The world is full of financial jargon. But we're all about making money easier to understand. So, if you see a word you don’t understand, this glossary is here to help.
Active management
Where the fund manager makes decisions about which assets (e.g. shares, bonds, etc.) to buy and sell, in what quantities, and when. (As compared with passive management.)
Annual fee
How much you pay per year. In the case of a unit trust fund, the fee is usually a percentage of the value of your investment. It's generally deducted from the investment itself rather than being charged separately.
Assets
Things you can get or pay money for, as in sell or buy.
Asset classes
In investment-speak, the different types or groups of things you can buy or sell, like property, bonds or equities (shares).
Assets under management
What big, grown-up financial services companies call all the money that all their customers have invested with them.
Asset allocation
How an investment pie is sliced. As in, which kinds of assets a fund invests its money in, and in what proportions. Assets may be allocated according to geography (local or global), industry (e.g. mining, tourism) or asset class (property, bonds, equities, cash).
Basis points
One hundredth of a percent. i.e. 1 basis point is 0,01%. 50 basis points is 0,50%.
Bear market
What happens when investors are pessimistic about the market and its value drops.
Benchmark
A yardstick used to measure or compare against.
Bonds
Not a family of secret agents. Institutions (usually the government or a company) borrow money from investors for a specified time period at a specified interest rate.
Bull market
What happens when investors are optimistic about the market and its value goes up.
Capital gain/loss
The difference between what you sell an asset for and what you paid for it. It's a gain if you sell it for more than you paid, a loss if you sell it for less.
Capital gains tax
You buy something for R1. You sell it for R2. You made a profit - or capital gain - and have to give some of that profit to the government. (In reality, capital gains only kick in when the profit is above a certain amount.)
Cash
Not just the money in your wallet (although it could be), but any asset that has similar characteristics: mostly that it's easily and quickly accessible, and that it tends not to grow in value much (if at all).
Collective investment scheme
You have R10. You want some jelly beans, wine gums, ice cream and crackers, but your money is only enough for one of them. So you get a bunch of other people (a collective) to club in and, with all your money pooled together, you have enough to buy some of everything. It also spreads the risk – if the crackers are stale, everybody loses out a little, rather than one person losing out a lot. (This is the basis of unit trust funds.)
Consumer price index' (CPI)
A fancy term for inflation. To be exact, it's a measure of inflation - of which there are many, but CPI is the most common one.
Contribution
Money that you put into an investment.
Currency
A means through which things can be bought or sold. Usually it's the name of a country's money (e.g. Rands or Dollars).
Distribution
When a unit trust fund pays money (specifically, dividends and interest that it earns) to the people who have invested in the fund.
Diversification
The opposite of putting all your eggs in one basket. The idea is that putting your money into a bunch of different things is safer: if you invest in 10 different companies, for example, and one of those companies drops in value, you're better off than if you'd only invested in that one company.
Dividends
You have shares in a company. That company makes a profit. You get some of that profit.
Equity (or equities)
Having a stake (or part ownership) in a company.
Exchange rate
What you get or pay for one currency if you're selling or buying another (e.g. how many Rands it costs to buy one Dollar).
Financial adviser or planner
An individual who is qualified to give advice about and help with all aspects of finance, such as retirement planning, life insurance, wealth management, etc.
Financial Services Board (FSB)
The financial service industry’s regulator. One of the principal aims of the regulator is to protect individual investors.
Fund
See Unit trusts.
Fund class
The same investment fund may be divided into “classes” according to different kinds of investors – for example, institutional (a group) or individual. Different fees may apply to different classes.)
Fund fact sheet
A (usually) one-page document that tells you about the fund. It may include things like how the fund's assets are allocated, its past performance, target performance and costs. It’s issued periodically to reflect changes in some of those things. (Also known as the “Minimum Disclosure Document”.)
Fund manager
The individual, individuals or company that runs a fund. In some cases, they make decisions about what assets to buy or sell, when. In other cases, they don't (see “Active management” and “Passive management”.)
Fund value
A bunch of people put money into a fund. With that money, the fund buys a bunch of different stuff (which may be worth more or less from one day to the next). The fund value is what all the stuff is worth, in total, on any particular day.
Index
An imaginary portfolio of assets that represents a particular market or a portion of it. For example, a Top 40 index would represent the biggest 40 companies on a stock exchange.
Index tracking fund
A fund that tracks or follows a specific index (for example, the Top 40 companies on the JSE). It should perform very closely to that index. These funds are "passively managed" and have lower fees than "actively managed" funds.
Inflation
The fact that - and by how much - the general cost of living (or the specific cost of anything else) increases over time. For example, a loaf of bread, which cost R10 ten years ago, today costs R15.
Interest
What you pay for borrowing money, or earn for lending it.
Interest rate
The amount you pay for borrowing money, or earn for lending it. It's usually a percentage of the amount borrowed or lent.
Investment
Something you buy that you hope will increase in value or generate income, or both.
Investment horizon
How long you intend to keep the investment for.
Investment manager
See Fund manager.
