The Special Language of Investing

Investment-terms-for-beginnersCommon investments terms: understanding these investment terms will help you gain more confidence.

Although 33% of women are family breadwinners, there is a marked gender difference when it comes to investing disposable income. Just 11% of women own stocks and shares, compared with 23% of men.

Why is this a problem?

Basically, you can make your money work much harder by investing rather than saving. If you stick it in the bank and leave it there untouched, your wealth won’t grow over the years and sadly inflation will drastically reduce the purchasing power of your savings.

So why don’t more women make the leap and invest?

It often comes down to a lack of financial knowledge. A recent research study from HSBC indicates that women find financial jargon more off-putting than men when it comes to investing. A lack of knowledge and confidence stops women thinking they can invest.

“They are often held back by a concern that they don’t have sufficient in-depth knowledge, or that they don’t want to take on too much risk.” said Sarah Coles, personal finance analyst at Hargreaves Lansdown.

Like so many, when I first started investing, I was so bogged down in financial jargon that I completely lost the confidence to invest.

What really helped me overcome this challenge was my decision to focus on my long-term goals and start investing using the simplest route I could find, through stocks and shares ISAs and learning along the way.

Investing is not a complicated process, but understanding these common investment terms or special language of investing will help you gain more confidence and expand your financial vocabulary. You’ll soon be able to “talk money!” So let’s get started.

Common Investments Terms for Beginners: The Slang You Need To Know

basic investment terms definitions

1. Asset: Anything that can make you some money. Assets include cash, stocks, shares, property, and bonds.

2. Alpha: This is the additional return a fund manager makes when they choose good investments. It means an investment has outperformed its benchmark or standard. It’s a percentage figure that tells you the active return on an investment, e.g. “2” or “-7.” It is calculated relative to a benchmark figure that tells you how the whole market is doing.

For example, an Alpha value of 6 indicates that the investment is returning 6% more money than the market average.

3. Asset allocation: When you split your investments between various types of assets. It is an investment strategy for balancing risk within a portfolio. Good asset allocation lets you take the right level of risk that suits your situation and personality.

4. Asset class: The category that best describes an investment. The main asset classes are cash, property, shares (also known as equities), bonds, and commodities.

5. Balance sheet: A document that shows you what a business owns, any liabilities they might have, and what they owe their shareholders. It illustrates the financial position and health of a business.

6. Bear market: A falling market, where the price of investment or shares declines over time. It is a time characterised by rising unemployment and widespread pessimism.

7. Beta: A figure that tells you how volatile an investment is compared to the general market. Finance professionals use this figure to calculate how much of a return they can expect on an investment.  A beta greater than 1 simply means the investment will be more volatile than the market.

In summary, if you are risk averse you should go for investments with a low beta. If you are looking to take on more risk with a higher return, you can go for investments with a higher beta. High beta stocks are best owned in a bull market and worst to own in a bear market.

8. Blue chip: A blue chip company has a well-established record of good business practice, sound financial management, and consistent record of paying dividends. Those recommending sound investments for beginners are likely to suggest buying shares in these companies.

investment-terminology-bond-market-market

9. Bond: An agreement whereby you lend money to a government or an organisation, and they sign a contract ensuring that you get your money back, plus an agreed amount of interest called ‘coupon’. Bond is issued by a government or a company to raise money.

10. Book value: Book value is also the net asset value of a business. It is used to measure a company’s worth. To calculate a company’s book value, you first add up the total assets and then subtract any outstanding liabilities.

11. Broker: An individual or organisation who undertakes financial transactions (such as buying or selling stocks) on a customer’s behalf in exchange for a fee.

12. Bull market: A bull market is the opposite of a bear market. It is a rising market where prices are rising, or expected to rise, due to widespread optimism.

13. Capital: Total available financial resources owned by an individual or company.

14. Capital gain/loss: An amount of money gained or lost when an asset is sold above/below its purchase price.

15. Commodity: A type of product that is “generic” or the same with others of its kind. They are raw materials or agricultural products that can be traded such as rice, corn, gold, silver and copper. For instance, gold is a commodity because it is the same material regardless of who sells it.

16. Cyclical stocks: A stock, bond, or option whose price is influenced by large-scale fluctuations in the economy as a whole. For example, stocks in a luxury goods company usually go up in value when the economy is doing well and people have more spare money.

17. Diversification: The financial equivalent of the saying, “Don’t put all your eggs in one basket.” It is a strategy that allows you to manage risk by spreading your funds across multiple investments. This is an important strategy that helps you spread your risks by putting your funds in different assets such as stocks, bonds, commodities, and cash.

