A to Z investing jargon buster

Accumulation units – When you buy shares in a fund, any income (such as dividends) is automatically reinvested into the fund, so your share price rises over time.

Active investing – When you (or a fund manager) pick individual stocks or funds in an attempt to beat the market’s overall returns.

AIM (Alternative Investment Market) – A segment of the London Stock Exchange where smaller, higher-risk companies list their shares to raise money.

Alpha – A measure showing how much extra return your investment (or fund) delivered compared to its benchmark index, after adjusting for risk.

AMC (Annual Management Charge) – The yearly fee a fund manager charges you for running your investment.

Annuity – A contract you buy that converts your pension savings into a guaranteed income, paid to you for life (or a set term).

Ask price (offer price) – The price you pay when you buy a share or fund unit.

Asset allocation – How you split your money across different investment types (for example, shares, bonds and cash).

Asset class – A category of investments - like shares (equities), bonds (loans to governments or companies), property or cash.

Auto enrolment – The rule requiring your employer to automatically sign you up for a pension plan and make contributions if you meet certain criteria.

Bear market – When share prices fall over an extended period, typically 20% or more off recent highs.

Benchmark – The index (for example, the FTSE 100) that a fund aims either to match (track) or outperform.

Blue chip – Shares in large, well-established companies, often seen as more stable and included in major indices like the FTSE 100.

Bond (fixed income security) – You lend money to a government or company; in return, they pay you interest and repay your original loan on a set date (maturity).

Book cost – What you originally paid for an investment; used to work out your total gain or loss when you sell.

Broker – The firm or online platform you use to place buy and sell orders for investments.

Buyback (share buyback) – When a company uses its cash to repurchase its own shares from the market, reducing how many shares are in circulation.

Base rate (Interest Rate) – The main interest rate set by the Bank of England, which influences mortgage, loan and savings rates.

CAPE (cyclically-adjusted price/earnings)
CAPE compares today’s share price to the company’s average annual profits over the last ten years (after adjusting for inflation). By using a decade of earnings, it smooths out the ups and downs of economic cycles and gives you a long-term view of whether a stock looks expensive or cheap. It’s more insightful than the simple P/E ratio but takes a bit more work to calculate yourself.

Capital gain / loss – The profit (gain) or loss you make when you sell an investment for more or less than its book cost.

Capital at risk – A warning that your investment can fall in value, so you could get back less than you paid in.

Capitalisation (market cap) – The total value of a company’s shares, calculated as share price multiplied by the number of shares outstanding.

Cash ISA – A tax-efficient savings account where you pay no tax on the interest you earn, with very low investment risk.

Corporate action – An event a company initiates (for example, paying dividends, merging, or splitting shares) that affects its shareholders.

Corporate bond – A loan you make to a company; they pay you regular interest and return your capital at maturity.

CPI (Consumer Prices Index) – The main UK measure of inflation, tracking how prices for everyday items change over time.

CREST – The UK’s electronic settlement system that handles the transfer of shares after trades.

Credit rating – An independent agency’s grade of how likely a government or company is to repay its debts. The range from AAA (highest quality) to D (where they’ve failed to make a payment).

Custodian – A specialist firm that holds and safeguards your investments on your behalf.

Dealing charge – A fee you pay each time you buy or sell an investment on your chosen platform.

Derivative – A financial contract (for example, an option or future) whose value is based on an underlying asset like a share or commodity.
Discount / premium (investment trusts) – When an investment trust’s share price trades below (discount) or above (premium) its net asset value per share.

Diversification – Spreading your investments across different assets, sectors or regions to reduce the impact of any single loss.

Dividend – A payment a company makes to its shareholders out of its profits.

Dividend reinvestment (DRIP) – Automatically using the dividends you receive to buy more shares or fund units.

Dividend yield - Dividend yield shows how much yearly income a company pays you, relative to its share price. You work it out by dividing the annual dividend per share by today’s share price. A higher yield means more income relative to the price of the investment - but if the yield is much higher than that of similar companies, it could be a warning that the market expects those dividends to be cut.

