Investing jargon explained

Investing for the first time can seem really daunting, not least because there’s lots of jargon you’ll need to get to grips with first.

Here, we explain some of the terms you might come across. Remember, if you’re not sure where to invest, or you’re looking for specific recommendations tailored to your individual circumstances, you should seek professional independent advice. You can find a local financial advisor on VouchedFor or Unbiased, or for more information, see our guide on How to find the right financial advisor for you.



If you invest money into an investment fund, such as a unit trust or a pension fund, you will normally have to pay an annual management charge. It’s charged as a percentage of the amount you’ve invested. It can vary from 0.1% to 1.5% and above. 


This refers to the way your money is spread across different types of investment – or asset classes – to reduce your risk. The way you split your money would normally depend on how much of a risk taker you are, among other things.


Shares, bonds, property and cash make up different asset classes.



If you take out an investment, such as a unit trust or shares in a company, you buy units or shares at a higher price than you sell them at. This is called the bid-offer spread and it can be around 5% for unit trusts. It means if you invest £100 in a plan with a 5% bid-offer spread, you immediately lose 5% of its value.


Blue chip companies are meant to be the biggest and safest companies in the UK. Well known high street names and other large companies may be described as ‘blue chip’.


A true bond is an IOU for a loan, either to a company or a government. If you invest in a bond you receive interest on the loan (normally at a fixed rate), with the capital being paid back at the end of the term. A company bond is called a corporate bond and a UK government bond is a gilt.


An investment fund that puts money into a variety of different bonds; normally a mixture of either company or government bonds or both.



This refers to the original amount you invest.


If you sell certain assets, such as shares or investment property, for a higher price than you paid for them (once any expenses have been taken into account), you have made a capital gain.


A with-profits fund (which invests in a mixture of shares, bonds and cash) that is not taking on any new business. Closed funds normally give investors a far worse deal than funds that are still trying to attract new customers.


Sometimes also called a ‘pooled fund’, it allows a group of investors to combine their money into one fund. The advantage of a collective investment is that it lets you spread your risk by buying a range of different shares or bonds etc. It’s typically used to describe investment funds such as OEICS, unit trusts or investment trusts.



If you have a large amount of money that you want to invest in shares and investment funds etc., you can ask a stockbroker to manage your investments for you without checking with you every time she or he wants to sell or buy shares.


If you own shares in a company, you may receive a dividend as a share of the profits. Dividends are normally paid twice a year; either as cash or as additional shares, but their level (and, indeed, whether there is a dividend at all) is not guaranteed.


The process of spreading your money around several different assets (such as shares, bonds and cash) to reduce the risk of losing money if one of them falls in value.



If you invest in shares, you may also hear them described as equities and/or stocks.


This may include investment funds that refuse to invest in certain companies (such as those that have a significant impact on the environment, manufacture weapons or are involved in the tobacco industry). Many ethical funds also positively select companies that they believe are trying to operate in a sustainable way.


Low-cost investment funds that track or mirror a particular index. They are traded in the same way as shares on the stock market.


Selling or buying shares or investments through a broker without receiving advice.



Those involved in the financial industry often refer to bonds (which are simply loans to a company or government) as fixed income.


The FTSE provides stock market indices such as the FTSE 100 index (made up of the 100 largest publicly quoted companies), the FTSE 250 (the next largest 250 companies) and the FTSE All-Share, which represents 98-99% of UK companies.


Either one person or a team of people who run an investment fund. He or she decides which companies to invest in, when to invest and how much of the fund’s money to commit to a particular company.



A pooled fund (often made up of shares or a mixture of shares and bonds) which itself issues shares to investors. Investment trusts tend to have relatively low charges but may be riskier than some other pooled funds as fund managers are allowed to borrow against its value.



A type of pooled investment fund that is actively managed (as opposed to one that tracks a stock market index). Some financial companies also describe some funds they offer as ‘managed funds’, in which case it normally refers to a fund that invests in a variety of shares and other assets (such as bonds and cash-based investments) to reduce the risk.



If you buy shares through an online broker, they will normally be held in your name in a nominee account. These accounts usually give you fewer rights; for example you may not be able to vote at the company’s annual general meeting and you will not generally receive any perks that shareholders are entitled to.



A type of pooled investment fund. It’s similar to a unit trust except that an OEIC has a simpler and more transparent charging structure.


The price at which you buy a share or a unit in a unit trust. The offer price can be up to 5% higher than the bid price. It’s a bit like the different prices at which you buy travel money.



If you pay a regular amount into an investment plan every month, you get fewer units or shares when prices are high and more when prices are low.



When investment funds are ranked according to their performance, they will be placed in one of four quartiles. The top quartile represents the best performing 25% of funds (generally in a particular sector and across a particular time frame).



A way for a company that sells shares to investors to raise money from those investors by issuing extra shares. Existing shareholders are normally given the opportunity to buy these shares at a preferential price.



A personal pension that lets you invest your pension contributions in a wide variety of investments while giving you more control about how your money is invested. The costs and charges tend to be higher than with standard personal pensions.


A stocks and shares ISA (individual savings account) where you can choose the investments that go in it. You can pick from a range of investments including individual shares and pooled funds, such as OEICS, investment trusts and exchange traded funds (ETFs).


It literally means a share in the company. If you own shares you own a percentage of the company (probably a miniscule fraction of a percentage, unless it’s a small company).



An investment fund that buys shares in companies that make up a particular share index (such as the FTSE 100 or the FTSE All-Share). Different tracker funds have different ways of operating.



A form of pooled investment that lets you combine the money you pay into the fund with that of thousands of other investors. The money may be split between a number of different assets (such as shares, bonds and/or cash-based investments) or different companies (in the case of shares and bonds). Unit trusts have a complicated pricing structure and so many fund management companies sell OEICS, or open-ended investment companies, instead.



A reflection of how changeable share prices are. The more volatile the stock market (or a particular stock market index) is, the more of a roller-coaster ride you’re likely to experience. Shares are by nature, fairly volatile investments.



A type of investment (such as a pension or endowment) where the return is ‘smoothed’ over the years. In good times, some of the return is held back so you receive something when investments are not performing well. With-profits policies are often very opaque in terms of their charging structure. 

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