Quick guide to Investment Jargon

If you invest in company ‘shares’, also called ‘equities’, this usually means you are buying a tiny portion of a company, which will use your money to do business. 

You can buy equities in almost every big company you’ve heard of. When you’re an owner, you have ‘equity’ in the company. 

If the company you’ve bought into becomes more profitable, then your equities will likely grow in value and the company might pay you dividends. If the company became less profitable, the value of your equities might go down.

Bonds are simply loans. 

• If you buy a €100 5-year bank bond at 5%, you’ve given the bank a loan of €100. 
• In return, it will pay you 5% (€5) every year for five years, then repay your initial €100 at the end of five years. 
• The annual interest a bond pays is also known as ‘income’ or the ‘coupon rate’. 

Bonds from companies or governments with high credit scores (called credit ratings) are seen as often see as safer, more predictable investments but as with all funds nothing is guaranteed.

This is the area of investing concerned with assets that pay a predictable, or ‘fixed’ rate of return. However as with all funds nothing is guaranteed. 

Government bonds, which are loans to governments, and corporate bonds, which are loans to companies, make up the bulk of this investment market.

The idea of a fund is to group lots of different investments under one purpose. This means you don’t need to buy lots of individual equities, bonds and different investments, instead you can choose a fund that has a selection of everything you’re looking for. 

Think of it as a shopping trolley of investments. 

• A global tech fund, for example, might own shares in many different tech companies across the world. 
• A multi-asset fund will hold a variety of investments, such as shares, bonds and real estate. 
• A target-date fund will focus on tailoring investments to a set timeframe. 
• A balanced fund (also called a blended fund) includes a mix of stocks and bonds.

Say you’ve bought a share in a company; whenever they make a profit, you are entitled to some of this profit, paid as a ‘dividend’. 

When you own equities, you can choose to have dividends paid out to you as cash, or most companies will also let you invest your dividends into more equities – usually at a discount.

How does this work for fund owners? 
If the fund you’ve bought into owns a for example a soft drinks company and is paid a dividend, then this can be passed on to you as money, if you’ve bought an ‘income’ fund. Or the fund will reinvest the dividend in more equities, if you’ve bought an ‘accumulation’ fund. 

The aim of an income fund is to provide an investor with a regular income. For this reason, investments are chosen for their ability to pay interest or regular dividends. 

This type of fund is intended to grow in value. The investments are chosen for their growth potential. Interest or dividends paid out by the investments are invested in more assets.

Financial companies that invest your money usually charge for their services by taking a fee that is a small percentage of the money you have invested.

Charges vary between different funds and different types of assets. Information about charges is available in the prospectus and PRIIPS KIID. 

‘Active’ funds with a management team regularly monitoring, buying and selling investments and trying to outperform the market tend to charge higher management fees. 

‘Passive’ funds, which use a computer to track a certain area of the market, tend to have different fee structures.

An index measures the performance of a group of one type of assets. One of the best-known indexes is the S&P 500 index, which tracks the performance of the biggest 500 companies in the US. 

There are indexes for almost every kind of investment and this has led to the rise of index investing, where a computer can track the performance of an index.

This is a reference point, usually an index, that fund managers and investors can use to see how funds are performing. 

Active funds with management teams will usually show their investors how they have performed compared to a relevant benchmark. 

For example, a fund investing in major US companies will show how they have performed compared to the S&P 500 index. 

When your money earns interest, soon your interest will also earn interest, which means that your money will grow more quickly. Over time, this effect will become more important to the growth of your money. 

Compound interest works on debt too. For example, a credit card adds interest to your debt every month and if that interest is not paid off, then you will be charged interest on your interest, causing your debt to grow. 

An ETF is a fund, traded on an exchange, that tracks the performance of a market, by investing in a range of assets intended to replicate the market index holding. 

ETFs are designed to give you a low-cost, transparent and easy way to invest in a wide range of markets, represented by major stock market indices. are designed to give you a low-cost, transparent and easy way to invest in a wide range of markets, represented by major stock market indices.

​​​​​​An alternative fund aims to give investors another kind of opportunity to add to their portfolio, one that offers a wider range of diverse investments. 

The aim is to offer an alternative to traditional asset classes such as equities and bonds. Examples include private equity, corporate loans and commercial real estate.