We know how difficult it can be to understand all the jargon that is used daily in the investing space. If you’re a beginner who’s just getting acquainted with the world of investing, use this glossary as your essential go-to guide.
A
Account designation
An account designation is the name given to an investment account where shares cannot be directly held by the beneficial owner (e.g. a minor) and instead, are registered in the name of a trustee (e.g. a parent). Account designations must not have any reference to a “trust”, meaning the phrases “AS TRUSTEE FOR” or “AS CUSTODIAN FOR”, the words “TRUST” or “TESTAMENTARY”, the abbreviations “ATF”, “ACF” or “TEST”, should not be used in any designation.
All Ordinaries (All Ords)
The All Ordinaries is a measure of how the Australian share market is performing. It tracks the largest 500 companies listed on the Australian Securities Exchange (ASX). The value of the companies included in the All Ords amounts to over 95% of the value of all shares listed on the ASX. By comparing whether the All Ords is up or down over time, an investor can quickly tell how these companies have performed collectively – and by extension, Australian shares more broadly.
Australian Securities Exchange (ASX)
ASX is an integrated exchange that, among other things, brings buyers and sellers together to trade listed investments like shares, unit trusts, options, and some fixed interest securities. ASX also offers listings, clearing, settlement, and information services as well as acting as a market operator.
B
Beneficiary
A beneficiary is a person who is entitled to the assets and income held within a trust for their benefit. For example, a beneficiary is:
- The child or children for which a parent has set up a Minor Trust Account
- A person or entity specified in the Trust Deed of a formal trust (e.g. SMSF, Family Trusts or Discretionary Trusts)
Bonds
Bonds are investment products where an investor lends money to a government or company for a set period of time, in exchange for regular interest payments, and upon maturity the investor’s money is returned.
Bull & Bear markets
'Bull’ and ‘Bear’ markets are often used to talk about shares and current investor sentiment. A bear market is negative, describing a 20% (or larger) fall from recent highs. Bull markets are positive, describing a 20% (or larger) rebound.
C
Capital
Any available cash and assets that help shape your investment strategy.
Contract note
A list of total trades made in a stock on a particular day, which acts as the official (and legal) confirmation of transactions that have been carried out.
Current portfolio value
This is how much your total portfolio is currently worth based on current market prices.
D
Diversification
Diversification is a strategy that investors use to manage and reduce their exposure to risk. In short, it means to spread your investment across a variety of asset classes, sectors, or markets. It’s a bit like the adage ‘don’t put all your eggs in one basket’.
Dividends (Distributions)
When a company makes a profit, it chooses between retaining it for future expansion or paying out a dividend payment to its shareholders. Similarly, ETFs also pass on the dividends of companies held within the ETF in the form of distributions to the ETF unit holders.
E
Equity
Equity describes the investment you’ve made to buy and own a share of a publicly listed company. It’s sometimes referred to as ‘equity investment’ or ‘equity security’.
Exchange Traded Funds (ETFs)
ETFs are funds traded on a stock exchange, just like listed shares. However, unlike shares, which is an investment in one company, an ETF is an investment in a basket of companies or other assets, such as commodities, foreign currencies and fixed interest securities.
I
Inflation
Inflation refers to how the price of things change over time. It’s characterised by the general increase in prices and decrease in the purchasing value of money. As that happens, you naturally need more cash to buy the same things.
IPO
If a private company decides to list on an exchange, they conduct an initial public offering (IPO), whereby they offer shares in the company to the public. The private company becomes a publicly listed company, and those investors who purchased shares as part of the IPO become shareholders. This is sometimes also referred to as a ‘public listing’, ‘floating’ or ‘going public’.
M
Market capitalisation
Market capitalisation is the total dollar value of a public company. ‘Market cap’ is calculated by multiplying a company’s share price by the total number of shares outstanding. For example, if a company’s share price is $1 and it has 100m shares outstanding, the market cap is $100m.
Market closed
The market is closed. Orders will be held and traded together once the market next opens. The market's open from 10am to 4pm (AEST) on business days.
Market open
The market is open. Orders will be traded immediately. The market's open from 10am to 4pm (AEST) on business days.
Market order
An order to buy or sell a stock at the market’s current best available price, which is not a guaranteed price.
Market price
The price of the stock at which the last trade occurred.
R
Recession
A recession describes a period where the economy is shrinking. It’s defined as two consecutive quarters or more of negative economic growth. In other words, if a country is in a recession, it means their economy is in worse shape than it was six months (or more) ago.
Return
Investment returns can be generated from both capital growth and income. Capital growth (or loss) occurs from the change in market price of your investment. Income comes from interest, dividends, rentals, or distributions from a managed fund.
S
Settlement
When you buy or sell shares, you must exchange the title or legal ownership of shares for money. This exchange is called settlement, and it takes place two business days after a trade occurs. That’s when the money comes out of your account (or goes in) and you take (or give up) legal ownership of the financial products.
Share registry
When a company lists on the stock exchange, it appoints a share registry to manage its book of shareholders and the associated administration. The share registry will contact you on behalf of the company regarding shareholder matters. They also manage corporate actions, including the payment of dividends, distribution of company reports, and shareholder voting.
T
Trading (Buying / selling)
Share trading is a term used to describe the process of buying or selling shares in a company listed on a market or exchange.
Trustee
A trustee is a person or company who legally holds assets on behalf of one or more beneficiaries within a trust. For example:
- A child’s parent (or another adult) is the trustee of a Minor Trust Account, holding investments on behalf of and for the benefit of the beneficiaries (the child or children).
- An individual who opens a Self-Managed Super Fund (SMSF) Trading Account for themselves is the trustee of the account and can trade on behalf of the SMSF trust.