Jasmine Birtles
Your money-making expert. Financial journalist, TV and radio personality.
MoneyMagpie’s A-Z of Investing Terms
Ruby Layram
19th Dec 2024
Do you ever find yourself reading through our useful investing articles and coming across financial words and phrases that you don’t understand at all?
You’re not the only one!
The financial sector is full of obscure words that either sound like they mean something quite different to what they really mean or sound so confusing you have absolutely no idea what they’re talking about! Not only that but there are words (like ‘pension’ for example) that mean several different things. How helpful…not!
So our team decided to put an end to the head-scratching and provide you, our lovely reader, with a complete list of investing terms that you may come across when reading about the markets.
Here is our A-Z of investing terms that might come in useful. If there are any that we have missed out then just get in touch with us at [email protected].
A
Accumulating shares
Accumulating shares are a type of investment where the income (like dividends,) isn’t paid out to you directly. Instead, it’s reinvested back into the fund, helping your investment grow over time without you lifting a finger.
Think of it as your money quietly working away in the background, growing a little more each day.
Active Investment
Active investment is all about having a hands-on approach and buying and selling fairly regularly. With active investment, fund managers, or retail investors like you and I, try to beat the market by picking and choosing investments that might perform well.
It’s a bit like trying to win a game by picking the best players, rather than just going with the flow. The goal is to make your money work harder, but it can be a bit more of a rollercoaster ride!
The opposite of ‘Active Investment’ is ‘Passive Investment’ (see below for passive funds)
Altcoins
Altcoins are any cryptocurrencies that aren’t Bitcoin. Think of them as the alternative options to Bitcoin. They range from well-known tokens like Ethereum to the more obscure ones such as meme coins like Dogecoin. Some investors like to dabble in altcoins to diversify their crypto portfolio or take advantage of low-priced tokens.
Alternative Investment Market (AIM)
The Alternative Investment Market, or AIM, is a part of the London Stock Exchange where smaller, newer companies can list their shares.
These companies are often still growing and finding their feet, which means there’s potential for big gains but also more risk. It’s an exciting place for those who like to invest in up-and-coming businesses.
Ask Price
The ask price is the amount a seller wants for a share or other asset. It’s like the label price you see when you’re out shopping – the price the seller is asking for. If you’re buying, this is the price you’ll need to pay to add the asset to your portfolio.
Asset
An asset is anything of value that you own, whether it’s cash, stocks, property, or even that Channel handbag!
In the investment world, assets are the building blocks of your portfolio – they’re what you invest in to grow your wealth. Different assets come with different levels of risk and reward, so choosing the right mix is key.
Asset Allocation
Asset allocation is all about how you divvy up your investment pot among different types of assets, like stocks, bonds, and cash.
A good mix can help you balance risk and reward. Some of your money can be in riskier products that, you hope, will give you a high reward, while you balance that out with money in safer products that tend to give a lower reward. This is also known as diversification or ‘spreading your bets’!
B
Balanced or cautious funds
Balanced, or cautious, funds are investment options for those who have a low-risk appetite. They blend a mix of stocks, bonds, and cash to aim for steady growth while keeping risks in check.
The upside to this is that you’re less likely to lose your money, but the downside is that you’re more likely to see lower returns from the fund.
Bank or Base interest rate
The bank, or base, interest rate is the interest rate set by central banks, like the Bank of England. It’s the rate at which retail banks can borrow from the central bank.
It’s the number that influences the rates you see on loans and savings. When it goes up, borrowing costs more, but your savings might earn a bit more too.
Putting interest rates up or down affects inflation (somewhat) because the more expensive it is to borrow, the less people spend which means that prices are more likely to come down. However, when the economy needs a boost it’s helpful to have lower interest rates so that people and businesses borrow more and therefore spend more.
Bear market
A bear market is when the stock market takes a dive – usually by 20% or more from recent highs.
It’s called a “bear” because, like a bear swiping its paw downward, the market heads south. Investors have a sore bear’s head about it too as they can see their profits going down.
It’s not great news for investors, but it’s also a normal part of the market cycle, and it can sometimes be profitable to buy the dip!
Benchmark
A benchmark is a standard against which the performance of an investment is measured. You can think of it as comparing the performance of assets in your portfolio to an ‘average’.
For example, if you’re investing in UK stocks, you might compare your returns to the performance of the FTSE 100 to see how you’re doing.
Bid price
The bid price is the highest price that a buyer is willing to pay for an asset, such as a stock or bond.
It’s one half of the buying and selling equation. If you’re looking to sell, the bid price tells you how much someone is currently willing to pay you for your investment.
Bitcoin
Bitcoin is the original and most well-known cryptocurrency – a digital currency that operates independently of a central bank.
The value of Bitcoin is driven by supply and demand, and it’s often seen as a hedge against traditional financial systems.
