When you start thinking about investing in the stock market, the acronyms and jargon can be hard to get your head around.
But don’t let terminology put you off. Check out our handy jargon-free guide and you’ll soon see that investing’s not as difficult as it seems.
Let’s start with the basics
Investing is when you put your money into something to try and make more money. You can invest in anything that might increase in value, like shares, property, gold, oil or even coffee.
This is the money you’re investing.
Assets are the type of things your money buys when you invest. They can be all sorts of things like shares, bonds, gilts, commodities, property and cash. They can come from anywhere in the world.
A bond is pretty much an IOU issued by companies and governments to raise money.
When you buy one, you’re basically lending money to the issuer of the bond. You’ll get interest on your investment over a set period of time. When the bond reaches maturity (when the set time period ends) the face value should be paid back to you.
Typically, the value of bonds doesn’t go up and down as much as when your money’s invested in shares – so they’re often seen as more stable investments
Gilts are a type of bond, but instead of lending your money to a company, you're lending it to the UK government. This makes it one of the less risky types of investment.
They’re called gilts because the paper certificates originally had a gilded edge so were known as gilt-edged securities. True story.
A share buys you a tiny bit of a company. Owning just one share makes you a shareholder. The term ‘stock’ now means much the same as a share. But it’s actually a more general term to describe ownership of shares in more than one business.
To buy and sell shares you ‘visit’ the stock market to engage in the buying and selling of shares with other investors. The one you’re most likely to have heard of is the London Stock Exchange. But there are stock exchanges in many countries across the world.
The Financial Times Stock Exchange index is now better known by its acronym – pronounced ‘footsie’. The FTSE is made up of the largest companies on the London Stock Exchange. Just think of it as a league table for big companies.
When you own shares in a company, you’re entitled to a share in the profits that they pay out. It’s at the discretion of the company if any profits are paid out – but many companies are proud of making regular payments to shareholders in the form of dividends. Dividends can be paid out as an income or reinvested to buy more shares.
This is the amount the value of an investment goes up and down relative to other investments.
Typically, things like shares have bigger ups and downs (higher volatility) and are more likely to result in bigger losses or gains in value.
Things like bonds and gilts have smaller ups and downs (lower volatility) and are more likely to result in smaller losses or gains in value.
This is one way of reducing the impact of the ups and downs in value. It’s all about spreading your money around different types of investments (like shares, bonds and property) to reduce risk. It basically means not putting all your eggs in one basket.
Having a diverse collection of investments means your money isn’t tied to the success or failure of one type of investment or market.
What are funds
This is where lots of people’s money is pooled together and used to invest in things like shares, bonds and property- you might also see these called 'investment funds' or 'mutual funds'.
Because a fund invests in so many different things, the risk each investor takes is reduced. This is also known as ‘diversification’ - see above.
Another great benefit of investing in a fund is that all the investors share the costs, so the fees each investor pays could be lower than if they’d gone it alone.
- Fund of funds
This refers to funds where the money’s invested into lots of other funds. This approach is another way to broaden the range of assets that are invested in to reduce risk.
- Multi-asset funds
Now you know a bit about assets and funds the name’s a bit of a giveaway. These funds invest in lots of different types of assets, like equities, cash and bonds.
This spreads the risk between several markets and means investors have greater diversity than a fund investing in a single type of asset.
- Tracker fund
This is a fund that aims to track a particular stock market index (in other words, match its performance). Different tracker funds work in different ways – but they tend to replicate the performance of every share or bond in a particular index (like the FTSE 100). A tracker fund is a passively managed fund.
- Passively managed funds
These are funds where the individual investments (like company shares) follow a particular market (eg FTSE 100), rather than being hand-picked by a professional fund manager.
The returns are closely aligned with the index or market being tracked – without the potential for higher (or lower) returns. These funds usually cost less than an actively managed fund.
- Actively managed funds
These are funds where the individual investments (like company shares) are hand-picked by a professional fund manager.
They usually cost more than a passively managed fund but have the potential for higher returns. Of course, they can underperform too if the wrong shares are picked.
- Income funds
The objective of these funds is to pay out any income received from the assets held.
- Accumulation funds
The objective of these funds is to grow your investment. Any income received from the assets held is reinvested back into the fund. It literally accumulates (or builds up).
- Income and accumulation units
When you buy into a fund, you get ‘units’ or ‘shares’ in that fund. These units come in two types – income or accumulation. They are usually listed as ‘Inc’ or ‘Acc’ after the fund name.
With income units, the income is paid out to you as cash – but you can always choose to reinvest it. With accumulation units, any income received is automatically reinvested back into the fund.
- Fund manager
You’ve guessed it. This is the person or people who run an investment fund and set the investment strategy. They arrange for assets held in the fund to be traded to keep investments in line with the fund’s strategy.
Fees and charges
- Ongoing charges figure
The ongoing charges figure is designed to help you compare how much you’ll pay for one fund versus another. It covers all the costs and overheads of running the fund, including the ‘annual management charge’ and additional expenses detailed below.
- Annual management charge
The cost of managing the investments is called the 'annual management charge' and is a percentage of the money you’ve invested collected by the fund manager. It’s often shortened to ‘AMC’ and usually makes up the majority of the ongoing charges figure.
- Additional Expenses
This is part of the ongoing charges figure. It covers any additional expenses incurred by the fund manager that aren't covered by the annual management charge.
- Platform fee
In the investment world, a ‘platform’ is an online service that lets you buy, sell and manage your investments.
Most platforms charge a fee for providing the service. Depending on the provider, you might see this called service fee, administration fee or account fee (we call it an 'account charge').
- Initial and withdrawal fees/charges
If you’re invested in a fund, you may be charged entry and exit fees and charges by the fund manager.
- Performance fees
In some funds, performance fees may be charged on top of the annual management charge. The amount you pay will be based on the performance of the fund versus a benchmark set by the fund manager.
- Dilution levy
If an individual investor buys or sells a large number of units, it could have an impact on the value of the fund. The investor may be charged a 'dilution levy' to protect the remaining investors from the costs incurred.
Virgin Money view
We believe investing should be simple. That’s why we keep everything straightforward and jargon-free.
So if you’re thinking of putting some money aside for the future, check out our beautifully simple investments and pensions.
Want to find out more? Check out our investment pages and take a look around.
Remember, the value of investments can go up and down, so you may get back less money than you put in. Tax depends on your individual circumstances and the regulations may change in the future.