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How to Invest: Common Investing Terms You Need to Know Explained in Full | Personal finance | Finance

Financial investments are one of the best ways to maximize your savings, but it is not without risk. With the UK tax hike looming, now is a great time to get to grips with the basics of investing – and understanding common jargon is key. From bonds to funds, there’s a range of terms you need to know before you start your investing journey, but what exactly do they mean? Express.co.uk spoke to Emma Keywood of the investing app, Dodl.co.uk to find out.

How to start investing

Smart investment can help your money outpace inflation, which is currently causing a cost of living crisis that many Brits will feel.

Investments can come in a variety of formats, from stocks and shares to trusts and funds offered to potential investors, but how do you choose the right platform for your money?

Make a plan

Speaking exclusively to Express.co.uk, Emma Keywood, Senior Product Manager for Dodl.co.uk said: “Think about what you are investing for. Is the goal to pay off your mortgage, or to build a college fund for the kids, or maybe just for your own retirement?

“Most people will find themselves investing for a variety of possible goals, but laying them out early on will really help you make decisions and keep you on track.”

READ MORE: Investment warning as markets brace for volatility

Start slow

Keeping things simple to begin with is the safest way to manage your finances while learning the ropes of the investing industry.

Start by choosing a platform to invest with – there are plenty of opportunities out there, so take a look at what’s on offer and how it would fit your lifestyle.

Emma recommends looking for a platform that offers all the accounts you might need over time, such as an ISA, pension, or lifetime ISA.

She added: “Also consider the level of support and advice the platform offers, especially if you are just getting started and need help deciding how and where to invest.”

What are the benefits of investing?

Investing can be a great way to grow your money and potentially build substantial wealth, beyond below-average savings accounts.

While having a savings account is always important, it’s really only part of the story in today’s economy.

Emma explained: “Smart savers will start by building up a large pot of emergency savings and after a few months will start investing in the financial markets for longer term savings like a house deposit or a new car. “

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What are the most important investment terms to understand before investing?

Investment jargon can be meaningless when you’re unaware of the implications for your own finances, but understanding these common terms can make it even easier for you to get the right investment.

IS A

Individual Savings Accounts or ISAs allow you to save or invest without paying tax on the interest you receive or investment gains.

You can currently contribute up to £20,000 a year.

ISA Junior

This is an individual savings account that allows you to save for your child’s future.

You can currently pay up to £9,000 a year for each child and the account becomes theirs when they turn 18.

ISA for life

This type of ISA can be opened between the ages of 18 and 39 and accept payments of £4,000 per year.

One of the main benefits of the Lifetime ISA is that you get a government bonus of up to £1,000 (25% of the amount you invest), making it ideal for saving for key life events .

Pension

A pension is a retirement savings product through which you can hold a wide range of investments, with income and investment gains being tax exempt.

You can contribute up to £40,000 or 100% of your earnings each year and get tax relief from the government, which means that for every 80p you contribute, the government adds 20p.

Capital gain and loss

Capital gain is the money you made between buying and selling an investment, while capital loss is the money you lost between buying and selling an investment.

Bear and bull markets

A bear market is what investors call the market when stock prices are falling, while a bull market is what investors call the market when stock prices are rising.

Risk

High-risk investments carry a greater risk of loss than low-risk investments, but also a greater potential for gains.

Asset allocation

An asset allocation is the proportion of your money that you allocate to different types of investments such as stocks, bonds, property and cash.

The proportions you choose will also depend on your attitude towards risk, your investment objectives and your time frame.

Diversification

Diversification essentially means that you don’t put all your eggs in one basket and is an essential part of asset allocation.

Rebalancing

You may find that if some of your investments have performed particularly well or poorly and you need to buy or sell certain investments, your portfolio remains in line with your willingness to potentially lose money on your investments.

Stocks and shares

When you invest in a company through a stock exchange, you own a share in that company and become a shareholder.

When you become a shareholder, you then hold a part of the company which is proportional to the number of shares you own.

As the value of the company rises or falls, so will the value of your shares – you may also be entitled to a share of the company’s profits if it decides to pay a dividend.

Dividends

Some companies will pay out part of their profits to their shareholders in the form of cash or shares, otherwise known as dividends.

Obligations

When companies or governments need to raise funds, they issue bonds.

You lend the company money and in return it agrees to pay a fixed amount of interest on a regular basis until the end of the agreed term.

Funds

Funds are a way to invest in a wide range of businesses through a single product and can come in different forms.

Active approach funds mean that the fund manager actively selects investments within the fund.

Passive approach funds mean that the fund invests in a certain stock market or a section of a stock market or in a specific theme, such as healthcare.

What are the main types of funds?

Investment company with variable capital – OEIC

  • Managed by a fund manager
  • Investors buy shares of the fund through the manager rather than the stock exchange
  • Investments can be made in everything from company stocks to bonds or property
  • These funds can take an active or passive approach to investing

Investment trusts

  • These funds are listed on the stock exchange
  • You buy a share of it as you would with other publicly traded companies
  • The fund manager then manages a portfolio of investments on behalf of all shareholders
  • Investments can be made in everything from company stocks to bonds or property
  • Investment trusts use an active approach to investing

exchange traded funds

  • ETFs are traded on an exchange
  • Take a passive approach to investing by tracking the value of an entire stock market or a sub-section of a market
  • They can also invest in specialist themes such as technology, healthcare or clean energy