Making sense of financial jargon

This means a group of investments that have the same behaviours and characteristics. They will operate in a similar way, and have broadly the same level of risk and reward. An example of an asset class is shares.

This is how much of your overall portfolio is invested into different asset classes. For example, you might have 45% of your portfolio invested in shares, 30% in bonds and 25% in cash. 

At Skipton, we have helped you to set up a portfolio with a blend of different asset classes. Over time, your asset allocation might change. 

Bond is one of those words that can have different meanings. When it comes to investing, we talk about bonds as part of the fixed income asset class.

A bond involves lending money to a government (known as government bonds) or a company (corporate bonds) over a set period of time. The organisation uses this money to fund its activities. As an investor, you receive interest payments at a set rate – as well as your original investment back at the end of the term.

Different bonds have different levels of risk and reward. For example, government bonds are less risky than corporate bonds, as there is less chance of a government struggling to pay back the loan. Riskier bonds will usually pay higher levels of income to reflect their greater risk.

This is another asset class. It means placing money into cash accounts.

Cash typically makes up a small part of your overall portfolio. It can provide some protection from market falls. But due to their low-risk nature, returns are likely to be low. It can also be challenging to achieve returns from cash that are higher than inflation over the long-term.

We sometimes talk about alternative investments that might be in your portfolio. One of these could be commodities.

Commodities can cover a wide range of items. From oil and gas, through to gold. Typically, investors buy the commodity for a certain price, in the hope it will increase in value. Commodities often behave in a different way to shares. This means they can be a useful part of a balanced portfolio.

Commodities can be very risky. Which is why, at Skipton, we only recommend you hold a small amount. If indeed any.

This is a term to describe countries that are amongst the most developed in the world in terms of their economy and financial markets. They are countries considered stable in terms of their economic growth, government and regulation.

Developed markets are typically less risky compared to emerging markets (please see emerging markets explanation below). This is because they’re more established and proven over the long-term.

Developed markets include the US, UK, France, Japan and Australia.

This is linked to shares. One of the ways you can make money from shares is receiving dividends. Basically, a company rewards individuals for investing in their company by paying out a percentage of the profits the company makes.

Dividends are often a way of attracting more investors and keeping current shareholders happy. When it comes to your investment portfolio, dividends from shares can boost your overall returns. It’s important to note that the value of any income/dividends you receive as part of your investments can go down as well as up.

This is a term used to describe countries with economies that are up and coming. Historically, they’re not a settled and established economy. But emerging market countries are growing in global importance and are beginning to show similar characteristics to a developed economy.

Emerging markets are seen as riskier areas to invest. This is because they don’t have the same long-term track record.

Examples of emerging markets include China, India, Brazil and Mexico.

We don’t like to use the word equities at Skipton, but you might see or hear others use it. An equity is another word for shares. Please see the ‘shares’ explanation below for more information on shares.

This is another word that can mean many different things. At Skipton, we will have recommended you invest into a range of funds, suited to your circumstances.

A fund is where investors’ money is pooled and invested together – with it all being managed by a professional fund manager. The asset classes it invests into depends on the objectives of the fund. Different funds also take different levels of risk.

This basically means UK government bonds. Like equities, this is a word we try not to use at Skipton. But you might see or hear others use it.

Inflation means the rate the cost of living is going up by. Governments around the world measure inflation by tracking the prices of everyday items we all buy.

If costs are going up, we have inflation. If costs are going down, we have deflation.

We use the word portfolio to describe all your investments held with Skipton Building Society.

As your adviser will have explained at the time, we aim to give you access to a range of asset classes and funds in line with your circumstances and goals. Putting them all together gives you your portfolio.

This is another alternative asset class which might form part of your portfolio. It’s sometimes referred to as a REIT.

In a nutshell, a REIT is a fund that invests into shares of a company that are directly linked to property. At Skipton we might recommend you invest in commercial property REIT funds. These typically give you access to holdings in buildings like shopping centres and office blocks.

You can potentially benefit from any increases in the value of the commercial property over time. These assets can also be a useful way of generating income to boost your overall returns. This is because businesses who rent shopping or office space pay rent.

Property can be risky, as the market value of the buildings can go down as well as up. It may also take some time to sell property holdings. That’s why – at the most – we will only recommend a small amount of REIT holdings, as part of a balanced portfolio.

This is where you buy a share in a company, with the aim of benefiting from any growth the company achieves. Along the way, you might also benefit from dividend income (please see dividends explanation above).

The value of shares can quickly fall as well as rise. There are no guarantees that a company will grow or pay dividends.

Depending on your circumstances, at Skipton we recommend a mixture of UK and global shares. Having a range of shares can mean your overall portfolio is more balanced. This could also reduce the amount of overall risk you’re taking.

We use this word to describe periods of time for markets that are unpredictable and quickly changing. There might be a spell where markets are going down and up sharply and very suddenly. We call this volatile market conditions.

Volatile markets can be worrying for investors, as you’re more likely to lose money. But they can also prove some of the most rewarding periods, if markets go up as quickly as they might fall.

Either way, volatile markets are typically short-term. And if you have a long-term investment goal, it’s important to stay calm during these periods.

Another word that can mean different things in different settings. In the investing world, we usually talk about yields in relation to bonds.

A bond yield is the interest payment an investor can expect to receive each year, for the term of the investment. Bond prices and yields always move in opposite directions. Typically, the lower the yield, the higher the value of the bond investment.

Have we missed anything? 

If there’s a jargon term that’s causing you confusion, please call us on 0800 085 0459 for help and support.