A
Anything of value you own, such as stocks, property or cash. Assets have the potential to grow in value or generate income, forming the foundation of investing.
How your portfolio is divided across different asset classes like stocks, bonds and cash. A well-balanced allocation helps manage risk and support long-term returns.
An investment strategy where you buy and sell assets frequently to try and beat the market. It requires more time, research and risk than passive investing.
The yearly cost of borrowing money, including interest and fees. It helps you compare different loans or credit offers in a standardised way.
The act of buying and selling the same asset in different markets to profit from small price differences. It is mostly carried out by professional traders and algorithms.
A group of similar investments such as stocks, bonds or property. Each asset class behaves differently, helping investors diversify their portfolios.
B
A market environment where prices fall 20% or more from recent highs. It often reflects negative sentiment, economic slowdown or uncertainty.
A loan you give to a government or company in exchange for regular interest payments. Bonds are typically more stable than stocks and are used to reduce portfolio risk.
A period when prices are rising and optimism is high. Bull markets can last months or years and often reflect strong economic conditions.
Shares of large, established and financially stable companies. These firms are known for reliability, steady earnings and often regular dividends.
The difference between the price buyers are willing to pay and sellers are willing to accept. A smaller spread usually means a more liquid asset.
Planning how you will spend and save your income. A good budget helps you stay in control of your money and achieve financial goals.
C
The profit made when you sell an asset for more than you paid for it. Capital gains contribute to your overall investment returns.
A tax charged on profits from selling investments outside tax-free accounts like ISAs. Using an ISA helps avoid paying CGT entirely.
A raw material such as gold, oil or wheat that is traded on global markets. Commodities help diversify portfolios but can be volatile.
The process of earning returns on your previous returns, causing your money to grow faster over time. It is one of the most powerful forces in investing.
A short-term drop of 10% or more in the price of an asset or market index. Corrections are normal and often healthy for long-term market stability.
A sudden and significant drop in the value of the stock market or a particular asset. Crashes are often driven by panic selling, economic shocks or major global events.
A number that shows how reliable you are at repaying debt. A higher score makes it easier to get loans, mortgages or better interest rates.
The original value of an investment. It helps determine your profit or loss when you sell an asset.
D
Money that you have borrowed and must repay, often with interest. Debt can come from loans, credit cards or mortgages and should be managed carefully to avoid financial stress.
A measure comparing your monthly debt payments to your income. Lenders use it to judge how much credit you can manage safely.
Financial contracts whose value is based on another asset such as a stock, index or commodity. They can be used for hedging or speculation but add complexity and risk.
A portion of a company’s profits paid out to shareholders. Dividends provide a steady income stream and can be reinvested to boost growth.
Spreading your investments across different assets and sectors to reduce risk. If one investment struggles, others can help balance your returns.
A decline in the value of your portfolio from its peak. Drawdowns happen naturally but can feel uncomfortable during market dips.
Investing a fixed amount of money regularly, regardless of price. It smooths out market ups and downs and reduces emotional decision-making.
E
Ownership in a company, represented through shares. When the company grows in value, the value of your equity increases too.
A low-cost fund that holds a basket of assets and trades like a stock. ETFs offer instant diversification and are popular with beginners.
The annual fee charged by funds and ETFs, expressed as a percentage. Lower expense ratios help keep more of your returns over time.
Savings set aside for unexpected expenses such as car repairs, job loss or medical bills. Most experts recommend 3–6 months of living costs.
Investing that considers environmental, social and governance factors. ESG investors look for companies doing good for society as well as generating profit.
F
An index of the 100 largest companies listed on the London Stock Exchange. It represents the performance of major UK businesses.
A pooled investment managed by professionals and made up of many assets. Funds help you diversify without picking individual stocks.
Government decisions on taxation and spending to influence the economy. These actions can affect interest rates, inflation and market performance.
A loan or savings rate that stays the same over time. It provides certainty over future payments or returns.
Reaching a point where your investments and savings can cover your living costs without needing to work.
G
A company expected to grow quickly compared to others in the market. These stocks often reinvest profits rather than pay dividends.
The total value of all goods and services produced in a country. GDP growth can signal a healthy economy and stronger markets.
H
A strategy used to reduce risk by offsetting potential losses. Investors might hedge using bonds, cash or derivatives during uncertainty.
A bond that pays higher interest because it carries more risk. Investors use these for income but must accept greater volatility.
The length of time you keep an investment before selling it. Longer holding periods often reduce the impact of short-term volatility.