Drawdown (pensions) – When you choose to take flexible cash withdrawals from your pension pot while leaving the rest invested.

Duration (bonds) – A number that estimates how much a bond’s price will move if interest rates change by 1%

Earnings per share (EPS) – A company’s profit divided by the total number of its shares, showing profit per share.

EBITDA – This ratio shows how much you’d pay for the company’s earnings power. You divide enterprise value (the ‘whole company’ cost) by EBITDA (a rough measure of cash profit: Earnings Before Interest, Taxes, Depreciation and Amortisation). A lower number suggests you’re paying less for each pound of profit.

Emerging markets – Countries with rapidly growing economies but still developing markets, offering higher potential returns at higher risk.

Enterprise value - Enterprise value tells you what it would cost to buy the whole company, not just its shares. You start with the company’s market capitalisation (that's the share price × total number of shares), add any money it owes (debt - like loans or bonds), then subtract the cash it holds. Because it includes debt and cash, enterprise value gives a fuller picture of a company’s true worth than market capitalisation alone.

Equity (share) – A unit of ownership in a company; owning shares makes you a part-owner.

ESG (environmental, social and governance) – Criteria investors use to evaluate how sustainably and ethically a company is run.

ETF (exchange traded fund) – A fund you can buy or sell like a stock (share); most aim to track an index.

Ex dividend date – The cutoff date; if you buy on or after this date, you won’t receive the next dividend payment.

Execution only – A service where you place your own buy/sell orders without any advice from the provider.

Factsheet – A concise one-page summary of a fund’s goals, holdings, performance, risks and costs.

FCA (Financial Conduct Authority) – The UK regulator that oversees financial firms to make sure they treat customers fairly.

FSCS (Financial Services Compensation Scheme) – A UK protection that covers your money up to set limits if a financial firm fails.

Fed (US Federal Reserve) – The US central bank whose decisions on interest rates often move global markets.

Fixed income – Investments (like bonds) that pay regular interest rather than relying on price growth.

FTSE indices – Benchmarks compiled by FTSE Russell, such as the FTSE 100 of the UK’s largest 100 companies.

Fund (OEIC or unit trust) – A pooled investment run by a professional manager, spreading your money across many assets.

Fund of funds (multi manager) – A fund that invests in other funds to achieve wider diversification.Fund platform (investment platform) – An online service where you can hold, track and trade multiple investments in one place.

Gearing (investment trusts) – When an investment trust borrows money (for example, from a bank or via issuing bonds) to buy extra assets. This can magnify your returns if those assets rise but also magnify your losses if they fall.

Hedge / hedging – A way to reduce risk. It means using another investment to offset potential losses in your portfolio.

High yield (bonds) – Bonds with lower credit ratings that pay higher interest to compensate for greater risk.

HMRC – His Majesty’s Revenue & Customs, the UK government department that collects taxes.

Holding – The amount of a specific investment (shares, bonds, funds) you own.

Index – A collection of shares or bonds designed to represent a market or sector (for example, the FTSE 100).

Index fund (tracker fund) – A fund set up to match the performance of a particular index rather than beat it.

Inflation – The rate at which general prices rise, meaning your money’s purchasing power falls over time.

In specie transfer – Moving shares or funds from one provider to another without selling them first.

Initial charge – A one-off fee charged when you buy certain investments (now rare in many UK funds).

Tax wrapper (ISA/SIPP) – Special accounts - like ISAs or SIPPs - that shelter your investments from specific taxes.

Investment grade – Bonds given a rating of ‘BBB’/‘Baa3’ or higher by credit rating agencies. These are seen as lower risk, meaning the borrower is more likely to make payments on time.

Investment trust – A listed company that pools investors’ money to buy a range of assets, trading like a share.

IPO (initial public offering) – When a private company offers its shares to the public on a stock exchange for the first time.

ISA (Individual Savings Account) – A UK account where any growth or income on your investments is tax-free.

ISIN – A unique international code (International Securities Identification Number) that identifies each security.

Junior ISA (JISA) – A tax-free savings and investment account for children under 18.

Junk bond – A lower-rated bond offering higher interest to reflect its higher credit risk.

