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. Alternative Investments & Business Property Relief schemes invest in assets that are high risk and can be difficult to sell. The value of the investment and the income from it can fall as well as rise and investors may not get back what they originally invested, even taking into account the tax benefits.
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.
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.
Tax treatment varies according to individual circumstances and is subject to change.
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.
Tax treatment varies according to individual circumstances and is subject to change.
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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Willow Tree Financial Services are a Financial Adviser firm based in Polegate, East Sussex, UK. We specialise in Financial Planning, Mortgages, Investments & Pension Planning, Protection & Insurance Wills, Trusts & Estate Planning.
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Inheritance Tax Planning, Tax Planning, Trusts and Estate Planning are not regulated by the Financial Conduct Authority.
Tax treatment varies according to individual circumstances and is subject to change.