Although it can be volatile, it’s become a popular investment for those looking to diversify into the digital world.
Blue-chip
Blue-chip stocks are shares in large, well-known companies that have a long history of reliability and stability. These are the big names – the household brands you know and trust that tend to sit at the top of the FTSE.
They’re considered lower risk because these companies are well-established, making blue chips a favourite for long-term, low-risk investors.
Bonds
Bonds are essentially IOUs issued by governments or companies when they need to borrow money. In exchange for your investment, they promise to pay you back with interest. The ‘bond’ element is you promising to lend them money for a fixed amount of time and them promising to give you a certain level of interest for that period.
Bonds are considered lower risk than stocks, making them a popular choice for those saving for retirement or wanting a steady income stream.
Book value
Book value is the value of a company’s assets minus its liabilities (a fancy word for expenses that they need to pay). It’s similar to the net worth of a company.
You can compare a company’s book value to its market value to decide if a stock is over or undervalued.
Bottom-up investing
Bottom-up investing is an approach where you focus on selecting individual stocks based on the quality of each company rather than on broader market trends. It’s a strategy that involves a lot of homework on specific companies.
Bull market
A bull market is the opposite of a bear market – it’s when the market moves up, typically by 20% or more from recent lows.
It’s called a “bull” because, like a bull lifting its horns, the market moves upward. It’s generally a time of optimism when investors feel confident about their investments.
Buy limit
A buy limit is an order you place to buy a stock at a specific price or lower. It’s a handy tool if you’re looking to get in at a particular price point. You set the limit, and if the stock price drops to that level, your order will automatically go through.
Buy order
A buy order is simply an instruction you give to purchase a specific amount of a stock or other asset. It’s like telling your broker, “I want to buy this,” and it can be executed immediately at the current market price or set to trigger when certain conditions are met, like a specific price.
Buy-sell spread
The buy-sell spread is the difference between the bid price (what buyers are willing to pay) and the ask price (what sellers want to get).
It’s the small gap where the dealer or market maker takes a profit. A narrower spread usually indicates a more liquid market, meaning it’s easier to buy and sell the asset quickly.
C
Capital
Capital is simply the money you have available to invest. It’s the spare cash that you use to build your portfolio, whether it’s in stocks, property, or your own business. Think of it as the starting point for any wealth-building activity – without capital, you can’t invest!
The money-making and money-saving ideas on MoneyMagpie.com help you build up your ‘capital’ so that you can invest it and make more!
Capital gain
A capital gain is the profit you make when you sell an investment for a higher price than you originally bought it for.
So, if you bought shares at £10 each and sold them at £15, that extra £5 per share is your capital gain. Some people also refer to this as Capital appreciation (which is the term for when your assets go up in value).
Capital gains tax
Capital Gains Tax (or CGT) is the tax you pay on your capital gains – the profits from selling investments like stocks, property, or cryptocurrencies. The tax kicks in when your gains exceed a certain threshold set by the government, but it only kicks in if you have actually sold the asset(s). If they have gone up in value but they’re still sitting in your portfolio then you don’t have to pay anything.
It’s one of those little details to remember because, sadly, the taxman always wants his share of your investing successes!
Capital growth
Capital growth refers to the increase in value of your investment over time. It’s all about seeing your initial capital grow as the value of your assets goes up. Whether it’s a rising property market or a booming stock portfolio, capital growth is the goal for long-term investors looking to build wealth.
Commodities
Commodities are basic goods (or materials) that we use on a regular basis, like oil, gold, steel or wheat.
Investing in commodities is a way to diversify your portfolio and can act as a hedge against inflation. It’s a bit like buying the raw ingredients for a popular cake – they might not be glamorous, but they’re always in demand.
Consumer price index (CPI)
The Consumer Price Index (CPI) is our main measure of inflation. It measures the average change over time in the prices paid by consumers for a basket of goods and services put together by the Office of National Statistics based on what they think the average person buys each year. It tells you by how much prices are rising or falling.
However, it doesn’t include housing costs. For that you need to look at the RPI – Retail Prices Index.
D
Defensive assets
Defensive assets are the investment equivalent of a safety net. These are the investments that tend to hold their value or even perform well when the market is shaky.
Think of things like government bonds or cash (saving accounts) – they’re less exciting than stocks, but they offer stability and peace of mind during periods of volatility.
Defensive asset allocation
Defensive asset allocation is when you allocate more of your investment portfolio to defensive assets to protect yourself against market volatility. This approach is perfect for those who prefer to avoid risk and would rather keep their hard-earned money safe than chase after big gains.
Diversification
If you’ve read MoneyMagpie for some time, you’ve probably heard us say, ‘don’t put all your eggs in one basket!’. By this, we mean diversify your investments.
