JARGON BUSTER
BONDS:
An IOU issued by a company or government. You loan them money for a set period of time in exchange for a fixed interest rate.
COMPOUND INTEREST:
This is when you earn interest on interest you’ve already been paid. Or, in investment terms, where you generate income using income.
DIVERSIFICATION:
This is key. It means spreading money across different types of investments such as shares, bonds and property. Also, within shares it means investing in different regions to help avoid stock market shocks.
DIVIDEND:
A payment made to shareholders from a company. It is typically a portion of a company’s earnings so you will usually only get it if a firm is doing well.
FUND:
This is essentially a basket of different investments run by a specialist manager. The expert manager’s job is to pick the best companies or bonds to invest in on your behalf. It means you can invest in lots of different companies or bonds in one go, without having to monitor each individually.
FUND SUPERMARKET:
Also known as a platform. It’s like the Amazon of the investment world — a one-stop shop where you can find most of the funds available for you to invest in, and you take your pick for a small annual fee. It’s cheaper than going directly to the fund company.
INDEX:
A list of investments. For example, the FTSE 100 is a list of the 100 largest companies in the UK with publicly traded shares. Similarly, the S&P 500 is a list of the biggest companies in the U.S..
INVESTMENT TRUST:
The concept is the same as a fund, but instead of buying units (which are unlimited) you buy shares, of which there are a limited number. That means the price of buying an investment trust share is based on supply and demand, just like a company share.
PORTFOLIO:
The name given to a collection of investments. For example, if you invest in six funds, that is your portfolio.
TRACKER FUNDS:
A fund whose job it is to match the performance of a chosen index, such as the FTSE 100. Unlike an active fund, where a manager chooses the company shares he thinks will do best, a tracker just copies a chosen stock market.