Investment Glossary
Common investment terms explained simply and clearly
A
The process of dividing your investment portfolio among different asset categories such as stocks, bonds, and cash. It's one of the most important decisions affecting your investment returns.
B
A unit of measurement equal to 1/100th of 1%. For example, 6.1 bps equals 0.061%. Used to describe fees, interest rates, or investment returns.
C
Interest calculated on both the initial principal and the accumulated interest from previous periods. Often called 'interest on interest', it's the key to long-term wealth building.
D
Spreading investments across different assets, sectors, or geographic regions to reduce risk. The principle of 'not putting all your eggs in one basket'.
E
A type of investment fund that trades on stock exchanges like individual stocks. ETFs typically track an index and offer low-cost, diversified exposure to markets.
I
A UK tax-advantaged account allowing you to save or invest up to £20,000 per year with no tax on growth or withdrawals. Perfect for flexible, tax-free investing.
R
The process of realigning your portfolio back to your target asset allocation by buying or selling assets. Helps maintain your desired risk level over time.
S
A UK pension wrapper offering tax relief on contributions and tax-free growth. Accessible from age 55-57, ideal for long-term retirement savings.
T
The total annual cost of owning a fund, expressed as a percentage. Lower TER means more of your money stays invested and compounds over time.
V
The degree of variation in investment prices over time. Higher volatility means larger price swings, which can represent both risk and opportunity.