Diversification involves spreading your money across different assets, industries, and markets, to reduce the risk of losing everything if one investment goes down. So make sure you have money in different assets like savings, property, pension, stocks and shares and, maybe, cryptocurrencies. Within those asset classes you should also consider spreading your investments across different companies and products too.
Dividend
Dividends are known for providing passive income to investors. It’s a percentage of the company’s profits that gets paid out to investors, usually either once a year or once every six months. If you own shares in a company that pays dividends, you’ll receive a slice of the profits – it’s like getting a bonus just for holding onto your shares.
Dividend yield
Dividend yield is a percentage that tells you how much income you’re getting from a share in relation to its price. It’s calculated by dividing the annual dividend per share by the current share price.
A good dividend yield means consistent passive returns – i.e. a nice little income from your investments. Stocks with good yields are highly sought after.
E
Earnings per share (EPS)
Earnings per share (EPS) is a quick way to see how profitable a company is, calculated by dividing its net earnings by the number of shares outstanding. Think of it as the portion of a company’s profit that’s theoretically yours if you own a share.
The higher the EPS, the more profitable the company is considered to be, which can be a good indicator of potential growth.
EBIT
EBIT is an acronym that stands for Earnings Before Interest and Taxes. It reflects how profitable a company is, before interest and income tax expenses are taken out. It’s a good indicator of the real health of a company as it shows how well it is doing from its core operations.
EBITDA
EBITDA is an acronym that stands for stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It’s a mouthful, but in simple terms, it’s a way of measuring a company’s profitability by focusing only on its operational performance. Again, a good way of working out how much a company is really worth.
Emerging markets
Emerging markets are countries that are on their way to becoming more advanced economically, usually through rapid growth and industrialization. Investing in these markets can be a bit like investing in a new company—there is a lot of room for development and growth but it can be risky.
Emergency fund
An emergency fund is a savings pot that you allocate towards last-minute expenses such as fixing your car, paying for your child’s school trip or other important bills. Ideally, you should aim to have three to six months’ worth of living expenses tucked away in an easy-to-access savings account. We also call it a ‘savings safety net’ or ‘self-insurance’.
Environmental, Social and Governance (ESG)
ESG refers to a set of standards for a company’s behaviour used by socially-conscious investors. It’s all about companies supposedly doing the right thing—protecting the environment, being socially responsible, and maintaining good governance.
Investing in ESG-friendly companies is not just about doing good; it’s about putting your money into businesses that are likely to be sustainable in the long run. However, you have to be careful with ESG-ratings as they are very much open to misinterpretation. Several companies that have poor practices in some or all of the categories still manage to get a clean bill of health, so do your own research.
Equities (also known as shares)
Equities, or shares, represent ownership in a company. When you buy shares, you’re buying a piece of the company and, in return, you get a slice of its profits (if it pays dividends).
Equities can offer the potential for high returns, but they also come with risk, as the value of your shares can go up or down depending on how the company, and the market, perform.
Ex-dividend
When a share is ex-dividend, it means that the next dividend payment is not included if you buy the stock now. Essentially, the company has already declared the dividend, and only those who owned the shares before the ex-dividend date will receive it.
Exchange rate
The exchange rate is the value of one currency compared to another. For example, how many US Dollars you can get for a British Pound.
Exchange rates are important if you’re travelling, buying goods from abroad, or investing in foreign markets, as they can affect how much you can get for your money.
Exchange-traded fund (ETF)
An Exchange-Traded Fund (ETF) is like a big bag of stocks or bonds that you can buy and sell on the stock exchange, just like a regular share. It’s a fund but it’s also a company in itself which is why you can buy or sell it on the stock exchange.
ETFs offer a simple and cheap way to invest in a wide range of assets, from stocks in the FTSE 100 to bonds, gold, commodities or even a specific sector like technology or a country like India.
They’re popular because they combine the diversification of a mutual fund with the flexibility of trading shares at low cost.
Expense ratio
The expense ratio is the annual fee that an investment fund charges its investors. This fee is expressed as a percentage of the fund’s assets and covers the cost of managing the fund.
While it might seem small, the expense ratio can significantly impact your overall returns over time, so it’s something to keep an eye on when choosing funds.
F
Face value
Face value is the original cost of a bond or other security, as stated on the certificate. It’s a bit like the ticket price of an event—it’s what the issuer promises to pay back when the bond matures.
For example, if a bond has a face value of £1,000, that’s what you’ll get back at the end, though its market value may fluctuate over time.
Fiat currency
Fiat currency is the money that a government declares to be legal tender, but it isn’t backed by a physical commodity like gold. Examples include the pound, the dollar, or the euro.
The value comes from the strength of the government and economy that issues them, rather than any intrinsic value.
Fixed-rate account
A fixed-rate account is a savings account where the interest rate is guaranteed to stay the same for a set period. These accounts are considered to be lower risk because you know exactly how much interest you will be paying or receiving for a set time.
