Every walk of life has its own terminology and expressions that can seem baffling to the outsider. The world of investment is no exception; if you put your money into stocks and shares, you are likely to be confronted with a whole range of concepts, words and phrases that you may not have come across before. Here we look at some of the common jargon in use and explain what it means for you.

VOLATILITY

You will probably have heard this term quite a lot recently. Volatility 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, it is described as having high volatility. If the price remains relatively stable, it is said to be a low volatility stock. 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 of reward, but also the risk of greater losses if the stock or share performs badly. Your attitude to risk will probably change over the years.

ASSET ALLOCATION

The process of deciding what proportion of your investment portfolio should be invested in different types of investment is referred to as asset allocation. There are four main categories of assets – cash, equities, bonds and property. The process of determining which mix of assets you should hold in your portfolio is a very personal one, and will depend largely on your time horizon and your attitude to risk. Asset allocation helps to spread risk through diversification, which put simply, means not putting all your eggs in one basket.

COLLECTIVE INVESTMENTS

Collective investments – also called pooled investment funds – are a way of putting sums of money contributed by many people into one large fund spread across a wide range of investments. The resulting fund is managed by a professional management team.

This type of investment represents a good way of diversifying your investment, and represents less of a risk than buying individual shares in just a few companies. Unit Trusts, Investment Trusts and Open-ended Investment Companies (OEICs) are all examples of collective investments, though their pricing arrangements differ.

PLATFORMS

Platforms help investors and their advisers buy investments, hold them in a structured online environment, analyse them as they see fit, and when the time comes, sell them.

Online platforms are like electronic filing cabinets. They cut down on correspondence, use leading-edge technology and provide a secure environment that enables you to hold all your assets in one place, and view them whenever you like. Platforms are now well-established in the UK, and over 90% of advisers regularly use them.

diluting the impact of the individual funds. The ideal scenario is to select enough funds to diversify, allowing conviction in your investment strategy.

It’s also important to analyse the underlying holdings in a fund to minimise duplication and over concentration in a single stock.

For more information on how to create a diversified investment portfolio please do get in contact with us. We offer a free initial portfolio review to get you started. Clifford Osborne are Independent Financial advisers based in Eastbourne, with clients coming from Lewes, Brighton, Tunbridge Wells, Heathfield, Uckfield, Bexhill, Hastings and further afield in East Sussex.
The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.