Financial jargon can make people feel alienated from the media, their banks and other financial institutions, preventing them from making decisions about their own future. In an effort 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 corporate buzzwords.
The more uncertainty there is in global financial markets and the volatility in asset prices, the more voices there are that use complicated language and jargon to try to predict the future and explain the past. You can see it on traditional media and on social media platforms.
But it’s not just the media, new and old; you may also see it in communications from your bank and other financial institutions. We can all fall into this trap at times in our own area of expertise, but it’s important to try to avoid industry buzzwords and jargon whenever possible.
The problem with jargon is that it tends to deter people from getting information, reading their investment and pension reports, and can prevent them from 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 finances. In this article, we take a look at some general financial terms and explain how they are used when people talk about financial markets.
Terms and Conditions and Language of the Market
These are terms you might come across in the media, pension and investment updates, etc.
These are all different ways of talking about a small part of a big business that you can buy or sell. If you invest in this asset class, you most often own “equities” – meaning a share or part – of a company. A public company is a company whose shares are listed on a stock exchange, where shares are traded. You can also hold shares in a private company. This is where the company is unlisted (listed) on the stock exchange. An action is a property.
You may hear about different classifications of stocks or stocks: growth stocks, value stocks, defensive stocks, cyclicals, etc. These tend to refer to their attributes, such as whether or not they will pay dividend income (stocks bought for growth are less likely to do so than those considered defensive), their current price per relative to their valuations and expected growth potential. Most portfolios benefit from a mix of classifications (diversification) to avoid concentration in one area.
This is where shares are traded. Stock markets are reported in the news and in reports as an increase or decrease in their index. It is a change in the price of a sample of stocks on the stock exchange. See “index trackers” below, which track these indexes passively.
Bonds / Debt Securities / Fixed Interest
These terms are all different ways of saying that you are lending money in exchange for pre-agreed returns. A government bond is where you lend money to the government and it promises to pay you a fixed rate of interest each month or year, and at the end of the set period of time you will receive your investment initial. A corporate bond is the same format, but you are lending to a corporation.
Generally, when interest rates are higher and falling, bond prices are stronger, and vice versa when interest rates are low and rising. This is happening now as interest rates begin to rise.
Under this topic, you may hear comments about an “inverted yield curve”. What is that? Normally, if you invest money in bonds, you receive a higher interest rate to tie up your money longer. A bond fixed for 10 years will pay a higher interest rate than a bond fixed for one year. When we have an inverted yield curve, it means that the interest rate in the short term is higher than in the long term. It can be a sign of inflation and economic downturn.
Funds / Collectives
Funds or collectives are investments made up of a selection of different combinations of investment assets, including stocks, bonds and other types of assets. You can buy and sell units of these funds at a price often referred to as the unit price.
“Exchange-traded funds” hold a range of assets like a fund, but are traded on an exchange like a stock. There are specific ETFs for different parts of the financial markets.
Also called index trackers, they are set up to track the performance of a particular stock index or sector without active decision-making. They can take the form of a fund or an ETF.
It’s another way to describe your access to immediate cash. If your investment is liquid, it means that you have access to the cash that is in your investment, in a timely manner and without exit restrictions or penalties.
It is the probability of a price going up and down over a period of time. An asset whose price fluctuates more than another asset is considered more volatile. Cash at bank is less volatile than stock market shares.
Think about your long-term goals
Finally, we would say that markets always follow cycles; they go up and down in the short term but increase in value over time. When looking at 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 offer advice and recommendations to optimize your position. Contact [email protected] and they will be happy to see if they can help.