Investment mandate
The objectives of a fund or fund manager, specifically about the performance that is targeted. The mandate also usually includes guidelines about what can or can't be invested in, and in what proportions.
JSE
The name of South Africa's stock exchange. Previously called the "Johannesburg Stock Exchange", it's now called the JSE Securities Exchange. It's where securities (like equities and bonds) can be bought and sold (but only by members - so the general public have to go through members).
JSE Top 40 Index
The index that tracks the performance of the 40 largest companies on the JSE.
Liabilities
What is owed.
Liquidity
How easily and quickly an asset can be converted to cash.
Listed company
A company whose shares are traded on a stock exchange and are able to be bought and sold by individuals in the general public.
Lump sum (contribution)
A single or once-off (rather than monthly) amount of money that is put into an investment.
Market
A place where things are bought and sold. In investing terms, this usually refers to a stock market.
Market capitalisation
The value of a company when you multiply all the shares it has issued by the share price.
Market risk
The chances that the market, or any investment, may drop in value.
Market value
What you might get for an asset if you were to sell it.
Net asset value (NAV)
The value of a company when you add up all its assets and subtract all its liabilities.
Opportunity cost
The cost of a "lost opportunity" - i.e. what you might have gained from buying or doing something different. This can be in investing terms (e.g. you could have bought shares in company x when they were R1 each and they're now R10 each) but it can also relate to other things like experiences (e.g. you could have chosen to go overseas but didn't).
Passive management
Where specific assets are bought and held in specific proportions so as to mirror the performance of a specific index. This is called "passive" management of funds because the fund manager has more of a supervisory role, and no buying or selling decisions are made. Because of that, these funds' fees should be much lower than those of actively managed funds.
Performance
How well (or badly) a fund or investment does. It can out-perform or under-perform against expectations.
Property
Land and/or some building on that land. This sounds pretty obvious, but it needs to be differentiated from other kinds of property, like personal property (as in something you own).
Portfolio
The mix of different things you (or a fund) have invested in.
Purchase price
What an investment costs you at the time you buy it.
Rand cost averaging
Investing the same amount of money regularly, usually monthly (as opposed to investing a big amount once off). Doing this means that when the price of investments is high, you buy less; when it's low, you buy more. Over time, the price averages out.
Real estate
See Property.
Recurring (contribution)
Putting money into an investment regularly (usually monthly), as opposed to once off.
Recurring (contribution) day
The day of each month that you regularly put money into an investment.
Return
The money you make (or lose) from an investment. It’s usually expressed as a percentage, and can be positive (when you get back more than you put in) or negative (when you get back less).
Risk
The potential for an investment to lose money, or for you to get back less than you put in. Investments with higher risk should also have higher potential returns. (otherwise, why would anyone want them?)
Risk averse
Someone who wants to avoid risk.
Shareholder
Anyone who owns shares in a company.
Security (or securities)
A legal contract showing that you own or are owed something of financial value, like shares in a company, or bonds.
Shares
See Equity.
Source of contribution
Where the money that you're investing comes from. FICA (the Financial Intelligence Centre Act) needs to know this.
Switching
Moving your money from one unit trust fund to another. Technically, units you have in one fund are sold, and units in another fund are bought.
Tax year
The one year period that is used to calculate tax. In South Africa, it runs from the first day of March to the last day in February.
Tax Free Investment (TFI)
You're not taxed on the growth of these investments. They were introduced to encourage people to save more money. The same applies to tax free savings accounts.
Tax Free Savings Account
See Tax Free Investment.
Tax resident
Someone who has to pay tax in a specific country. For example, a tax resident of the USA has to pay American income tax.
Term
The length of time you keep an investment for, or the length of time it takes for the investment to reach its objectives. Investments can be for a specific number of months, years or decades, or they can be referred to more generally as short, medium or long term.
Timing
Trying to get the most out of an investment by buying and/or selling at chosen points in time.
Total expense ratio (TER)
The total cost of running a fund. It includes management fees as well as additional costs like legal, trading and audit fees. TER is a percentage, calculated by dividing the fund's total costs by its total assets. Since the costs and assets change from year to year, the TER does, too.
Tracking error
Show close (or different) an Index tracking fund's performance is to (or from) the performance of the index it tracks. For example, it could compare the performance of the Old Mutual Top 40 Index Fund with the actual performance of the JSE's top 40 companies.
Transferring
Moving money from one individual or entity to another. (This can result in a payment of Capital Gains Tax.)
Unit Trusts (or Unit Trust Fund)
A collection of different investments that are bought by pooling many people's money together. On their own, these people wouldn't be able to buy as big or varied a collection of investments. They're called "unit trusts" because people can buy "units" of the total investment. (See also Collective Investment Schemes, of which unit trusts are a type.)
Unit holder
A person or entity that has invested in unit trusts (and therefore owns units in it).
Volatility
How often, and how much (or to what extremes), the value of an investment may go up and down. Volatility is associated with risk, and investments that are more volatile should have higher potential returns.
Withdrawal
When you take money out of an investment or account.
Working day (or business day)
Any day other than a Saturday, Sunday or South African public holiday.