I
An asset or financial product you buy with the aim of growing your money over time. Investments can include stocks, funds, property and more, each offering different levels of risk and return.
The rate at which prices for goods and services rise over time. Inflation reduces the purchasing power of money, making investing essential for long-term goals.
The maximum amount you can invest in ISAs each UK tax year without paying tax on your returns. Using your full allowance can significantly boost long-term growth.
A fund designed to track a market index such as the FTSE 100 or S&P 500. Index funds are low-cost, long-term favourites for passive investors.
When an index changes which companies are included based on updated market data. Funds that track the index adjust their holdings to match.
The risk that changes in interest rates will affect investment values, especially bonds.
J
A bank account shared by two or more people, allowing each person to deposit, withdraw and manage money. Joint accounts are commonly used by couples or family members for shared expenses.
K
A verification process used by banks and financial institutions to confirm a customer’s identity. KYC helps prevent fraud, money laundering and other financial crimes.
L
How quickly you can buy or sell an asset without changing its price too much. Highly liquid investments are easier to trade, especially in volatile markets.
An order to buy or sell a security at a specific price or better. It gives you more control over trades compared to market orders.
Using borrowed money to increase the size of an investment. Leverage can boost gains but also amplifies losses.
M
The total value of a company, calculated by multiplying share price by number of shares. It helps classify companies as small-cap, mid-cap or large-cap.
A low-risk fund that invests in short-term, highly liquid assets. It is used as a safe place for cash while still earning a small return.
A long-term loan used to buy a property. You repay it over many years with interest, and the property itself is used as security for the lender.
An instruction to buy or sell an investment immediately at the best available price. It guarantees execution but not the exact price.
A demand from a broker to deposit more money into your account because the value of your leveraged investment has fallen.
A fund where many investors pool money to buy a diversified mix of assets. Mutual funds are managed by professionals and suit long-term investors.
N
The total value of everything you own minus everything you owe. It shows your overall financial health.
O
A fund that can issue unlimited shares as new investors join. Prices are updated daily based on the value of the underlying assets.
A contract giving you the right, but not the obligation, to buy or sell an asset at a set price. Options can be used for hedging or speculation but involve advanced risk.
P
A collection of assets you own, such as stocks, bonds and funds. A diversified portfolio helps reduce risk and support long-term growth.
A measure of how expensive a stock is compared to its earnings. Investors use it to assess whether a company might be undervalued or overpriced.
A long-term strategy that aims to match the market rather than beat it. It focuses on low-cost index funds and ETFs instead of active trading.
The UK version of dollar-cost averaging — investing the same amount regularly to benefit from market fluctuations over time.
R
A measure of how much profit you earned compared to the amount you invested. Higher ROI indicates more efficient growth.
A period of declining economic activity lasting months or years. Recessions often bring market volatility but can also create buying opportunities.
How much risk you are comfortable taking when investing. Understanding your tolerance helps shape a portfolio that suits your personality and goals.
The return on an investment after accounting for inflation. Real returns show your true buying power gained or lost.
S
Money you set aside for future use rather than spending. Savings help build financial security and can be used for emergencies, big purchases or long-term goals.
A unit of ownership in a company. When you buy shares, you become a shareholder and may benefit from growth and dividends.
An index of the 500 largest publicly traded companies in the US. It is widely used as a benchmark for the overall health of the global stock market.
A marketplace where buyers and sellers trade shares of publicly listed companies. It reflects economic conditions and investor sentiment.
A strategy where you bet on a stock's price falling. It carries high risk because losses can grow without limit.
T
An account such as an ISA that protects your investments from tax. These wrappers help maximise your long-term returns.
The difference between a fund's performance and the index it follows. Lower tracking errors mean the fund is closely replicating its target index.
How long you plan to keep an investment before needing the money. Longer horizons allow more growth and help manage risk.
V
How much an investment’s price moves up and down. Higher volatility means bigger swings, which can create both opportunity and risk.
A stock considered undervalued relative to its financial performance. Value investors look for solid companies trading below their true worth.
W
A financial service that helps individuals grow and protect their wealth. It typically includes investment advice, tax planning and long-term strategy.
A tax taken at the source on dividends or income from overseas investments. Some countries offer tax treaties that reduce the rate for UK investors.
Unexpected money such as a bonus, inheritance or lottery win. Many people use windfalls to boost savings or investments.
Y
The income you earn from an investment, shown as a percentage of its value. Higher yields can be attractive but sometimes signal greater risk.