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Investing basics
The building blocks of owning, saving and investing.
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Investing basics
What is a stock or share?
A share is a small piece of ownership in a company. A stock is the same basic idea, especially in American usage.
Investing basics
Stocks
Stocks are the asset class made up of tradable company shares. The plural describes many possible ownership interests rather than the single ownership unit explained by a share.
Investing basics
Bonds
A bond is a tradable loan to a government, company or other issuer. The issuer promises specified payments, but the value and reliability of those promises can change.
Investing basics
Exchange-traded funds
An exchange-traded fund, or ETF, is a pooled portfolio whose shares trade on an exchange. What it owns and how it follows its stated approach determine the real exposure.
Investing basics
Mutual funds
A mutual fund pools investors' money into a shared portfolio managed under stated rules. Investors usually transact with the fund at a calculated net asset value rather than trading continuously on an exchange.
Investing basics
Index funds
An index fund aims to follow a defined index rather than selecting investments through discretionary forecasts. Its result should be judged against that index after costs and implementation differences.
Investing basics
Active and passive investing
Active investing makes discretionary choices in an attempt to improve on a reference point; passive investing follows a predefined index or rule. Both still involve objectives, costs and implementation choices.
Investing basics
Dividends
A dividend is a distribution a company chooses to make to eligible shareholders, usually from available cash. It transfers value out of the company and is not an extra return created from nothing.
Investing basics
Compound returns
Compounding means later gains or losses apply to a value already changed by earlier returns. Reinvested growth can build on growth, while repeated losses shrink the base available to recover.
Investing basics
Capital gains and losses
A capital gain or loss is the change between an asset's relevant purchase cost and its disposal value. It becomes realised when the asset is sold under the applicable accounting or tax convention.
Investing basics
Income and growth investing
Income investing emphasises cash distributions; growth investing emphasises businesses expected to increase future earnings or value. Most investments contain some mixture, and total return counts both.
Investing basics
What is a portfolio?
A portfolio is the complete set of investments and cash considered together. Its behaviour depends on each holding's weight and on how the holdings move in relation to one another.
Investing basics
Asset allocation
Asset allocation is the decision about how much of a portfolio belongs in broad exposure groups such as shares, bonds and cash. It sets the portfolio's main sources of risk and return.
Investing basics
Portfolio rebalancing
Rebalancing returns a portfolio towards its intended allocation after market moves or cash flows change the weights. It is a risk-control process, not a promise to improve returns.
Investing basics
Regular investing
Regular investing contributes set amounts over time, buying more units when prices are lower and fewer when prices are higher. It disciplines timing but does not ensure a profit.
Investing basics
Lump-sum investing
Lump-sum investing puts available capital to work at one time rather than staging entry. It gains immediate market exposure and accepts the risk of an unfavourable starting point.
Investing basics
Investment time horizon
An investment horizon is the time until money may need to serve its purpose. It helps determine which losses, volatility and lack of liquidity can realistically be tolerated.
Investing basics
Risk tolerance
Risk tolerance is a person's willingness to live with uncertain outcomes and losses. It is psychological and distinct from the financial capacity to absorb those losses.
Investing basics
Investment objectives
An investment objective states the job money is meant to do, such as preserving purchasing power, providing income or funding future spending. It should guide risk and measurement choices.
Investing basics
Investment fees and costs
Investment costs are amounts removed through product charges, advice, trading, tax and implementation. Because they reduce the capital left invested, recurring costs also compound through time.
Investing basics
Fund expense ratios
A fund expense ratio expresses recurring operating expenses as a percentage of fund assets. It is taken within the fund and reduces the return investors receive rather than arriving as a separate bill.
Investing basics
Brokerage accounts
A brokerage account is an arrangement through which a provider holds cash and investments and carries out market transactions for a customer. The account wrapper, protections and permissions matter.
Investing basics
Stocks and shares ISAs
A stocks and shares ISA is a UK tax wrapper that can hold eligible investments. The wrapper changes specified UK tax treatment; it does not change the risk or return of what is held.
Investing basics
Pensions and long-term investing
A pension is a long-term arrangement designed to fund later life, often combining contributions, tax rules and invested assets. Its benefits and access conditions depend on the specific scheme and law.
Investing basics
Cash saving versus investing
Cash prioritises nominal stability and access; investing accepts uncertain values in pursuit of income or growth. The relevant comparison includes purpose, horizon, inflation, risk and liquidity.
Investing basics
Real and nominal returns
Nominal return is the change measured in money; real return adjusts for inflation to show the change in purchasing power. The exact relationship compounds rather than simply subtracting large rates.