupon Bond: A bond that doesn’t pay periodic interest but is sold at a discount and redeemed at its full value at maturity.
Z-Shares: A share class in a mutual fund that often has lower fees but may require a larger initial investment.
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