Investment Jargon – Busted

Every walk of life has its own particular terminology that can seem baffling to the outsider. The financial industry is no different. If you invest money into stocks and shares you are likely to be confronted with a range of words and phrases that you may not have come across before. Here are some examples of common financial jargon in use and what it means for you.

Volatility:  This refers to the rate at which the price of a stock or share moves up and down. If the price moves up and down rapidly over a short period of time, this is high volatility. If the price remains relatively stable, it means low volatility. By and large investors generally prefer lower volatility.

Risk Profile: This refers to the amount of investment risk you are prepared to take with your money. Your adviser will run through a set of questions with you to assess your profile so that they can recommend the right investments for your portfolio. Risk is closely related to reward, with riskier investment offering a greater chance reward, but also the risk of greater losses if the stock or shares perform badly. Your attitude to risk will probably change over the years.

Asset Allocation: This is the process of deciding what proportion of your investment should be invested in the different categories of investment assets and this is referred to as asset allocation. There are four main categories of assets – cash, equities, bonds and property. The process of determining what mix of assets you should hold in your portfolio is a very personal one, and will depend largely on the length of time over which your investment is made and of course your Risk Profile. Asset allocation helps to spread risk through diversification. Put simply it means putting your eggs in different baskets.