Foreign exchange
Foreign exchange, or Forex (or sometimes just ‘FX’), is the market where currencies are traded. If you’ve ever travelled abroad and exchanged pounds for euros, you’ve participated in Forex!
Investors use the Forex market to speculate on currency movements, but be warned—it’s a high-risk game, as exchange rates can be quite volatile.
Foreign Investment Risk
Foreign investment risk refers to the potential losses you might face when investing in foreign markets. These risks can arise from currency fluctuations, political instability, or changes in foreign government regulations.
Fractional shares
Fractional shares allow you to buy a piece of a stock rather than the whole thing. Imagine wanting to buy shares in a company like Amazon, but the price per share is too high.
With fractional shares, you can invest whatever amount you’re comfortable with and own a small portion of that share.
FTSE 100
The FTSE 100 is a stock market index that represents the 100 largest companies listed on the London Stock Exchange by market capitalization (i.e. how much they’re worth) with the most valuable being at the top and the others listed according to how much they are worth.
It’s a bit like the Premier League of British business, showcasing the biggest and often most stable companies. When people talk about “the FTSE,” they usually mean the FTSE 100.
FTSE 250
The FTSE 250 is a stock market index that tracks the 250 companies listed on the London Stock Exchange that are just below the FTSE 100, so numbers 101-350.
These companies are generally mid-sized and often have higher growth potential but come with a bit more risk. It’s a good place to look if you want to invest in firms that are still growing.
FTSE All Shares
The FTSE All-Share index represents nearly every company listed on the London Stock Exchange, from the FTSE 100 to the smaller firms in the FTSE 250 and beyond. There are about 700 companies in the FTSE All Share from the big ones like the banks and pharmaceuticals down to the tiddlers at the bottom that include estate agencies and IFAs.
It’s a broad index that gives you a snapshot of the overall health of the UK stock market.
If you want to invest in the whole market, this is the index to watch.
FTSE Small Cap
The FTSE Small Cap index includes the smaller companies listed on the London Stock Exchange that are outside the FTSE 100 and FTSE 250 (so numbers 351 onwards). These companies might be small, but they often have big growth potential.
However, they can also be more volatile, so this index is often most suitable for more risk-tolerant investors.
Fund
A fund is a pool of money collected from many investors to invest in securities like stocks, bonds, or other assets. It’s managed by professionals who make investment decisions on behalf of the investors.
Funds offer a way to diversify your investments without needing to pick individual stocks or bonds yourself.
Fund of funds
A fund of funds is exactly what it sounds like—a fund that invests in other funds rather than directly in stocks or bonds. It’s like getting a ready-made basket of different investments, providing diversification and professional management in one neat package. The downside is that each fund has its own fees and the fund of funds itself is likely to have a fee so you could lose quite a lot of your gains in these expenses.
Fund manager
A fund manager is the professional responsible for picking investments in a fund. They decide which assets to buy and sell based on their research and expertise. Their funds are ‘actively managed’ as opposed to ‘passive funds’ which are run by computer algorithms.
Fundamental Analysis
Fundamental analysis is the practice of evaluating a company’s financial health and performance to determine its fair value. It involves looking at everything from revenue and earnings to debt levels and market conditions.
Investors use fundamental analysis to decide whether a stock is undervalued or overvalued.
Futures
Futures are financial contracts that obligate the buyer to purchase an asset, or the seller to sell an asset, at a predetermined future date and price.
While they can be a useful tool for managing risk, futures are complex and can be risky, so they’re usually left to experienced investors.
G
Gilts
Gilts are bonds issued by the UK government. They’re like corporate bonds (see above) but they are called gilts because they were originally gilt-edged, meaning they were considered very safe investments.
Essentially, when you buy a gilt, you’re lending money to the government in exchange for regular interest payments, plus the return of your capital when the bond matures. Gilt returns tend to be stable but relatively low.
Greenwashing
Greenwashing is a popular tactic that is used to attract ethical investors. It is when a company pretends to be more environmentally friendly than it actually is (see our comment on ESG above).
To do this, companies use clever branding such as images of leaves, green colours and suggestive wording. However, when you look closer, they might not be eco-friendly at all!
Investors need to watch out for greenwashing in the investment world, as some companies may overstate their environmental credentials to make their shares more appealing.
Growth funds
Growth funds are mutual funds or ETFs that focus on companies expected to grow at an above-average rate compared to others. These funds invest in businesses that reinvest their earnings into expansion, innovation, or acquisitions rather than paying dividends.
Growth investing
Growth investing is a strategy where you focus on buying shares in companies that are expected to grow faster than the market average. Currently these are typically companies in the technology or consumer discretionary sectors, where innovation and new trends can lead to rapid expansion. Growth investing is all about finding the next big thing, but it comes with higher risk since not all growth companies live up to their promise.
