Glossary

Accumulating (Acc)

This is a descriptor used when a fund reinvests any dividends back into the fund itself and thus accumulates over time. In other words, you do not earn an income from an Acc fund, but it may suit 'growth' investors who want to prioritise the value of their assets growing over time.

Actively managed

An actively managed investment is run by a professional or group of professionals, usually called portfolio managers or fund managers, who make decisions about what to buy to try and outperform the market for their customers. Actively managed investments are different from passive investments.

Alpha

Alpha is how much better (or worse) an investment performs compared to what you'd expect it to perform, considering its risk level.

Think of it like this: If you're taking on a certain amount of risk with an investment, there's a typical return you should expect. Alpha tells you if you're getting more or less than that expected return. A positive alpha means you're beating expectations, while a negative alpha means you're falling short.

Annuity

An annuity is a product you can buy which pays out a guaranteed, regular stream of income. They are most often purchased by retirees to convert their retirement savings into annual income packages. This is an alternative to pension drawdown, where you withdraw cash from your pension at your own discretion.

Asset

Assets are anything you own that has monetary value. In the investing world, these are the individual things you're investing in. Common examples of assets include shares, bonds, property or cash. Asset allocation refers to how different assets are divided up as part of an investment portfolio.

Asset allocation

Asset allocation refers to the way an investor divides their portfolio among different asset classes. For example, 70% in shares and 30% in bonds. The mix of different assets and the proportion of the overall portfolio that these they make up is a key component of managing a successful investment portfolio.

Asset class

An asset class or asset type is a group of assets which share similar characteristics and are subject to the same rules and regulations. For example, shares, bonds, cash, foreign currency and property are all different asset classes.

Asset manager

An asset manager is an individual or company whose job is to create and manage investments. Asset management firms develop, manage and continually monitor investment products, such as funds, with the aim of generating growth for their investors. Examples of large asset management firms include BlackRock, Fidelity and Invesco.

Ask price

The ask price is the lowest price at which a seller states they are willing to sell an investment. It is often referred to in conjunction with the bid price or the bid-ask spread.

Assets Under Management (AUM)

AUM stands for Assets Under Management and refers to the total market value of the investments managed by an entity such as a fund or a bank. In other words, it shows how much money is currently in invested in it, based on today's valuations. For example, if 1,000 investors put £1 into a fund, the fund would have £1,000 AUM. If the market then went up by 10%, its AUM would rise to £1,100.

Base rate

The base rate is the interest rate which central banks, such as the Bank of England, charge other banks and financial institutions for taking out a loan. It influences the interest rates charged on things like personal loans and mortgages. For example, if the base rate goes up, the interest rate on a personal loan may go up. The Bank of England website has a useful illustration of the base rate and its historic movements here.

Basis points (bps)

Basis points or bps are a unit of measurement equal to 1/100th of a percentage point. This is commonly used to express changes to interest rates or prices, such as when a investment company alters its fees. You might, for example, hear on the news that the Bank of England has increased interest rates by 25 basis points (0.25%).

Bear market

A bear market happens when share prices are falling or are expected to fall - like during a recession (hence it is generally considered to signal tough times ahead). The broad definition of a bear market is when a large proportion of share prices fall 20% or more. The adjective "bearish" can be used to describe individual assets, such as shares or currency, as well as the stock market itself. It is the opposite of "bull market".

Benchmark

A benchmark is the standard against which an investment is measured in order to judge its relative performance, asset allocation or risk. It’s usually an index or fund that is used as a point of comparison for investments made up of similar assets. For example, the S&P 500 index is a common benchmark used to compare the performance of shares in large, American companies.

Beneficiary

A beneficiary is an individual who receives money or assets, usually as part of a deceased person's will, pension or life insurance policy. You can usually nominate your chosen beneficiary or beneficiaries, but unless specified otherwise, your spouse, civil partner and/or next of kin are typically treated as your beneficiaries by default.

