Glossary

Investing terms explained simply

Jargon is one of the main reasons investing feels harder than it is. These are the terms new investors meet first, each defined in one or two plain sentences. New to investing entirely? Start with the beginner's guide to investing.

Share (stock)

A unit of ownership in a company. Owning a share means you own a small slice of that business and of its future profits.

Fund

A pooled investment that holds many assets at once, so a single purchase spreads your money across lots of companies or bonds.

ETF (exchange-traded fund)

A fund that trades on an exchange like a share. Most track an index, which makes them a common low-cost starting point for beginners.

Index fund

A fund designed to match the performance of a market index, such as the S&P 500 or a global shares index, rather than beat it.

Bond

A loan to a government or company that pays interest over a set period. Generally steadier than shares, with lower long-run returns.

Dividend

Cash a company pays out to shareholders from its profits, usually quarterly or twice a year.

Yield

Income from an investment expressed as a percentage of its price — for example, annual dividends divided by the share price.

Diversification

Spreading money across different companies, sectors, regions and asset types so one bad outcome cannot sink the whole portfolio.

Asset allocation

The mix of shares, bonds and cash you hold. It drives most of the difference in how a portfolio behaves over time.

Portfolio

Everything you own as an investor, viewed together rather than as separate holdings.

Compounding

Returns earning further returns. It is the main reason time in the market matters more than timing the market.

Volatility

How much a price swings up and down. High volatility is not the same as high risk, but it makes holding on harder.

Risk

The chance of a permanent loss, or of not reaching your goal. Different from short-term price movement.

Market capitalisation

A company's total value on the market: share price multiplied by the number of shares in issue.

P/E ratio

Price divided by earnings per share. A rough gauge of how much investors are paying for each pound or dollar of profit.

Earnings

A company's profit after costs and tax. Reported each quarter or half-year, and the number markets react to most.

Revenue

Total sales before any costs. Growth in revenue shows demand; it says nothing on its own about profitability.

Free cash flow

Cash left over after running the business and investing in it. Harder to flatter than accounting profit.

Valuation

An estimate of what a business is worth, used to judge whether today's price is reasonable.

Bull market / bear market

A sustained rise in prices, and a sustained fall of roughly 20% or more, respectively.

Dollar-cost averaging

Investing a fixed amount at regular intervals so you buy more units when prices are low and fewer when they are high.

Rebalancing

Trimming what has grown and topping up what has lagged, to return your portfolio to its intended mix.

Broker / platform

The service you use to buy and hold investments. Fees, available markets and account types vary widely.

Expense ratio

The annual percentage a fund charges to run itself. Small differences compound into large ones over decades.

Definitions are for informational purposes and are not financial advice.