KID (Key Information Document) – A standardised sheet that outlines a fund’s aims, risks, costs and potential performance scenarios.

Key features document – A concise overview of a financial product’s main points, charges and risks.

LIFO / FIFO – Methods for deciding which of your shares you ‘sold’ first when calculating tax: Last In, First Out (LIFO) or First In, First Out (FIFO).

Lifetime ISA (LISA) – An ISA designed to help savers buy their first home or save for retirement, with a government bonus.

Limit order – An instruction you give to buy or sell only at a set price (or better).

Liquidity – How quickly you (or the market) can buy or sell an investment without affecting its price too much.

Leverage – Using borrowed money to increase the size of your investment position - boosting both potential gains and potential losses.

London Stock Exchange (LSE) – The UK’s main public market for buying and selling company shares.

Market cap (capitalisation) – The total market value of a company’s shares, calculated by multiplying its share price by the number of shares issued.

Market maker – A firm that quotes both buy and sell prices for a security and stands ready to trade, helping keep markets liquid.

Market order – An instruction to buy or sell immediately at the best price the market offers.

Maturity (bonds) – The date on which the bond issuer must repay your original loan.

MiFID II – A set of European rules designed to make investing fairer, clearer, and safer for investors.

Money market fund – A fund that invests in very short-term, low-risk debt instruments like treasury bills (also known as a cash fund).

Multi-asset fund – A single fund that invests across different asset classes, such as shares and bonds.

NAV (net asset value) – The total value of a fund’s assets minus its liabilities, divided by the number of shares outstanding.

Nominee account – When your investments are held in the name of the provider for administrative ease, though you still own them.

Non-discretionary – When you make all investment decisions yourself and your provider simply carries out your instructions.

Number of holdings – The count of different individual securities (shares, bonds, etc.) within a fund or portfolio.

OCF (ongoing charges figure) – The annual cost of running a fund, shown as a percentage of its assets; includes most management fees but not transaction costs.

Offer price (ask) – The price at which you can buy a share or fund unit.

Open-ended fund – A fund that creates new shares or cancels existing ones in line with investor demand (e.g. OEICs, unit trusts).

Option – A contract giving you the right (but not the obligation) to buy (call) or sell (put) a security at a set price before a set date.

Order book (SETS) – The electronic system on which buy and sell orders for many UK shares are listed.

Overweight / underweight – When you hold more (overweight) or less (underweight) of an asset relative to its weight in a benchmar

Passive investing – When you buy index-tracking funds or ETFs to match a market’s return rather than trying to beat it.

Price/earnings (P/E) ratio - The P/E ratio compares a company’s share price to the profit it makes per share. You divide today’s share price by the company’s earnings per share. A higher P/E means investors expect faster growth; a lower P/E can signal a cheaper stock. ‘Forward P/E’ simply uses profit forecasts instead of last year’s numbers.

PID (property income distribution) – A special label for dividends from UK real estate investment trusts, taxed as property income.

Platform fee – The charge you pay to use an online service that holds and administers your investments.

Portfolio – The collection of all the investments you own.

Pound-cost averaging – Investing a fixed amount at regular intervals so you buy more when prices are low and fewer when they’re high.

Price/sales ratio - Price/sales tells you how a share’s price stacks up against the company’s revenue per share. You calculate it by dividing today’s share price by revenue per share. It’s handy for young or unprofitable firms—just watch out: a company might have big sales but still struggle to turn those sales into profit.

Price/book value - This ratio shows how the market values a company compared to its net assets (assets minus liabilities). You divide the share price by net assets per share. If the result is below 1, the market price is less than the company’s accounting value—possibly a bargain. It’s often used for businesses (like banks) whose balance sheets are more stable than their annual profits.

PRIIPs – (Packaged Retail and Insurance-based Investment Products). A set of European rules that make sure certain investment and insurance products come with a short, easy-to-read summary called a Key Information Document (KID), so investors understand what they’re buying.

Prospectus – A detailed legal document that explains the terms, risks and costs of a security or fund offering.

PTM levy – A £1.50 fee on UK share trades over £10,000, paid to the Panel on Takeovers and Mergers, which regulates how company takeovers are run.

