The 25 investing terms you’ll hear most (and what they really mean)

The investment market, with all of its jargon and acronyms, can be intimidating to new investors. Everyone could benefit from being more engaged with their investments, but if you don’t understand what half the words mean, you’ll likely be too scared to even take the first steps. 

We understand. To help demystify the world of investing, we’ve made a list of the 25 investment terms you’re most likely to come across. We’ve broken what they mean in plain English. 

Let’s start with the basics

• GIA – this stands for General Investment Account. Most providers will offer this kind of standard account, which doesn’t come with any tax efficiencies. These accounts will allow for investment in a range of different assets, which may vary from provider to provider
• ISA – Individual Savings Account. A tax-efficient savings and investment wrapper provided under UK government rules. Investors are likely to utilise stocks and shares ISAs specifically. Any investment held in an ISA will not be subject to UK Capital Gains Tax, Dividend Tax, or Income Tax on interest 
• SIPP – Self-Invested Personal Pension. One of many pension types which allows you to manage your own investments, and choose what assets to hold. Like ISAs, SIPPs also offer tax incentives 

• Equities – units of ownership in a company. In the UK they’re most commonly known as shares, while the US calls them stocks. When you hold shares in a company, you effectively become a part owner of it. This allows you to (hopefully) benefit when the company grows, or experience loses when it struggles
• Fund – a pooled investment that is managed on behalf of investors. If you invest in a fund, your capital (money) will be utilised alongside all the other investors within that fund
• Index fund – a fund that tracks (or attempts to track) a specific market index
• Index – a collection of assets that’s used to track or measure the performance of a specific segment of the wider investment market
  • The MSCI United Kingdom Investable Market Index measures the performance of the large, mid, and small capitalisation segments of the UK market
  • The S&P 500 is an index that tracks the performance of the 500 largest traded companies in the US 
• ETF – Exchange-Traded fund. A type of investment fund that is bought and sold on a stock exchange in the same way as shares. ETFs offer access to a wide range of markets, sectors, asset classes, or indices, making them a popular and flexible way for investors to gain targeted market exposure
• Fixed income – an investment product which provides investors with regular, predetermined income payments and the return of the principal amount at maturity. The most common form of fixed income investments are bonds, which can be issued by the government (known in the UK as gilts), and companies (known as corporate bonds). High-yield bonds can also be issued by firms with lower credit ratings which make them riskier but to compensate for this, their yields are typically high. Bonds are often used to generate income and help diversify a portfolio, although their value can also rise or fall over time
• Portfolio – the entire collection of your investment holdings. This can include shares, bonds, commodities, and more

• Capital growth – the increase in value of an asset over its original price. A share bought at £5, which is later sold for £6, will have experienced capital growth of 20%
• Compound growth - the process of generating returns not only on your original investment but also on the returns that have already been earned. By reinvesting income, such as dividends, and any growth achieved, your portfolio can benefit from a "growth on growth" effect over time.
• Dividends – a portion of a company’s profits that is paid out to shareholders. Not all companies will provide dividends, and the percentages available will vary between them
• Yield – the annual income return on an investment, which is usually expressed as a percentage
• CGT – Capital Gains Tax. This is tax charged on the profit (or gain) made when you sell, give away, or otherwise dispose of an asset that has grown in value. While typically thought of as a tax that impacts investments in shares, it can also be levied on investment properties, business assets, and more
• Diversification – not putting all your eggs in one basket. Instead we aim to spread risk across different investments, helping to smooth returns over time, reduce volatility, and deliver more consistent investment outcomes
• Asset allocation – the concept of dividing a portfolio among different asset classes, such as equities, fixed income, and cash. This can help you balance how much risk you’re exposed to according to your objectives, time horizon, and risk tolerance
• Active management – an investment approach where a fund manager actively selects investments with the aim of outperforming a benchmark or achieving a specific investment objective. Rather than simply tracking a market, the manager will research companies, sectors and economic trends to add value through their investment decisions. For example, a UK equity fund manager may invest across large, medium and smaller UK companies and seek to outperform the average return of similar funds or a broad UK equity benchmark over the long-term. While some active managers outperform their benchmarks, others may underperform, particularly after fees have been taken into account
• Passive management – an investment strategy whereby the fund manager aims to mirror a market index or benchmark rather than beating it. Passive funds typically do this by holding the same investments, in similar proportions, as the index they track
• Market Capitalisation – the total financial value of a listed company’s shares. The simple formula for this is: share price x number of shares. If a company has 3 million shares issued at £10 each, the market capitalisation is £30 million
• Investment strategy – a broad term, one that covers many different types of approaches. Examples includes value and growth investing.  Value investors seek opportunities in companies that appear attractively priced, while growth investors focus on companies with strong future potential. Holding a combination of both styles can help diversify a portfolio and provide exposure to different market opportunities and conditions

• Bull market – this is when prices are rising over a prolonged period in the market, generally by around 20% from a low point. 
• Bear market – the opposite of a bull market. Prices are falling from a recent high. Again, this is usually around the 20% mark
• Inflation - the rising of prices in both goods and services. Inflation is tracked by the Office for National Statistics (ONS) and the Bank of England aims to keep the inflation rate at 2%
• Risk – risk is at the centre of every investment made. In investing, it refers to the possibility of an investment losing value. The value of investments and the income from them can fall as well as rise and are not guaranteed. You might not get back what you put in. Generally, higher risk investments usually come with a higher potential return. Investors will need determine how much risk they’re willing to accept

This article is for information purposes only. It is not intended as investment advice

Tax treatment depends on the individual circumstances of each client and may be subject to change in the future.

The retirement benefits you receive from your pension plan depend on a number of factors including the value of your plan when you decide to take your benefits which isn't guaranteed and can do down as well as up. The benefits of your plan could fall below the amount(s) paid in. 

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