When it comes to investing, at Goodbody, we are often asked: where do I start? We’ve put together a series to help Investment Club members on their way. In this instalment, we present a list of industry terms which might help you understand the investment landscape …
Active fund: an investment strategy that is directly managed by a manager or team; they select securities to beat the benchmark index.
Alpha: gauges the performance of an investment against the benchmark index; often described as an investment strategy’s ability to beat the market.
Annual report: a document that public companies must provide every year to shareholders, describing their operations and financial condition.
Asset allocation: the process of putting money across different asset classes to maximise portfolio returns and minimise risk.
Asset class: the collective term given to different categories of investment instruments with varying degrees of risk.
Bear market: a prolonged period of falling stock prices, usually marked by a decline of 20% or more.
Benchmark index: a standard against which the performance of a security, investment strategy, or investment manager can be measured.
Beta: a measure of the volatility – or systematic risk – of a security or portfolio compared to the market as a whole.
Bond: a fixed-income instrument that represents a loan made by an investor to a borrower (typically corporate or government).
Bull market: a period of time in financial markets when the price of an asset or security rises continuously.
Cash flow: measures the previous, current, and future value of a company’s assets based on the financial behaviour that a company demonstrates.
Compound interest: interest calculated on the initial principal, which also includes all of the accumulated interest from previous periods on a deposit or loan.
Diversification: a strategy of investing in a variety of asset classes and a variety of assets within those asset classes. It helps to protect your investments and achieve the consistent returns in the long term.
Dividends: a portion of a company’s profit paid to common and preferred shareholders.
Dividend yield: indicates how much income investors can collect from holding a share.
EBITA: earnings before interest, taxes, depreciation, and amortization.
Earnings per share (EPS): a company’s profit divided by the outstanding shares of its common stock.
Economic cycle: the fluctuations of the economy between periods of expansion and contraction.
Equities: shares issued by a company which represent ownership in it.
Financial planning: helping clients create everything from savings plans; complex pension structuring; directors’ pension planning; inheritance planning; and investment strategies; in turn, this helps them achieve their financial goals.
Fixed income: an investment security that pay investors fixed interest or dividend payments until its maturity date. For example, bonds.
Inflation: the increasing price of goods and services over time, which reduces a currency’s purchasing power.
Investing: when you put your money to work for you. You buy an asset which you hope will increase in value over time eg, a stock.
Investment performance: often referred to as investment returns; it is an investment’s level of growth over time.
Liquidity: the ease with which an asset can be converted into cash without affecting its market price.
Market capitalisation: the total equity value of a company’s publicly traded shares; commonly referred to as market cap.
Portfolio manager: makes investment decisions regarding the assets in an investment portfolio to meet clients’ investment goals.
Price-to-earnings ratio: measures a company’s current share price relative to its earnings per share (EPS).
Recession: a downturn in economic activity; it is often defined by economists as at least two consecutive quarters of decline in a country’s gross domestic product (GDP).
Risk tolerance: the amount of stock market volatility that you are willing to accept in exchange for potential longer-term growth.
Sector: a group of similar securities, such as equities, which operate in a specific industry.
Shares: units of equity ownership in a company.
Sustainable investing: sustainable investing incorporates ESG factors into investment decisions to better manage risk and generate sustainable long-term returns. It complements traditional analysis and portfolio construction techniques.
Time horizon: the length of time that you’re willing to invest.
Volatility: the amount and frequency with which an investment fluctuates.