Growth stock
A growth stock is a share in a company that is predicted to experience significant growth. These companies often reinvest their profits to support development rather than paying out dividends.
Investing in growth stocks can be rewarding if you pick the right ones, but they’re also more volatile, so they require a bit more nerve and a longer time horizon.
H
Halal Investing
Halal investing is a type of investing that is compliant with Shariah Law. This means steering clear of companies involved in things like alcohol, gambling, and interest-based financial services.
Instead, Halal investing focuses on businesses that operate within industries that align with Islamic beliefs.
Hedge fund
A hedge fund is like the high-flying acrobat of the investment world. It’s a pooled fund that uses a range of complex investment strategies—like borrowing money to invest or betting on falling prices—to try and generate high returns. Hedge funds are usually for wealthy investors who can handle a bit of risk since these funds can be quite volatile and aren’t as regulated as regular mutual funds. Also they tend to have a minimum investment threshold of at least £500,000.
High-Yield Bond
High-yield bonds are corporate or government bonds that offer higher interest rates than regular bonds because they come with a bit more risk. They’re issued by companies or governments with lower credit ratings, so they need to offer bigger returns to attract investors.
High net worth individual (HNW)
A high net worth individual (HNWI) is someone who has a lot of money to invest, typically over $1 million in liquid assets. These folks often have access to exclusive investment opportunities, like private equity, hedge funds, and bespoke financial advice. Being a HNWI means you’ve got the means to diversify your portfolio and explore more sophisticated investment strategies that aren’t available to the average investor.
I
Impact Investing
Impact investing is all about putting your money where your heart is. It’s investing in companies, organizations, or funds with the intention of generating not just financial returns but also a positive social or environmental impact.
Income
Income is the lovely stream of money you receive regularly, whether from your job, investments, or other sources.
When it comes to investing, income usually refers to the money you earn from interest, dividends, or rent on your properties. It’s money that flows into your account. Sadly, the government also likes to tax your income so the more you make, the more tax you pay.
Index
An index is a collection of stocks or other securities that represent a particular corner of the market, such as the FTSE 100 or the S&P 500 or FTSE4Good. Investors and fund managers use indices to measure the performance of the market or compare how well a particular investment is doing against the market as a whole.
Indices
Some people think that indices are different to an index. In reality, indices are just the plural of an index, meaning there’s more than one. They track the performance of different groups of assets across the financial markets.
Inflation
Inflation is the steady (or sometimes not so steady!) rise in prices over time. Inflation is the reason that your money doesn’t stretch as far as it used to. It’s why your grandparents could buy a loaf of bread for pennies while you’re paying a couple of pounds for it.
Inflation affects everything from groceries to your property and investments, so it’s important to consider it when planning your financial future, especially for retirement.
Inflation rate
The inflation rate is the percentage at which prices increase over a certain period, usually a year. It tells you how fast the cost of living is going up and how much less your money will buy. If the inflation rate is high, it can erode the value of your savings and investments, so keeping an eye on those is key to maintaining your purchasing power.
Initial public offering (IPO)
An Initial Public Offering (IPO) is like a company’s big debut in the stock market. It refers to the first time that shares are listed on the market. Investors can buy shares during an IPO, often hoping to get in early on a company’s growth potential.
Interest rate
An interest rate is a percentage that determines how much it will cost to borrow money or how much you will receive for saving it. If you’re taking out a loan, the interest rate is what you’ll pay on top of the amount you borrowed. Conversely, if you’re saving or investing, the interest rate is what you’ll earn on your money.
Interest rates are set by banks and lenders, based on what the central banks have set.
International Stock
International stocks are shares of companies based outside your home country. Investing in these stocks allows you to diversify your portfolio by spreading your investments across different economies and markets.
Investments
Investments are the assets you buy with the aim of growing your wealth over time. These can include stocks, bonds, property, and more. The idea is to put your money to work, so it earns more money, either through appreciation, dividends, or interest.
ISA
An ISA, or Individual Savings Account, is a tax-efficient way to save or invest in the UK. You can put your money into a cash ISA, which is like a regular savings account but with no tax on the interest, or a stocks and shares ISA, where your investments can grow tax-free. They’re like a tax-saving bag into which you can put any investments you like.
J
January Effect
The January Effect is a stock market phenomenon where prices, particularly of small-cap stocks, tend to rise more in January than in other months. This happens because investors often sell off their shares in December to claim tax losses and then buy back in January, pushing prices up.
It’s a quirky little pattern that some traders try to capitalize on, though it’s not a guaranteed winner every year!
JISA
JISAs are Junior ISAs. They operate in the same way as adult ISAs but have a lower limit of money you can invest in them. When your child reaches 18 they can take control of the money and turn it into an adult ISA or take the money out.
