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, or see how Mesodian helps you understand a company.

Share (stock)

A unit of ownership in a company. Its value can rise or fall; owning a share does not guarantee dividends or a share of future profits.

Fund

A pooled investment that follows a stated strategy. It may hold shares, bonds or other assets; check its actual holdings rather than assume it is broadly diversified.

ETF (exchange-traded fund)

A fund bought and sold on a stock exchange. It can follow an index or an active strategy. Some ETFs are narrowly focused or use leverage; costs and risks vary.

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

An investment that generally means lending to a government or company. Interest and repayment depend on its terms and the borrower; bonds can fall in value or default.

Dividend

A payment a company makes to shareholders. Payments and schedules vary, and dividends can be reduced or stopped.

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 companies, sectors, regions or asset types to reduce dependence on any one investment. It can reduce some risks but cannot prevent losses.

Asset allocation

The mix of investment types, such as shares, bonds and cash, in your portfolio. This mix influences its risk and potential returns.

Portfolio

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

Compounding

When returns are reinvested and can earn further returns. Growth is not guaranteed, and investment losses and costs also affect the result.

Volatility

How much an investment’s price moves over time. It is one aspect of risk, not a complete measure of how much you could lose.

Risk

The possibility of losing money or not reaching your goal. It includes price falls, borrower failure, difficulty selling and other uncertainties.

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. Reporting periods and accounting measures vary; read the financial statements for context.

Revenue

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

Free cash flow

Generally, cash from operations minus capital spending. Definitions vary, so check how a company calculates it.

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

A fund’s annual operating costs expressed as a percentage of its assets. Trading charges, platform fees and other costs may apply separately.

Accumulating fund

A fund that reinvests income rather than paying it to investors. Reinvestment does not remove investment risk or necessarily remove tax obligations.

Distributing fund

A fund that pays income to investors. Payment amounts and schedules vary, and income is not guaranteed.

Capital gains tax (CGT)

A tax that may apply to profits when you sell an asset. Rates, exemptions and reporting rules depend on your tax residence, account and investment.

Inflation

An increase in prices over time, reducing what the same amount of money can buy. Investment returns need to be considered alongside inflation, costs and taxes.

Market order

An instruction to buy or sell at the best available price when the order reaches the market. The final price is not guaranteed.

Limit order

An instruction that sets the highest price you will pay when buying, or the lowest price you will accept when selling. The order may not complete.

Fractional share

Part of a whole share. Some providers offer fractional purchases, but availability, transfer rules and selling restrictions vary.

Definitions are for informational purposes and are not financial advice.