A jargon-free guide to financial jargon: Make educated financial decisions

Jargon can make people feel alienated from the media, their banks, and other financial institutions, disempowering them from making decisions about their own future. In a bid to decode economic updates on things like pension and investment reports and help you understand your options, Black Swan Capital brings you this guide to business buzzwords. 

The more uncertainty there is in global financial markets, and volatility in asset prices, the more voices there are using lots of complicated language and jargon to try and predict the future and explain the past. You can see this on traditional media and on social media platforms. 

But it’s not just the media, new and old; you may also see this in communications from your bank and other financial institutions. We can all fall into this trap in our own area of expertise sometimes, but it is important to, as far as possible, try to avoid buzzwords and industry jargon.

The problem with jargon is that it tends to put people off obtaining information, reading their investment and pension reports, and can stop them making the most appropriate decisions for themselves. It’s hard to understand your options when everything is in coded language. 

But transparency and clarity are better. Expats should have access to plain language and clear explanations when it comes to finance. In this article, we look at some general financial terms and explain how they are used when people are talking about financial markets.

General terms and market-speak

These are terms you might come across in media reports, pension and investment updates, and the like. 

Stocks / shares / equities / actions 

These are all different ways of talking about a small portion of a big company that you can buy or sell. If you invest in this asset class, you are most often holding “shares” - that is, a share or a portion - of a company. A public company is one that has its shares on a stock exchange, where the shares are traded. You may also hold shares in a private company. This is where the company is not publicly traded (listed) on a stock exchange. A share is a piece of ownership. 

You may hear about different classifications of stocks or shares: growth stocks, value stocks, defensive stocks, cyclicals and so on. These tend to refer to their attributes, such as whether they will pay a dividend income or not (stocks purchased for growth are less likely to than those considered defensive), their current price relative to their valuations and their considered growth potential. Most portfolios benefit from a mix of classifications (diversification) to prevent a concentration in any one area.

Markets

This is where stocks are traded. The stock markets are reported on in the news and in reports as an increase or decrease in their index. This refers to a change in the price of a sample collection of stocks on the exchange. See “index trackers” below, which follow these indexes passively.

Bonds / debt instruments / fixed interest 

These terms are all different ways of saying that you are lending money in return for pre-agreed returns. A government bond is where you lend money to the government and they promise to pay you a set interest rate of return every month or year, and at the end of the set period of time, you will receive your initial investment back. A corporate bond is the same format but you lend to a corporation.

Typically, when interest rates are higher and falling, bond prices are stronger, and in the inverse when interest rates are low and rising. This is what is happening now as interest rates begin to rise.

Under this topic, you may hear commentary about an “inverted yield curve”. What is this? Normally, if you invest money in bonds, you receive a higher interest rate for locking your money away for longer. A bond that is set for 10 years will pay a higher interest rate than one that is set for one year. When we have an inverted yield curve, it means the shorter-term interest rate is higher than the longer term. This can be a sign of inflation and economic slowdown.

Funds / collectives

Funds or collectives are investments made up of a selection of different combinations of investment assets, including shares, bonds, and other asset types. You can buy and sell units in these funds at a price often called a unit price. 

ETFs 

“Exchange Traded Funds” hold a range of assets like a fund but are traded on a stock exchange like a share. There are specific ETFs for different parts of the financial markets. 

Index funds 

Also called index trackers, these are set up to follow the performance of a particular stock market index or sector without active decision-making. They may be in the form of a fund or an ETF.

Liquidity

This is another way of describing your access to immediate cash. If your investment is liquid, it means you have access to the cash that is in your investment, in a timely manner, and without exit restrictions or penalties.

Volatility

This is the likelihood of a price going up and down over a period of time. An asset that has a price that fluctuates more than another asset is considered more volatile. Cash in the bank is less volatile than shares on a stock market.

Consider your long-term goals

Finally, we would state that markets always follow cycles; they go up and down in the short term but do increase in value over time. When you are reviewing your investments, look at them in the context of your goals and not just for their short-term performance. 

If you are unsure when reviewing your investment reports, you can always ask an expert. Black Swan Capital offers an investment report review meeting to assess your assets, help you understand what you have and to offer advice and recommendations to optimise your position. Contact [email protected] and they will be happy to see if they can assist.