P/E expansion / compression – When the valuation multiple (price relative to earnings) of shares rises (expands) or falls (compresses).

QE (quantitative easing) – When a central bank buys government bonds to inject money into the financial system.

Quote – The current price to buy (ask) or sell (bid) a security, which may be real-time or delayed.

Rebalancing – When you (or a fund manager) sell some assets and buy others to return your portfolio to its target mix.

Regular savings plan – A service that automatically invests a set amount at regular intervals on your behalf.

REIT (real estate investment trust) – A company that owns income-producing property and must distribute most of its rental profits to shareholders.

Retail client – An individual investor covered by specific consumer protections under financial regulation.

Return (total return) – Your overall gain or loss, combining income (interest or dividends) and capital growth (price moves).

Risk profile – An assessment of how much risk you’re willing and able to take with your investments.

Rights issue – When a company offers existing shareholders the right to buy additional new shares, usually at a discount.

S&P 500 – A US index of 500 large companies, widely used as a gauge of US stock market health.

SDLT / SDRT (Stamp Duty / Stamp Duty Reserve Tax) – UK taxes that may apply when you buy shares.

Sector – A group of companies operating in the same part of the economy (for example, technology or healthcare).

Settlement – The process of transferring money and securities between buyer and seller after a trade.

Share – A single unit of ownership in a company (also referred to as a stock).

Stocks and Shares ISA – An ISA that lets you hold and trade shares, funds and ETFs rather than cash.

Short selling – When you borrow shares and sell them now, hoping to buy them back cheaper later and pocket the difference.

SIPP (Self-Invested Personal Pension) – A personal pension where you choose exactly which investments to hold.

Spread – The difference between the price at which you can buy (ask) and sell (bid) a security.

Switch – To sell one investment and use the proceeds to buy another, often within the same platform.

Systematic investing – When you follow a set of rules (for example, investing a fixed amount each month) rather than timing the market.

SDR (Sustainability Disclosure Requirements) – UK rules requiring funds to report on their environmental and social impact.

Target date fund – A fund that gradually shifts its mix of assets (from growth-oriented to safer) as it approaches a chosen retirement year.

Time horizon – The length of time you plan to keep your money invested before you need to use it.

Total return – Same as ‘return’: the combination of income and capital growth from an investment.

Tracker fund – Another name for an index fund that mirrors the performance of a market index.

Trade date / settlement date – Trade date is when you agree the deal; settlement date is when money and assets actually change hands.

Transfer – Moving your investments or cash from one provider to another without selling them first.

Trading account – The account you use to buy and sell investments.

UFPLS (Uncrystallised Funds Pension Lump Sum) – A way to take money directly from your pension pot without setting up drawdown. Usually, 25% of each withdrawal is tax-free and the rest is taxed as income.

Underlying holding – The actual shares, bonds or assets that a fund owns.

Unit trust – A type of investment fund where many investors pool their money together. The fund is split into units, which you can buy or sell, and the value changes with the fund’s performance.

Unlisted – A security or company not traded on a public stock exchange.

Value investing – Buying shares that appear cheap compared to earnings or assets, on the view that their price will rise to fair value.

VCT (Venture Capital Trust) – A listed fund investing in smaller UK companies, offering tax breaks but carrying higher risk.

Volatility – How much an investment’s value moves up and down. A more ‘volatile’ investment changes in price more often or more sharply.

Voting rights – The rights attached to shares allowing you to vote on company decisions at AGMs or EGM votes.

Watchlist – A personal list of securities you’re tracking for potential investment.

Withholding tax – Tax automatically deducted from investment income (for example, dividends from overseas companies).

Workplace pension – A pension scheme set up by your employer, who typically also contributes on your behalf.

Yield – The income you get from an investment, shown as a percentage of its value (like interest or dividends).

Yield to maturity (YTM) – The estimated annual return you would get if you hold a bond until it repays in full, assuming all payments are made as planned.

Zero dividend preference share (ZDP) – A type of investment trust share that pays no income now but aims to deliver a specific capital return at a future date.