The financial services industry seems to go out of its way to make it really confusing. Here are some buzzwords:
- Portfolio A collection of investments (usually funds) owned by an individual.
- Fund A pool of investments that is managed by a professional fund manager. Individual investors buy "units" in the fund and the fund manager invests the money directly in shares and bonds.
- Shares An investment in a specific company that entitles you to a share in the company's profits (via dividends). The shares of most major companies are traded on the stock exchange.
- Dividends The money a company pays to its shareholders as their share of the profits.
- Stocks Effectively another word for shares (technically you buy shares in a stock).
- Bonds A way of investing in a specific company that is lower risk than buying its shares. The company promises to pay bondholders set amounts in the future, irrespective of the level of profits it makes. Bondholders always get paid before shareholders.
- Securities / fixed income securities Usually used as another word for bonds (although technically both bonds and shares are types of securities).
- Actively managed fund / active fund A fund where the fund manager tries to pick investments that will beat the market. Charges are usually higher on these funds and most independent studies find that these are not justified by better performance. However, actively managed funds can be useful as a way to access otherwise inaccessible assets to help create a more diversified portfolio.
- Tracker fund A fund that seeks to replicate returns on a common index such as the FTSE 100. Charges are usually lower than these funds and most independent studies find that these funds provide better value for money.
- Passively managed fund / passive fund Another name for a tracker fund
- Income fund A fund that pays any dividend or other income it receives out to its investors. Useful if you want to receive an income from your investments now.
- Accumulation fund A fund that reinvests any dividend or other income it receives. Useful if you want to grow your investments and don't need them to provide an income at the moment.
Exchange-Traded Fund (ETF) A particular type of fund traded on the stock exchange. Less tightly regulated than other types of funds.
- Unit Trust A particular type of fund not traded on the stock exchange. Instead, the price is calculated at the end of each day based on the value of the investments at that time.
- Investment Trust A particular type of fund traded on the stock exchange, meaning that the price is variable throughout the day.