Junk Bond
A junk bond is a type of bond that offers higher yields because it comes with higher risk (also known as a high-yield bond). These bonds are issued by companies with lower credit ratings, meaning there’s a greater chance they might land in trouble and not be able to pay back your money.
K
Key Risk Indicator
Key risk indicator (or KRI), is a measure that is used to predict the potential risk of an investment. Think of it as an early warning system that flags up issues before they turn into full-blown problems.
Key Investor Information Document (KIID)
The Key Investor Information Document (KIID) is a short, standardized document provided by fund managers that gives you the essential facts about a particular investment fund.
L
Large-Cap Stock
Large-cap stocks are shares in big companies with a market capitalization of over £10 billion. These are the financial heavyweights like Apple or BP, known for their stability and lower risk compared to smaller companies.
Leverage
Leverage is when you borrow money to boost the amount of money that you can invest. It can increase your gains, but it can also amplify your losses—so it’s most suitable for experienced investors. A mortgage can be seen as leverage as it enables you to invest in a much bigger property than you would be able to do just with your own cash.
Whatever you borrow, though, you must pay back!
Limit Order
When you set a limit order, you give an instruction to buy or sell a stock at a specific price or better. It’s a way of determining what you are willing to pay. For instance, if you want to buy shares in Tesco, but only if they drop to £2, a limit order will only execute the trade if the shares hit that price.
Liquidity
Liquidity refers to how easily you can buy or sell an asset without affecting its price. In simpler terms, it’s about how quickly you can turn your investment into cash. High liquidity means you can sell easily without much hassle, while low liquidity might leave you stuck with something that’s hard to shift.
London Stock Exchange
The London Stock Exchange (LSE) is one of the oldest and most famous stock exchanges in the world.
It’s the place where shares of publicly traded companies like Unilever and Barclays are bought and sold.
If you’re investing in UK companies, chances are you’re dealing with stocks listed on the LSE.
Long-term Investing
Long-term investing involves buying and holding your investments for several years. This strategy supports gradual growth and capital appreciation but isn’t always the most exciting!
Long-term investors tend to let their investments grow in the background, without doing much maintenance or reshuffling.
Longevity Risk
Longevity risk is the chance that you might outlive your savings, especially as life expectancy increases. It’s a growing concern for retirees who need to make their money last as long as they do. Planning for this involves ensuring your investments can provide a steady income well into your golden years.
Lump sum investing
Lump sum investing is when you invest a big chunk of money all at once, rather than spreading it out over time. It’s like diving straight into the pool instead of dipping your toes in. If the market’s on your side, it can be a great way to maximize returns, but there’s also the risk of buying in at the wrong time.
M
Margin
Margin is the money you borrow from your broker to invest (like leverage!), using your existing investments as collateral. As with ‘leverage’ it’s like getting a loan to top up your investment, but with the potential for both higher gains and bigger losses.
Market capitalisation
Market capitalisation, or market cap, is the total value of a company’s shares on the stock market. It’s calculated by multiplying the share price by the number of shares in existence. .
Market sentiment
Market sentiment refers to the overall attitude that investors have towards the financial markets. When investors are feeling optimistic, we’re in a “bullish” market; when they’re pessimistic, it’s a “bearish” market.
Market sentiment can often drive prices up or down, even if the fundamentals of the companies haven’t changed.
Mega cap stock
Mega cap stocks are stocks with capitalisations typically over £200 billion. These include companies like Tesla and Microsoft—these are the giants that usually have significant influence on the market.
Micro-Cap Stock
Micro-cap stocks are the opposite of mega-cap stocks, with market capitalisations typically between £50 million and £300 million. These stocks can offer massive growth potential, but they also come with higher risk because smaller companies are often more volatile.
Mid-cap stock
Mid-cap stocks sit in the middle of mega-cap and micro-cap, with market capitalisations between £2 billion and £10 billion. They’re often too big to be small caps but not quite large enough to be considered large caps. Investing in mid-cap stocks can offer a balance between the growth potential of smaller companies and the stability of larger ones.
Momentum
Momentum in investing refers to the tendency of stocks to continue moving in their current direction—up if they’re rising and down if they’re falling. When the market lacks momentum, prices move horizontally.
Investors tend to try to catch the start of momentum to take advantage of large price movements.
Mutual fund
A mutual fund is a type of investment that pools money from a number of investors to buy a whole mix of stocks, bonds, or other assets. It’s managed by professional fund managers who make the investment decisions on your behalf.
The difference between mutual funds and ETFs is that mutuals are actively managed (and usually more expensive).
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Nasdaq
The Nasdaq is one of the largest stock exchanges in the world, based in New York. Unlike the traditional trading floors, the Nasdaq is all electronic, and it’s home to many of the big tech companies like Apple, Amazon, and Google.
New York Stock Exchange
The New York Stock Exchange is another big US stock exchange, with roots dating back to 1792. Located on Wall Street, it’s where many of the biggest and most established companies are listed.