18. Dividend: A payment made by a company to its shareholders from the company’s profits made over the previous period. Dividends can take the form of stocks, cash, or property.

19. Emerging market: A country that has yet to become a fully developed financial market, but is expected to grow in the near future.

20. Emerging market fund: A fund made up of assets that are invested in financial products based in emerging countries.

investments terms-definition

21. Equities/Equity: Another word for stocks or shares. “Equities trading” refers to trading in shares.

22. Equity fund: A fund used to invest in stocks.

23. Exchange-traded Fund (ETF): A fund that tracks an index, but can be traded like a stock. They are low cost investment that can be bought and sold at any time and can quickly be converted into cash if required.

They are traded on the stock exchange, meaning that they are bought and sold like shares. They give investors instant diversification, as one component represents an investment in multiple companies and sectors.

24. Financial statement: A written summary outlining a business’ financial standing.

25. Fund: A pot of money put aside for a specific purpose.

26. Gearing: A ratio that tells you how much debt a company has relative to its equity.

27. Gilts: Gilts are bonds sold/issued by the British government to raise money. They are generally low in risk.

28. Income statement: This is a summary of a company’s income and expenditures over a specific period. It shows whether a company made a profit or loss.

29. Index funds: An investment fund that aims to track the performance of a particular market index, such as an index of stocks.

30. Inflation: A change in the economy whereby prices of goods and services go up. Watch out, inflation is one of the greatest enemies of an investment!

investments terms for beginners

31. Investment strategy: A person’s general investment plan that fits their financial goals and risk appetite.

32. IPO: An Initial Public Offering (IPO) is the first sale of a company’s shares on a stock exchange.

33. Leverage: Borrowed money you need to make an investment.

34. Market capitalization: A company’s stock market value, obtained by multiplying the number of shares by their price.

basic-investments terms-definitions
By Gracesolution

35. Mutual fund: An investment fund made up of money from many investors.

36. Net worth: A company or individual’s assets minus their liabilities.

37. Outperform: When an investment is predicted to bring in a higher-than-average return.

38. Passive funds: An investment fund whose performance matches an index such as the FTSE 100.

39. Portfolio: A collection of assets belonging to an investor.

40. Price-to-earnings (P/E ratio): A ratio used to value a company’s shares. It is calculated by simply dividing the current price of a stock by the earnings per share (EPS).

common-investments terms

41. Return: The profit you make on an investment.

42. Risk-Reward Ratio: This is used to measure the expected gain of an investment against the risk you are willing to take. Investors use this to determine the viability of an investment.

43. Stock market: A place that allows investors to trade shares in public companies.

44. Stocks: Multiple shares in the same company, i.e. if you own two shares, you own stock.

45. Volatility: The fluctuation in price of an investment. It is used to measure the risk associated with an investment. If an investment or a stock moves up and down quickly over short period of time, it has high volatility.

46. Yield: The amount of money – given as a percentage – returned to an investor by an investment. Interest and dividends are two examples. For example, if you invest in property, the yield is the annual rental income as a percentage of the value of the property.

Learning a few of these common investments terms will pay off – literally – and boost your confidence! How many of these terms were completely new to you? Why do you think a lot of women reach adulthood with so little financial knowledge?

If you are READY to start investing, stocks and shares ISA is the simplest route to get started.

I highly recommend Fidelity Stocks and Shares ISA. Fidelity ISA is an easy-to-manage, tax-efficient Stocks and Shares ISA.

They offer the flexibility of investing lump sums or starting a regular savings plan to help you reach your goals. You can start a regular savings plan from as little as £25 or make a lump sum contribution from £1,000.

It’s a great way to invest your ISA allowance this tax year, and you can start investing in a wide range of investment options in just a few easy steps.

And the best part is, it is easy to get started – and no fancy investment knowledge is required!

Click here to start investing with Fidelity Stocks and Shares ISA!

Money Nuggets

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2 Comments

  1. Hi Money Nuggets,

    Excellent beginners guide for those of us who need to get started being proactive and taking control of our financial lives.

    Got a chuckle from this line; “A lack of knowledge and confidence stops women thinking they can invest.”

    My first thought was maybe we wouldn’t be so squeamish about finance if there wasn’t the fear of being MANSPLAINED about it.

    Like your blog – will tweet.

    Chris

  2. Hi Chris, I am glad you found the post useful.

    I totally agree, many of us have had a number of mansplaining experiences which points to a bigger issue: women don’t need to be patronised when it comes to finances – but, just like men, we do need help in understanding how we can plan for the future and make our money work for us.

    Thank you for the RT!

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