Bid-ask spread

The bid-ask spread is the amount by which the ask price (the lowest price the seller is willing to sell at) exceeds the bid price (the highest price the buyer is willing to buy at). A low bid-ask spread is considered more desirable as it facilitates quicker and easier trades, whereas a high bid-ask spread may become an obstacle and make it more difficult to complete a trade.

Bid price

The bid price is the highest price a buyer is willing to pay for an investment. It's often referred to in conjunction with the ask price or the bid-ask spread.

Bond

A bond is a type of asset that represents a loan. Bonds are usually issued by a government, company or agency that wants to raise money to fund its operations. The loan is granted in exchange for a defined rate of interest, called a "coupon", over a set period of time. At the end of this period, the initial amount is repaid in full - on top of the accrued interest.

Bull market

A bull market occurs when prices are rising or are expected to rise - for example, during a recovery after a recession (therefore it is often seen as a positive sign). The most widely-accepted point at which it becomes a bull market is when a large proportion of share prices rise 20% or more. Like "bearish", the term "bullish" can also be used to describe individual assets as well as the stock market.

Capital gains

A capital gain is the profit - the "gain" or sometimes called the "return" - you make if you sell an investment at a higher price than what you bought it for.

Capital Gains Tax (CGT)

Capital Gains Tax or CGT is a tax charged on the gains you make from selling an investment. It only applies if your gains exceed the annual allowance and is calculated at different rates depending on your usual tax bracket. It does not apply if you invest through a tax-free ISA. See our full guide here.

Commodity

A commodity is a physical asset - usually a raw material or resource - such as wheat, gold or oil. "Hard" commodities refer to assets which must be mined or extracted, like gold or oil. "Soft" commodities are farmed or grown, such as wheat or coffee.

Compound interest

Compound interest is the interest earned on savings or investments, including any earned previously. It grows exponentially and is a key advantage to starting out investing sooner rather than later - to give your investments more time, and thus more opportunity, to grow.

Consumer Price Index (CPI)

The Consumer Price Index or CPI is a widely-used measure of inflation. It is used to represent the average change in prices across a range of goods and services that are typically purchased by UK households - for example, food and clothing. Core CPI excludes energy, food, alcohol and tobacco.

Copy trader

A copy trader is someone who replicates the trades of someone else - usually, but not necessarily, an investing professional. The idea is to find an individual with a good track record and then copy their trades without having to assess or analyse anything yourself.

Corporate bond

A corporate bond is a type of bond issued by a company.

Credit rating

A credit rating is a letter grade given to the issuer of a bond to indicate its "quality" - that is, the likelihood that the issuer will be able to keep up with their repayments and not default. The biggest bond credit rating agencies in the world are Standard & Poors, Moody's and Fitch. Credit ratings are regularly reviewed and can change at any time.

Credit reference agencies

Credit reference agencies are companies which monitor and investigate an individual's personal and financial records to make a judgement on whether or not lenders should lend them money. This judgement is called a credit score. Banks and loan companies use credit reference agencies to determine if someone is essentially trustworthy or not, based on factors such as their financial stability and their history of using credit responsibly. The biggest credit reference agencies in the UK are Equifax, Experian and Transunion. You can read more about credit reference agencies and scores in our guide here.

Credit score

A credit score is number which represents an individual's perceived creditworthiness - that is, how trustworthy and sensible you can be when you're given credit from a lender. Having and maintaining a good credit score can mean you get access to lower interest rates when you borrow or on your mortgage. A poor credit score can mean you are refused credit, such as a loan, which in turn can drag your score down even further. You can read more about credit scores in our full guide here.

Cryptocurrency

Cryptocurrency or just "crypto" is a type of digital or virtual currency that uses cryptography for secure and decentralised (not managed by a central bank or government) transactions. Cryptocurrencies use a technology called blockchain to record and verify transactions. They can be used to buy goods and services online, and their value can fluctuate, similar to traditional currencies. Examples of cryptocurrencies include Bitcoin and Ethereum. As they're not controlled by central banks, cryptocurrencies tend to be highly volatile so prices can fluctuate frequently and significantly.