Negative Growth
Negative growth is a polite way of saying that something is going down – it’s shrinking instead of growing. In the investment world, it usually refers to a company’s earnings or the economy contracting over time.
O
Option
An option is a type of financial contract that gives you the right, but not the obligation, to buy or sell an asset at a set price before a certain date. It’s like placing a reservation on a stock, where you get to decide later if you want to go through with the purchase or sale.
Options can be a bit tricky and are only suitable for more advanced investors who want to manage risk or speculate on market movements.
Over The Counter (OTC)
Over-the-counter, or OTC, refers to trades that happen directly between two parties rather than through a formal exchange like the NYSE or Nasdaq. Think of it as buying something directly from a business owner instead of in a big department store—it’s less regulated and often used for smaller or less common stocks, bonds, or other financial instruments.
Overdraft
An overdraft is like a safety net, offered by banks that allows you to spend more money than you actually have in your account. Overdrafts usually come with interest rates so be careful if you decide to use one!
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Passive investment
Passive investment is a strategy where you buy and hold investments for the long term without constantly trading or trying to time the market.
Think of it like planting a tree—you plant it, water it, and let it grow, trusting that over time it will flourish.
Passive investing often involves putting your money into index funds or ETFs that use computer algorithms to track a market index, making it a low-cost and hands-off approach to growing your wealth. These are also known as passive funds.
Penny Stocks
Penny stocks are shares of small companies that trade for less than £1 (or $5 if you’re reading from the U.S.). These stocks are cheap but often risky. They’re notorious for being volatile, and the companies behind them can be unstable.
However, penny stocks provide a good opportunity to diversify without needing to put too much money in the market.
Price-to-Earnings Ratio
The price-to-earnings ratio, or P/E ratio, is a popular metric used to determine if a stock is over or undervalued. It’s calculated by dividing the current share price by the company’s earnings per share.
In simple terms, it tells you how much investors are willing to pay for each pound (or dollar) of earnings. A high P/E might suggest that a stock is overvalued, while a low P/E could indicate a bargain—though it’s not always that straightforward!
Price-to-Growth Ratio
The price-to-growth ratio is a version of the P/E ratio that takes a company’s future growth into account.
You calculate it by dividing the P/E ratio by the company’s earnings growth rate. It’s a bit like adding another dimension to your analysis, helping you spot whether a seemingly expensive stock might actually be worth it because it’s growth potential shows it could be worth a lot more later on.
Pound-cost Averaging
Pound-cost averaging is a strategy where you invest a fixed amount of money at regular intervals, regardless of the price of the investment. You might have heard it being referred to as Dollar Cost Averaging.
The handy thing about pound cost averaging is that if you invest, say, once a month, using a standing order from your bank account, not only do you gradually build up an investment pot almost without noticing, but you also invest when prices are low, when prices are high and when they are medium.
This means that you ‘average’ out at some sort of medium price for your investments, Of course the ideal is to buy only when prices are low but no one can tell exactly when that will be, so you’re safest just going for a mix of prices that come to an average after a while.
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Quantitative easing
Quantitative easing, or QE, is a fancy term for ‘money printing’. It’s a monetary policy where central banks create money to inject into the economy to stimulate growth.
The central bank does this by buying government bonds or other financial assets, which increases the money supply and encourages lending and investment.
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Real Estate Investment Trust (REIT)
A Real Estate Investment Trust (also known as a REIT) is like a mutual fund, but for property only.
It’s a way for you to invest in property without having to buy, manage, or sell some yourself. REITs pool money from lots of investors to buy income-producing real estate like shopping centres, office buildings, or apartments.
The best part? They pay out most of their profits as dividends, making them a great option for those looking to earn income from real estate without the hassle of being a landlord.
Return on Investment (ROI)
Return on investment, or ROI, is a measure of how much money you’ve made (or lost) compared to how much you’ve invested. ROI is usually expressed as a percentage, so if you invest £1,000 and make £100 in profit, your ROI would be 10%.
The higher the ROI, the better your investment is performing!
Recession
A recession is when the economy takes a bit of a fall, usually marked by a decline in GDP (Gross Domestic Product) for two consecutive quarters.
During a recession, businesses may cut back, unemployment can rise, and consumer spending tends to slow down.
While recessions are tough, they’re also a normal part of the economic cycle and often lead to new opportunities once the economy starts to recover.
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S&P 500 Index
The S&P 500 Index (Standard & Poo 500r is an index that tracks 500 of the biggest and most influential companies on the US stock market. It is often used as a snapshot of how the U.S. economy is doing (like the FTSE 100 in the UK) because it covers a wide range of industries, from tech giants to healthcare leaders.
If the S&P 500 is going up, it usually means investors are feeling pretty positive, while a drop can indicate some nervousness in the market.
