Absolute return fund
AIM (Alternative Investment Market)
AIM (also known as the Alternative Investment Market) is a sub-market of the London Stock Exchange that is designed for smaller and growing businesses. AIM has less restrictive regulations than the London Stock Exchange, as there are no minimum requirements for the amount of money a company must hold or the number of shares they must issue. Taking into account all these factors, investing in AIM-listed companies is typically seen as riskier.
The different types of investments, such as bonds and shares. Usually, they will respond differently to market conditions. For example, when shares fall the price of bonds may go up. Spreading your money across several asset classes means you will be less likely to suffer major losses if one takes a sudden downturn. This is known as diversification.
A physical item or a resource that has a cash or exchange value. Examples include residential properties, personal possessions, cash savings and investments.
A bond is a type of loan that governments and companies can issue as a way to raise money. The life of a bond is fixed, and at the end of its existence (the maturity date) a bond will repay the amount initially paid for it (known as par value). Bonds are popular with income investors because they pay out interest on a regular basis until maturity.
Bonds issued by major governments and companies will be more stable than those issued by emerging markets or smaller corporate issuers; in the event of an issuer experiencing financial difficulty, there may be a risk to some or all of the capital invested.
Physical resources and raw materials that are often invested in, including gold and silver, coffee, crude oil and even cattle. Commodities can go up and down in value with supply and demand, and also any changes in currency exchange rates.
Funds which invest in specific sectors may carry more risk than those spread across a number of different sectors. In particular, gold, technology and other focused funds can suffer as the underlying stocks can be more volatile and less liquid.
The amount of interest paid on a bond.
Dovish – or to be a dove – means to believe that low interest rates will improve the health of the economy. The term is usually reserved for Central bank members but can also be used to describe politicians or journalists who campaign for low rates.
Doves argue that low interest rates boost the economy by encouraging people to borrow and spend more. If interest rates are low, people are more likely to take out mortgages, loans or credit cards and spend more money. This is known as ‘loose’ monetary policy.
This extra spending creates more jobs across all sectors, from retail and manufacturing to housing. Extra demand causes prices to increase at the same time that higher employment is pushing up wages.
Hawkish is the opposite of Dovish. See hawkish.
Emerging markets is a general term for smaller or less developed countries. Companies in these countries have the potential to give you a lot of growth on your investments but their markets are usually more risky, less regulated and can be less liquid (there are fewer people buying and selling shares).
When you buy equities (also known as shares) you become a shareholder in a company and the owner of a small part of it. If the company does well you’ll benefit from any increases in the share price and you could also get an income from the profits if the company pays dividends. But if the company performs badly or the stock markets fall in general you could lose your money.
Exchange Traded Funds (ETFs) are bought on the stock exchange just like investment trusts or shares in any other company. ETFs mirror the performance of a particular stock market index such as the FTSE 100, usually by investing in the same shares, bonds or other assets in the same proportions as the index. However, some ETFs use more complicated processes to replicate the markets – which can mean they are riskier investments.
The market for smaller countries that are less developed than those in the emerging market but can still be invested in.
Smaller companies shares can be more volatile and less liquid than larger companies shares, so they can carry more risk
A market index consisting of the 100 largest companies on the London Stock Exchange.
One of the simplest ways to invest is through a fund. Instead of buying lots of individual shares, bonds or other investments yourself, when you invest in a fund your money is looked after by an expert fund manager. Your money is pooled together with that of other investors and then used to buy a wide range of different investments that are managed by the fund manager.
The opposite of ‘dovish’ is ‘hawkish’. Hawks prefer higher interest rates as a way of keeping inflation in check, even at the expense of economic growth. High interest rates mean less borrowing and spending, which keeps prices stable. Increased rates also encourage consumers to save money, as they get better returns from cash savings accounts. This is known as ‘tight’ monetary policy.
The process of buying something with the expectation that it will earn money over a period of time. Although there are many types of investments, all of them aim to make you more money than if the cash was left in a bank account (but there is also the risk that you could lose money).
Investment advice is personalised help and support on your investment decisions, including a recommendation of a bespoke investment portfolio that suits your individual needs, circumstances and investment aims. Investment advice can only be given by investment advisers. They must have appropriate qualifications and be assessed by us before carrying out regulated activities.
Investment advisers provide paid-for-advice on specific investments. They must have appropriate qualifications and be assessed by us before they can carry out regulated activities.
Refers to the chance of losing some or all of the money you have invested, and used to describe the range of possible returns on your investments. Risk is normally measured by the rate that an investment can go up or down, also referred to as volatility. Generally, the more an investment goes up and down, the riskier it is.
Set up as a public (plc) company, has a board of directors and shares are traded on the London Stock Exchange. Similar to investment funds, when you buy into an investment trust your money is pooled. The funds are then used by the manager to buy various investments, including bonds, equities and other assets. They are also referred to as closed-ended funds as they issue a set number of shares which are then traded by investors. The price of your shares will vary depending on investor demand and changes to the underlying assets’ value.
London Stock Exchange
The main UK stock market based in the City of London.
Refers to financial markets where people trade shares, bonds and other assets. The most commonly used market is the stock market.
The amount initially paid for a bond which is repaid when the bond matures.
A collection of different investments that aims to achieve a financial or investment goal. For example, you may want to generate an income or save for retirement.
Pound cost averaging
Pound cost averaging is when you invest an amount of money on a regular basis. You’ll capture the average return of the market because you’ll be buying regularly.
It allows you to smooth out volatility over time because you will be buying when prices are higher, lower or in between, creating an average price overall.
Refers to the buying or selling of investments in order to return your investment portfolio to the ratios of bonds, shares and other investments that you originally wanted (also known as your asset allocation).
Because different investments perform differently to each other (one could perform better, but another worse), this means that over time certain investments can end up taking up more or less space in your portfolio than you had originally planned for. Rebalancing is essential to managing an investment portfolio.
REIT (Real Estate Investment Trusts)
A type of investment trust that can be bought and sold on the stock market. As the name suggests, REITs mainly invest in real estate, providing investors access to properties that they couldn't afford to invest in on their own.
The income and growth received or lost on an investment.
Refers to the way investments are split. Grouping numbers of various investments into sectors allows investments to be compared easily. It then becomes clear to see how they are performing. Most sectors are grouped either by the type of investment (such as bonds or shares), or geographical regions (such as the UK). Some sectors are based on investor aims, for example investment growth or income.
Targeted Absolute Return Funds
Targeted absolute return funds (also known as hedge funds) are designed to give you a positive return on your investment regardless of how markets are performing. This sounds like a low-risk investment, but the complicated investments and processes that hedge funds use, such as derivatives, can themselves be very risky.
The amount of time you are investing for.
Funds that track indices by investing in every single stock in the index (or otherwise replicating it).
Refers to any investments that form together to create an investment fund, trust or portfolio. They could include individual shares, bonds and other investments.
The rate that an investment can go up and down. In general, the more volatile an investment, the riskier it is.
Another word for the income paid by an investment, expressed as a percentage of its price.