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Investment Jargon Buster

Before you start out on your investment journey you should get to know some of the most commonly used terms in the investing world.  After all, if you’re going to walk the walk you’re going to have to talk the talk.  So here’s your go-to guide for investor speak:

ALTERNATIVES

Alternatives refer to investing in non-traditional assets.

BOND

A bond is a type of loan given to a company or government.  For example if a government wants to raise money, they can issue a bond.  If you loan money to a government you get your money back after the set timeframe and you will also receive a fixed interest rate.

COLLECTIVE INVESTMENTS / FUNDS

A way of investing money with others to participate in a wider range of investments than would be feasible for most individual investors and to share the costs and benefits of doing so.  They are sometimes referred to as mutual funds.  Examples include unit-linked funds and unit trusts.

COMMODITIES

Commodities are tradable items such as oil, gas, copper, zinc, gold and wheat.

DIVIDEND

A distribution of a portion of a company’s earnings to its shareholders.

EMERGING MARKETS

Share markets in newer economies such as those of Asia and South America.  Often fast-moving they can offer strong returns, but the trade-off can be increased risk.

EXCHANGE TRADED FUND (ETF)

An investment fund traded on a stock exchange, much like shares.  An ETF holds assets such as shares, commodities, or bonds.  Most ETFs track an index, such as a stock market index or bond index.

UNIT PRICE / FUND PRICE

This is the price that is used when buying and selling units in a unit linked / investment fund.  The unit price or fund price on any given date is based on the total value of the assets in the fund less its liabilities.

INFLATION

This is the rate at which the general level of prices for goods and services increases.  Inflation causes the buying power of money to fall.

LIQUIDITY

The degree of access which an owner has to the value of their asset.  Cash, for example tends to have a high level of liquidity, whereas property, which must be sold on the market to realise its value, has much lower liquidity.

MANAGED FUNDS

A managed fund is a fund that invests in a number of traditional asset classes (shares, bonds, property, cash, etc.), currencies, countries and even sectors.  The traditional managed fund might be 60% invested in shares, 20% in bonds, 15% in property and 5% in cash.  They are sometimes referred to as balanced funds.

MULTI-ASSET FUNDS

Similar to balanced funds, multi-asset funds invest in a range of traditional asset classes, but they also invest in alternative assets.  Managers of multi-asset funds will use a range of risk management techniques to manage risk effectively.  A simple example would be a fund, where each asset (like property or shares) has a specific weight allocated to it and is regularly ‘rebalanced’ to make sure those weights, and the risk level of the fund, have not changed.

OPTION

An option is the right, but not the obligation, to buy / sell an asset at a specific price on an agreed date in the future.

PORTFOLIO

Quite simply, a collection of investment assets, such as cash, bonds, shares, property and other assets.

PRICE EARNINGS RATIO (P/E)

The value of a share divided by the profit (earnings) on the share.

PUBLICLY QUOTED TRADED SECURITIES

A security such as a share, bond, ETF or fund that is listed on a registered public stock exchange.

RETURN

Return means the money or the profit you make on an investment.  However, if markets do not perform well, your return could be less than the amount you invested.

RISK

The chance that the actual investment return will be lower than expected.  Most people refer to it as the likelihood of a fall or the size of a fall that could take place.

SHARE

A part-ownership in a company which entitles the owner to a share of the profits and the capital value attached to the share.

SHARE ISSUE

New company shares which are issued to the stock market and/or to existing shareholders.

SPECIALIST FUNDS

Specialist funds generally invest in one particular asset, industry or region.  A common example might be an “Irish Equity Fund” which concentrates on Irish shares.  Another example might be a “European Bond Fund” which concentrates on Eurozone bonds.

STRUCTURED INVESTMENT

An investment such as a Tracker Bond with a set term that aims to return a set percentage of the original amount invested plus the possibility of an extra amount based on the performance on an underlying asset (such as a stock market index).

VOLATILITY

The extent to which an investment or market is subject to rises or falls, usually in the short term.