Day trading

Day trading is the practice of rapidly buying and selling shares throughout the day in the hope of making a profit as a result of small price fluctuations. This is a technique used by experienced investors and involves holding investments for as little as seconds before selling them on again.

Deflation

Deflation is the opposite of inflation. It occurs when the average price of goods and services decreases - or, simply put, when inflation falls below 0%.

Derivatives

A derivative is a financial contract that derives its value from the performance of an underlying asset, such as shares, bonds, commodities, or indices. It doesn't have intrinsic value on its own but rather "derives" its value from the price movements of the underlying asset. Derivatives can be used for various purposes, such as hedging against risks or speculating on price movements.

Distributing (Dist)

This is a descriptor used when a fund pays out a dividend to its investors. It is the opposite of an Accumulation or 'Acc' fund (see definition under 'A').

Diversification

Diversification is the process of spreading your investment portfolio across different asset classes, such as partially in shares and partially in bonds, in order to reduce risk. In other words, you're not putting all your eggs in one basket.

Dividends

A dividend is like a cash bonus you get in return for investing in something. Dividends can be paid out on a monthly, biannual or annual basis and are attractive to investors who want a regular source of income from their portfolio.

Dividend Tax

Dividend Tax is a type of tax you pay on any dividends you receive which exceed a certain threshold (£1,000 for the 2023-24 tax year). The rate of Dividend Tax payable depends on your usual tax bracket. The good news is that you don't need to worry about paying it if you invest through an ISA - because it's completely shielded from tax. Read more on Dividend Tax here.

Dividend yield

Dividend yields are used to compare the relative value of dividends across different investments. It's calculated by dividing the annual dividend per share by the current share price. For example, if the share price of a company was £100 and the annual dividend was £3, that would mean the dividend yield was 3%. However, let's say there was another company which had a share price of £300 but its dividends were also £3 - in this case, the dividend yield would be just 1%.

Drawdown

Drawdown is a method of accessing your pension which involves taking out money when you want to, as opposed to in regular intervals like with an annuity. Flexi-access drawdown is a type of drawdown that gives you the flexibility to withdraw as and when you choose while leaving the rest of your pension invested. Capped drawdown is less common but involves having a maximum amount you can withdraw from your pot each year.

Emerging market

An emerging market is a country with an economy considered to be at an earlier stage of development than a more established country - e.g. India compared to the USA. Emerging market investments are usually considered to carry more risk, often because there is less information about them or less strong regulation in the economy they're based in.

Equities

Equities are another word for shares or stocks. They are small slices of a company which you can own and buy or sell on the stock market.

ESG

An acronym for Environmental, Social and Governance, ESG is a broad set of metrics often used to measure the perceived sustainability of an investment. ESG is increasingly popular as a method of assessing the environmental and social impact of investments, particularly for investors looking for "green" or "impact" investments - essentially, investments that claim to do some good for the world.

Exchange-Traded Fund (ETF)

An Exchange Traded Fund or ETF is a type of fund made up of a number of assets which can be bought and sold on the stock market, in the same way as you would with individual shares. ETFs can invest in lots of different asset classes. Think of them like an investment "playlist" - an easy way to access a collection of things. Read our full guide here.

Exchange-Traded Commodity (ETC)

Exchange-Traded Commodities or ETCs are traded on the stock market, like individual shares, but track the price of a commodity or commodity index. They allow investors to gain exposure to commodities without buying the commodity itself (e.g. bars of real gold). ETCs have a share price which moves up and down as the price of the underlying commodity fluctuates in value. ETC can also sometimes refer to a commodity-focused ETF.

Exchange rate

The exchange rate is the value of one country’s currency compared to that of another country. For example, if the exchange rate for US dollars to Euros was 1.5, you would receive 1.5 US dollars for every 1 Euro.

