If you are at a linguistic disadvantage when it comes to investing, the first key step involves understanding the jargon. This will help you select the investments suitable to your requirement and you will understand exactly what the investment entails.
Here are some commonly used investing terms explained in simpler language:
Stock: A share of a company
Share value: Value of company shares is calculated by totalling the assets of the company and dividing the figure by the number of shareholders.
OEIC/Unit Funds: These are also called open ended funds where your money is invested along with other investors by professionals. These are ideal for beginning investors.
Investment Trust: As opposed to a unit trust, an investment trust is restricted to a limited number of investors. The value of investment trusts varies with demand and market dynamics.
Blue-chip company/stock: This refers to well-known, established and reputed companies whose shares of stock sell at high value.
Cash cow: A cash cow is the productive unit/department/product line of a company that continues to generate money even with minimal investment. ‘Cash cow’ companies make impressive profits for shareholders.
Volatility: Economic markets are often subject to ups and downs and this rollercoaster-like effect is referred to as volatility. Investments are often classified as less/more volatile. Higher volatility implies higher risk.
Dividend: when a company makes a profit, it decides to share the profit with shareholders. This is a predefined amount and is usually a percentage of the total profits. Blue-chip companies usually pay out good dividends to shareholders.
Quartiles: Companies are listed in the order of their performance into four broad groups. The best performing companies are listed under the first quartile and the worst performing companies are listed under the fourth quartile.
Certificates of Deposit or CD: You can invest in CDs of your choice with your local bank. You stand higher chances of earning higher returns if you deposit your money for longer periods of time.
AMC: This stands for Annual Management Charge and is the cost of fund management levied by your investor and his team. AMC is usually deducted from the investment portfolio directly.
Year end: The financial or investing year end does not coincide with the traditional year end of December 31st. The corporate tax year usually ends on April 5th and companies request to have their year-end dates to coincide with tax end year.