Written by Sarah Thorp, ZUU Online
Looking to invest some spare cash, but daunted by all the jargon, acronyms and nonsensical terms? You’re not alone. Investing can be enjoyable and bring big returns, but you need to know what everything means in order to make the suitable choice for you. So we’ve rounded up some of the key investment terms to shed some light on investing.
Annual report – A comprehensive account of a company’s performance throughout the preceding year, including updates on company activity, investments and holdings. Generally the provision of an annual report is for the information of shareholders (both present and those contemplating becoming a shareholder) to make informed choices about their position.
Annuity – The contractually agreed deposits made by an individual to a financial institution. The institution will grow the deposits in order to pay out to the individual at a later period. Examples include payments to pensions, savings or insurance plans. Annuities can be fixed or variable. Also be aware of life annuities, which continue until the holder passes.
Asset – A thing with financial value owned by a company, with the expectation that it will provide future benefit to that company. Assets can be fixed (things like cash, property and land), financial (things like stocks and bonds) or intangible (non-physical things like copyrights and patents).
Bear market – A market where investors lack confidence, seeing them sell of shares and pushing prices down. The opposite is a bull market.
Beneficiary – The person who stands to gain from financial products and policies. In many cases this doesn’t have to be the policy holder. For example, a holder may choose their spouse or children as the beneficiary of a life insurance policy on their death, meaning that spouse or child would receive any pay-out or other gains on the holder’s passing.
Blue chip – A company that is well-recognised, highly regarded and operates profitably. Generally seen as a lower risk investment with institutional economic status. The name comes from the game of poker, where blue chips have the highest value.
Bonds – A fixed-income security in which an investor loans money to a company or government, which borrows the funds for a certain period of time at a fixed or variable interest rate. Bonds can be used to raise money in place of a loan. For example, a company may issue bonds directly to investors in place of borrowing from banks.
Bull market – A market where investors are optimistic and expect to see good growth, pushing prices up. The opposite is a bear market.
Capital – The net worth of a financial product or investment. For example, the amount placed into a bank account before interest is added.
Commission – A fee paid to a broker when organising or performing your trade, which is usually calculated based on the total value of the transaction.
Commodities – Raw materials traded globally. Some of the most popular commodities are oil, coffee, sugar, wheat and gold.
Compounding – Where, over time, both the capital and the interest itself gain interest over time. In situations where only the capital gains interest, the process is known as linear growth.
Diversification – The act of spreading risk by investing or saving in a variety of products. The logic behind this management technique is that falls in one area will be weathered by gains elsewhere in your portfolio.
Dividend – A sum payed to shareholders at defined intervals as a result of positive company performance.
Equity – The value of assets, excluding the amount of all liabilities on that asset.
Fund – A source of capital that belongs to numerous investors used to purchase securities. Each investor retains their share and has control over it. Investment funds often provide opportunities for diversification and tend to have an assigned fund manager. Types include mutual funds, hedge funds and money market funds.
Inflation – The rate at which the general price for goods and services rises.
Interest – The amount a borrower is charged by a lender for use of its assets.
KPI (key performance indicator) – A set of measures used to assess the performance of a company or industry, and ultimately determine the progress of meeting long-term goals.
Open-ended investment companies – A fund that is able to constantly adjust its investment criteria and size.
Portfolio – The collection of different financial products an individual holds.
Premium – In insurance, a premium is the amount the policy holder pays for the policy. Before a premium is calculated, the risk of the policyholder and policy are calculated. Generally the likelier the policyholder is of claiming on the policy, or have someone claim against them, the higher the premium will be.
Return – The amount an individual stands to make back from their investment over a given period.
Risk – The rating of volatility given to financial products. Typically lower risk investments return lower yields, while higher risk investments return higher yields.
Savings account – A type of banking account offered by financial institutions with the direct aim of encouraging and growing deposits, through interest rates or sometimes investing on an individual’s behalf.
Shares – A unit of ownership in a business. Being a shareholder does not mean individual’s own part of the company, but they can have a say in operations and are entitled to a share in business profit via a dividend. Shareholders make money from their shares through both appreciation and dividends (although share values can fall, too).
Variable rate – A rate of interest that is changeable over time. The opposite is a fixed rate, which is guaranteed to remain the same for a set duration.
Volatility – The standard measurement of uncertainty or risk carried by a security or investment. Higher volatility generally means higher risk, and vice versa.
Yield – The return on an investment, usually expressed in a yearly percentage. Yield usually corresponds to volatility, and the higher the volatility, the higher the yield.
YTD (year to date) – A measurement of time when referring to milestones before the year’s business has completed. Other examples include quarter to date (QTD) which refers to financial quarters.
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This is a guest post by ZUU Online, an Asian-based Finance Education Portal aimed at helping individuals to improve their knowledge on personal finance and money, through educational articles on business, investments, property and insurance.
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