Exposure

Exposure is the proportion of an fund or portfolio invested in a sector, asset class or region, usually expressed as a percentage of the overall portfolio. For example, a fund with 75% exposure to China would have 75% of its assets invested in products related to or in China.

Fiscal year

A fiscal, financial or tax year is a 12-month period identified for accounting, auditing and budgeting purposes which differs from the normal 1 January - 31 December calendar year. For example, the UK government's fiscal year is from 6 April - 5 April.

Fixed income

Fixed income is the name given to an asset class which pays investors a regular source of income - for example, from bonds. Fixed income investments do not fluctuate, like dividends can, nor do they move in line with inflation.

Fractional shares

A fractional share is a part of a whole share - for example, 0.25% of a share. Investors can opt to buy fractional shares if they want to invest a small amount in a share which is typically very expensive, such as with large companies like Amazon, Disney or Tesla. Fractional shares are helpful for investors who have a small portfolio or who are interested in buying a bit of a share but don’t want to commit to a whole one.

FTSE 100

The FTSE 100, also called “Footsie”, is the name for the share index made up of the largest 100 companies by market capitalisation (total value of all shares) listed on the London Stock Exchange. It's commonly referred to when discussing the health and performance of the UK stock market.

FTSE 250

The FTSE 250 is similar to the FTSE 100 and includes the largest companies on the London Stock Exchange by market capitalisation excluding the initial 100 largest from the FTSE 100. In other words, it's the 101st to the 350th largest companies on the London Stock Exchange. It is sometimes referred to when discussing the health and performance of the UK stock market.

Fund

A fund is a basket of investments managed for you by an expert. They typically have around 30-60 "underlying" investments in them and are a popular way of diversifying a portfolio and reducing risk. Read more about them in our full funds guide here.

Fund manager

A fund manager is an investment expert who is responsible for selecting and managing investments in a fund - or other investment products like investment trusts. They use their expertise to choose what to invest in and how to allocate it within the fund, as well as continually monitoring its performance to ensure it's generating growth for people investing in the fund.

Gearing

Gearing is the act of borrowing money to fund a company's operations. It is sometimes used by investment trusts and can be expressed as a ratio, where the cost of the borrowed amount is compared to the overall value of the company - this is called the gearing ratio. Gearing is sometimes also called 'leveraging'.

Gilt (government bond)

A gilt is a fixed income bond issued by the UK government. They are so named because, historically, the paper certificates used to issue these bonds had a gilt - gilded - edge. The government issues gilts in order to fund public spending.

Greenwashing

Greenwashing is the term used to describe when a company makes false claims or misleads investors about its sustainability credentials. This applies even if it has done so unknowingly. It's a common cause for concern among investors who want to invest in ESG-compliant investments.

Growth investing

Growth investing refers to the strategy of investing in assets which have the potential to generate above-average gains. This can, for example, include a fund which reinvests a large proportion of its profits in order to drive future growth. It's the opposite to income investing, which uses surplus cash to pay out dividends.

Growth stock

A growth stock refers to a company which is experiencing rapid uptick in earnings and opts to reinvest this extra cash to fund its operations - rather than paying out dividends as an income stock would.

Hedging

Hedging is an investment strategy which aims to protect against risk or financial loss from adverse price movements. It's essentially a form of offsetting that enables you to make a profit if an investment performs badly. A fund manager may hedge against risk, for example, by using a derivative contract to agree to a sale if the share price of an investment within the fund falls to a certain level - therefore meaning it can make a profit and reduce the risk of making a loss even if the share performs badly.

High yield bond

A high yield bond is a bond which is determined to have a higher risk of default compared to other bonds. They have a higher yield because investors often get higher coupon payments to compensate for taking on the additional risk.

Income Tax (IT)

Income Tax is a type of tax charged by the UK government if your earnings exceed a certain threshold, called the Personal Savings Allowance. For the 2023-24 tax year, this is £12,570. Any amount over this is charged at different rates depending on your annual income. Read more in our full guide here.