Security
A security is a broad term for any financial asset that can be traded, like stocks, bonds, or even certain types of investments like mutual funds. It’s basically a fancy word for the different ways you can own a piece of something valuable, whether it’s a share in a company or a government bond.
Securities are what you’re buying and selling when you invest in the markets.
Spread
The spread is the difference between the buying price (ask price) and the selling price (bid price) of a security.
Think of it like the gap between what a seller wants to get and what a buyer is willing to pay.
The smaller the spread, the easier it is to trade that security without losing much value, making it a crucial factor in how profitable your trades can be.
Stop-loss Order
A stop-loss order is a way of automatically selling an asset when it hits a particular price point. You choose a price at which you’ll sell a security automatically if it starts to drop, which can help protect you from big losses in a volatile market. It’s particularly handy if you’re not able to monitor your investments constantly.
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Technical Analysis
A type of analysis that involves looking at price charts and past price movements to predict future trends. It’s a bit like being a detective, searching for patterns and signals that might indicate whether a stock’s price is about to go up or down.
Technical analysis is typically used by short-term traders but can also be a useful component of finding long-term investments.
Top-down Investing
Top-down investing is a strategy that starts with the big picture. Investors first look at global economic trends and then drill down into sectors, industries, and finally individual companies. It’s like starting with a bird’s-eye view of the economy and narrowing your focus until you find the best opportunities, making sure your investments are aligned with broader market trends.
Total Return
Total return is all about the complete picture when it comes to your investments. It’s not just the increase in your investment’s value over time, but also includes any dividends or interest you’ve earned along the way.
Think of it as the full package—capital gains plus income—giving you a better idea of how well your investments are actually performing.
Trust Fund
A trust fund is a financial safety net often set up by parents or grandparents to provide for someone’s future.
It’s a legal arrangement where assets like money, stocks, or property are held by a trustee for the benefit of a third party, often a child or grandchild.
Trust funds can be used to pay for education, and living expenses, or even passed down as an inheritance, ensuring financial security over the long term.
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Underlying Asset
The underlying asset is the real thing behind a financial contract or derivative. It’s the tangible or financial asset that gives value to something like an option or futures contract.
V
V
aluation
Valuation is the process of figuring out what an asset, company, or investment is worth. Think of it as a judgement where everything from financial performance to market trends is considered to come up with a fair market value.
Value Investing
Value investing is the investing version of bargain hunting. Here you are searching for bargains in the stock market. It’s a strategy where investors seek out stocks that appear undervalued compared to their intrinsic worth.
The idea is to buy low and wait for the market to recognize the stock’s true value, potentially leading to significant gains. It’s the main investing philosophy followed by top investor Warren Buffett.
Venture Capital
Venture capital is money provided by investors (venture capitalists) who are willing to take on high risks in exchange for potentially high rewards. This funding is typically given to new businesses and start-ups.
This capital helps businesses grow quickly, often in return for equity or a stake in the company.
Value Shares
Value shares are stocks that investors believe are trading for less than their true worth.
These shares often come from well-established companies that are going through a rough patch or simply don’t align with current demand.
Buying value shares is like finding a designer bag in the bargain bin—you get quality at a discount, with the potential for big returns as the market corrects itself.
Volatility
Volatility is a term used to describe how settled or unsettled the market is. It measures how much the price of an asset—like a stock—goes up and down over time.
High volatility means lots of ups and downs (think of a wild rollercoaster), while low volatility means a smoother ride, with fewer dramatic price changes.
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Wall Street
Wall Street is a street in New York City where the New York Stock Exchange is located and is home to many of the world’s largest banks, investment firms, and financial institutions. It’s the New York version of the City.
Whitepaper
A whitepaper is a detailed document that provides all of the information about a new product. It’s an in-depth report that explains the concept, how it works, and why it’s valuable, often used in the tech world, especially for new cryptocurrencies or blockchain projects.
Windfall profits
Windfall profits are sudden, large gains that come from something out of the ordinary—like a company’s shares skyrocketing due to a surprise announcement or an investor selling an asset at just the right time.
It’s like finding a wad of cash in your old coat pocket—completely unexpected but very welcome.
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Yield
Yield is the income you get from an investment, usually expressed as a percentage. For example, with bonds, it’s the interest you earn compared to what you paid for them, while for stocks, it’s often the dividends paid out.
Yield gives you a quick snapshot of how much bang for your buck you’re getting in terms of income relative to the price of the investment.
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Zero coupon bond
A zero coupon bond is like the opposite of instant gratification in the bond world. Instead of receiving regular interest payments, you buy the bond at a discount, and when it matures, you get the full face value.
It’s a way of investing where you forgo income now in exchange for a bigger pay-out later on—perfect for those with patience.
I think that about wrap’s it up!
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Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence. When investing your capital is at risk.