Index

An index is a basket of assets or securities designed to represent a particular stock market or part of a stock market. For example, the FTSE 100 is an index which is representative of the 100 largest companies listed on the London Stock Exchange by market capitalisation. Indices track the performance of the market they represent and so are often used as a benchmark for investors or fund managers to understand how well a particular investment is performing compared to similar investments or the market as a whole.

Inflation

Inflation is the term used to describe how quickly the prices of goods and services is rising over a period of time. In periods of high inflation, prices are increasingly rapidly, whereas low inflation means prices are increasing by only a small amount. It's the opposite of deflation. The Bank of England aims to keep inflation at 2% for a healthy economy, so it sets its base rate and other monetary policy decisions based on how far above or below this target inflation currently is.

Interest rate

An interest rate is the amount that a lender charges someone for taking out a loan or a mortgage. It's calculated as a percentage of the amount borrowed - for example, 3%. The Bank of England's base rate, for instance, is an example of an interest rate. The coupon on a bond is also a type of interest rate.

Investment trust

An investment trust is a public limited company (PLC) traded on the London Stock Exchange, which invests in other companies to generate profit for its shareholders. All investor's money is bundled together and a fund manager invests it on their behalf. Investment trusts typically pay out dividends and so are a popular choice for income investors. Read our full guide here.

Initial Public Offering (IPO)

An Initial Public Offering or IPO refers to when shares in a private company are listed on a stock exchange and made available for investors to purchase for the first time.

Individual Savings Account (ISA)

ISA stands for Individual Savings Account. They're a type of tax-free savings or investment account which allow you to put away up to £20,000 every tax year without paying taxes such as CGT. There are four main types - Cash ISAs, Stocks & Shares ISAs, Junior ISAs and Lifetime ISAs. All except Cash ISAs - which are similar to regular cash savings accounts - can be used to invest tax-free in things like shares, funds, ETFs, investment trusts and more. Read more about ISAs in our Hub here.

Junk bond

A junk bond is a bond which has been rated as high risk by a credit rating agency and is considered likely to default. Investors will typically be compensated for this risk with an exceptionally high interest rate (coupon).

Key Investor Information Document (KIID)

A Key Investor Information Document or KIID is a document that provides information about an investment for prospective or current investors. It typically includes a breakdown of the assets it invests in, their allocation, fees, the name of the fund manager(s) and the investment objective. It's viewable at any stage but is an important read before you invest in something so that you know what you are putting your money into. It's usually easily accessible by searching for the name of your chosen investment on the website or app of the company you are investing with.

Leverage

Leveraging is an alternative word for 'gearing'.

Limit order

A limit order is an order to buy or sell a share automatically once it reaches a specified price or better. It's something fund managers can employ to help generate profit or individual investors can do so on some platforms which enable it (not all do).

Liquidity

Liquidity refers to how quick and easy it is to convert an investment into cash without losing significant value in the process. In other words, it's about how easy it is to sell and how long it takes to get your money in return. Liquidity can also be used to measure the health of a company's finances - the more liquid its assets or investments are, the more flexible it can afford to be and therefore more resilient than a company with poor liquidity.

Listed securities

A listed security is an asset which is traded on an exchange, such as the London Stock Exchange. For example, shares, ETFs and bonds can all be listed securities.

Long strategy

A long investing strategy is one where you buy or hold a share that you expect to increase in value over time.

London Stock Exchange (LSE)

The London Stock Exchange or LSE is the name of the stock market based in the City of London. The total market value of all companies trading on the LSE was recently recorded in excess of $3 trillion.

Macroeconomic

Macroeconomic is a term used to describe economic activity happening on a global or multi-national scale. For example, a global recession would be a macroeconomic event, or a war might be a negative factor impacting macroeconomic mood or sentiment.

Management fee

A management fee is a charge that you pay to an investment manager for their services. This is usually shown as a percentage, for example 1%, of the total amount invested per year.

Market capitalisation

Often shortened to "market cap", market capitalisation is a commonly used measure of the size of a company or fund. It's calculated by adding together the total value of all shares.

Market sentiment

Market sentiment is the overall mood or attitude of investors, either to individual shares and investments or to the stock market as a whole.

Market share

The market share is the proportion of a stock market or sector which a particular company makes up.

Maturity

Maturity is the date at which the agreed term on a bond comes to an end. This is the point at which the underlying loan will be repaid in full.

Momentum

The momentum of an asset or fund refers to the concept that recent good performance is likely to continue. The investment is "on a roll", you might say.

Monetary policy

Monetary policy is a series of actions employed by central banks (such as the Bank of England) or governments (such as the UK government) to exert control over the economy. It can be used to regulate how much money is in the economy and how much it costs to borrow money. An example of a monetary policy decision would be the Bank of England raising its base rate to try to stem rising inflation.

Money market funds

Money market funds are a type of fund which invest in large volumes of highly liquid, short-term debt products - such as cash or high quality bonds like UK gilts or US Treasuries near maturity. They're designed to be a very low risk type of investment, sometimes touted as an alternative to cash.

Multi-asset

Multi-asset is a term used to describe funds or portfolios that contain more than one type of asset class - e.g. shares and property - and are frequently used by investors who want to diversify and gain exposure to multiple types of asset. Read more about multi-asset funds here.

NASDAQ

An American stock exchange primarily known for technology and growth companies.

National Insurance (NI)

National Insurance is a type of tax that individuals who earn over a certain amount pay to the UK government. It's used to fund state benefits, including the State Pension, healthcare services like the NHS, unemployment benefits, and other social welfare programmes. The amount of NI contributions a person pays is based on their income.

Net Asset Value (NAV)

Often shortened to NAV, the Net Asset Value is a measurement used to describe the current value of an investment at a moment in time. It's calculated by taking the overall value of a company's total assets and subtracting its total debts or liabilities. It can be expressed as price-per-share by further dividing this figure by the total number of shares.

Non-Fungible Token (NFT)

A Non-Fungible Token or NFT is a digital asset that represents ownership or proof of authenticity of a unique item, such as art or music, recorded on the blockchain - the same technology used for cryptocurrency.

New York Stock Exchange (NYSE)

The New York Stock Exchange or NYSE is the largest stock exchange in the world by market capitalisation.

Offer price

Like the ask price, the offer price is the lowest price that a seller is willing to sell an investment.

Ongoing Charges Figure (OCF)

The Ongoing Charges Figure or OCF is the total cost of an investment over the course of one year. It typically includes the management fee as well as any other charges, such as account fees, and represents the total amount that an investor can expect to pay for an investment for one year.

Open-Ended Investment Company (OEIC)

An OEIC or Open-Ended Investment Company is a type of fund where the money of all investors is pooled together and then invested on their behalf at the direction of the fund manager. They're open-ended because there is an infinite number of shares available - it can generate new shares whenever an investor wants to buy one or it can buy shares back whenever an investor wants to sell.

Open-end funds

An open-end fund is a type of fund that continuously issues and redeems shares based on investor demand. They don't have a limit on the number of shares they can issue. They're the opposite of closed-end funds, which have a finite pool of available shares, such as investment trusts.

Options

An option is a form of derivative which represents the right (but not the obligation) of the buyer to buy or sell an investment at a chosen price at some point in the future. A "call" option is when an investor purchases the right to buy the investment at a predetermined price. A "put" option is when an investor purchases the right to sell an investment at a predetermined price. Options provide flexibility for investors to profit from price movements without owning the underlying investment outright.

Overweight

A portfolio or fund is overweight when it has a larger proportion in a particular asset class, sector, geographical region or share compared to the index or benchmark it is usually measured against.

Passive

A passively managed fund is designed to replicate or track a particular index or benchmark - for example, the FTSE 100 or S&P 500. A passive investment style is similarly one which replicates an index or benchmark with minimal deviation.

Portfolio

A portfolio is a collection of investments such as shares, bonds and funds.

P/E Ratio

The P/E Ratio or Price-Earnings Ratio is a measurement of a company's share price relative to its earnings per-share. It's used to determine whether a share is overvalued - i.e. the share price is higher than the earnings per share - or undervalued - i.e. the share price is lower than the earnings per share. It's calculated by dividing the current share price by the earnings per-share.

Principal

The principal is a word sometimes used to describe the initial amount of money invested - such as in a bond - or borrowed - such as with a loan - excluding any subsequently earned interest or dividends.

Profit

Profit is the financial gain an investor makes on their investment, after deducting all expenses and losses. It's sometimes also called the 'return' or 'earnings'.

Profit margin

A profit margin is a ratio that measures a company's profitability. It's calculated by dividing the company's net (total) income by its profits to illustrate how much the company gets to keep as a profit after subtracting all costs.

Quantitative Easing (QE)

Quantitative Easing or QE refers to a monetary policy implemented by central banks to generate economic activity. This usually works by buying bonds and other assets to increase liquidity and encourage lending and investment in the wider market. It was recently used in the UK during the Covid-19 pandemic.

Quote

A quote in investing represents the current price at which a share, commodity, or currency is being traded at. It typically includes the bid price and the ask price and can be used to give investors real-time information about a price before they decide to buy or sell.

Rate of Return (ROR)

The Rate of Return or ROR is the same as the ROI.

Ready-made portfolios

A ready-made portfolio is a premade bundle of investments which provides a blend of bonds and shares in different proportions depending on your tolerance for risk. Lower risk ready-made portfolios tend to invest in more bonds (generally considered lower risk investments), whereas higher risk ready-made portfolios tend to invest in more shares (generally considered higher risk investments). Ready-made portfolios are a subtype of multi-asset funds and are offered by asset managers as well as robo advisers. Read more about ready-made portfolios in our full guide here.

Real Estate Investment Trust (REIT)

A Real Estate Investment Trust or REIT is a company that owns, operates, or finances income-generating real estate. Investors can buy shares in a REIT, allowing them to invest in real estate without owning physical property. REITs often provide dividends based on rental income.

Return on Investment (ROI)

Return on Investment or ROI is a metric used to evaluate the profitability of an investment relative to its cost. It's calculated by dividing the net profit from the initial invested amount and is used to assess the success of an investment strategy.

Revenue

Revenue is the total income generated from a business's operations. In investing, it's important to evaluate a company's revenue as it indicates its ability to generate income. Consistent and growing revenue is generally a positive indicator for investors, whereas consistently falling revenue can be a negative sign. A company's revenue minus all operating costs and losses is its profit.

Risk

Risk in investing refers to the uncertainty or potential of losing money on an investment. It's essential to understand and manage investment risk as it directly correlates with potential returns. For example, high risk investments may earn higher returns but also carry a greater chance of loss. On the other hand, low risk investments may have a lesser chance of losing money, but come with less earnings potential too. Read more about risk and how to use it appropriately in our Investing for Beginners course.

Risk tolerance

Risk tolerance refers to the extent an investor is willing to endure fluctuations in the price of their investments. In other words, it's your attitude to investment risk and how much you feel comfortable taking on. It's important to assess your risk tolerance to create an investment portfolio and strategy that's suitably aligned with your comfort level. You can read more about how to determine your risk tolerance here.

Robo adviser

A robo adviser or robo is a type of asset management company which offers ready-made portfolios that are managed using algorithms that frequently rebalance the portfolio to maintain exposure to different assets in line with a chosen risk level.

Sector

A sector refers to a group of companies that all operate in the same industry or part of the economy. For example, technology, healthcare, finance and agriculture are all sectors.

Security

A security is a financial instrument that holds some type of monetary value. Shares, bonds, and derivatives are examples of securities.

Self-Invested Personal Pension (SIPP)

A Self-Invested Personal Pension or SIPP, sometimes also called a private pension or personal pension, is a type of pension that allows individuals to save for retirement by managing their own investments. This is different from the State Pension or workplace pension schemes, where individuals usually have limited control of what they're invested in. SIPPs come with tax relief designed to incentivise people to save for retirement, where for every amount you add to a SIPP account, the UK government will contribute additional money based on your usual rate of Income Tax. Read more in our full guide here.

Shares

Shares represent a unit of ownership in a company. Companies divide their ownership into shares and investors can purchase these to become owners of a tiny part of it. Shares are also called 'stocks' or 'equities'.

Short selling

Short selling is an investment strategy where an investor borrows a share and then sells it, aiming to buy it back later at a lower price and profit from the price difference.

S&P 500

The S&P 500 is an index that tracks the performance of the 500 largest publicly traded companies in the United States. It's often used as a benchmark for the overall global stock market.

Spread

Spread refers to the difference between the ask price and the bid price of a share. A narrow spread is preferable as it indicates a smaller difference between the prices and therefore usually better liquidity.

State Pension

The State Pension is a type of pension provided by the UK government to eligible UK adults once they reach the State Pension age (currently 66 but rising to 67 from 2026). It's designed to offer a basic amount of financial support during retirement. The amount a person receives depends on their track record of National Insurance contributions. Read more in our full State Pension guide here.

Stock market

Stock markets are public markets where buyers and sellers trade stocks (shares) of publicly listed companies. They are physical places in the real world - like the London Stock Exchange in London or the New York Stock Exchange in New York City.

Stock split

A stock split occurs when a company divides its existing shares into multiple shares. This doesn't affect the company's value but it increases the total number of available shares.

Stop-loss order

A stop-loss order is an instruction an investor makes to sell a stock automatically when it reaches a specific price. It's used to limit losses and manage risk by selling before an investment falls too far in value.

Ticker symbol

A ticker symbol is a unique combination of letters which represent a particular share on a stock exchange. It serves as a shorthand method for identifying a share. For example, the ticker for Apple on the NASDAQ index is AAPL and the ticker for Shell on the FTSE 100 is SHEL.

Time horizon

Time horizon refers to the length of time an investor expects to hold an investment before they intend to sell it to withdraw their funds.

Total return

Total return encompasses both the appreciation (or depreciation) in the principal investment plus any dividends or interest earned over a specific period.

Trading volume

Trading volume is the total number of shares traded for a specific security during a given period. A high trading volume often indicates increased interest in that security, for example, whereas a low trading volume suggests the opposite.

Transaction fee

A transaction fee is a charge imposed by an investment platform for executing a trade within an investment account.

Treasury bonds

Treasury bonds are long-term government bonds with fixed interest rates issued by the US Department of the Treasury. Like UK gilts, they're generally considered to be low risk investments.

Underlying investments

An underlying investments is an asset or investment within an investment product or portfolio. For example, shares, bonds and commodities may be underlying investments in a multi-asset fund.

Value investing

Value investing is an investment strategy that focuses on selecting shares or securities believed to be trading at a lower price than their intrinsic value. Investors aim to generate a profit on these undervalued assets as and when they increase in value.

Volatility

Volatility describes the price movement of an investment or index. High volatility indicates frequent and significant price movement, whereas low volatility denotes less frequent or severe fluctuations in price. In investment speak, a high risk investment is one which has high volatility.

Wealth manager

A wealth manager is an individual or company which offers professional assistance in managing an individual's finances, including investments, estate planning, tax strategies, and more. Their aim is to build and protect wealth for their customers.

Workplace pension

A workplace pension is a type of pension set up by an employer for its employees. Both the employee and the employer contribute to it. The auto-enrolment scheme, introduced in 2012, stipulates that UK employers must enroll all employees who meet certain requirements in a workplace pension scheme. It also outlines minimum contributions for both parties - 5% for employees and 3% for employers.

Yield

The yield is the return or profit on an investment, usually expressed as a percentage of the total price. So for example, if the yield on a bond is 5%, this means an investor with £100 in that bond would get £5 of income a year. The yield can include dividends, interest or any other earnings.