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
The name given to an investment account where shares are held by someone else, such as a trustee, for the actual owner, such as a child. Instead of being in the owner's name, the shares are registered in the trustee's name. It's important that these account names don't mention anything about being a ‘trust’. That means phrases like ‘as trustee for’ or ‘as custodian for’, or words like ‘trust’ or ‘testamentary’ are a no-go. Also important: abbreviations such as ‘ATF’, ‘ACF’ and ‘test’ should be avoided.
All Ordinaries (All Ords)
When you want to know how well the Australian share market is doing, you check the All Ordinaries (or if you want to sound like a pro, the ‘All Ords’). It keeps track of the 500 biggest companies listed on the Australian Securities Exchange (ASX), with these companies making up more than 95 per cent of the total value. By looking at whether the All Ords is going up or down over time, investors can get a quick idea of how these companies – and therefore Australian shares more broadly - are fairing.
Australian Securities Exchange (ASX)
Think of the ASX like a marketplace where buyers and sellers come together, trading investments like shares, unit trusts, options and some fixed-interest securities. But here’s the kicker: it’s not just about trading. The ASX also takes care of listing companies, making sure trades go through smoothly, settling transactions and providing loads of information to investors.
B
Beneficiary
A beneficiary is someone who gets all the good stuff from a trust, which is a bit like a special savings account. For instance, if a parent sets up something called a Minor Trust Account for their child, that child is the beneficiary. In some cases there are formal trusts, like the ones families set up, or even self-managed super funds (SMSFs). In these setups, there’s a piece of paper called a Trust Deed that lists out the beneficiaries. If your name is on one of those? Happy days – you’re one of the people getting the benefits.
Bonds
Bonds are a bit like IOUs. When you buy a bond, you're lending money to a government or a company for a while. In return, they pay you interest regularly. Then, when the bond reaches its due date, you get your initial money back.
Bull and bear markets
The words ‘bull’ and ‘bear’ describe moods in the stock market. When things are looking up, and prices have increased by 20 per cent from recent lows, we're in a bull market. Investors might say they’re feeling ‘bullish’ about certain stocks, which means they’re optimistic about potential gains. On the flip side, when prices drop by 20 per cent or more from recent highs, that's a bear market. It's like the market is feeling cautious and negative. Investors may start to say they’re feeling ‘bearish’ about returns, which usually means they are not expecting any.
C
Capital
This is your money and anything valuable you've got that you can use for investing, such as property, equipment or stuff you can sell. It's like the petrol in your car that helps you start and then continue on your investment journey.
Contract note
Like your daily receipt for stock trading. It's a list showing all the trades you've made in a stock on a given day. This piece of paper officially (and legally) confirms what you've bought or sold in the stock market.
Current portfolio value
This is simply how much all your investments are worth right now, based on what they could be sold for today. A bit like checking the score in a game, it tells you how well your investments are doing at any given moment.
D
Diversification
When your grandma said, “Don’t put all your eggs in one basket,” she was basically telling you to diversify. Diversification is when you have a mixed bag of investments to protect yourself from risks. Instead of putting all your money in one place, you spread it out across different things – such as stocks, bonds or real estate. To take it back to Grandma’s words of wisdom, it means if one basket drops and all the eggs smash, you’ve got a few more baskets of eggs that are still intact.
Dividends (Distributions)
When a company makes money, it can do one of two things: keep it to grow the business or divide it among shareholders as a reward. The latter is what dividends are – payments given out to people who own shares in a company. Similarly, if you invest in ETFs (bundles of stocks called exchange traded funds), you also get a slice of the profits from the companies in the ETF. That’s called a distribution.
E
Equity
Equity describes owning a piece of a company that's listed on the stock market. It's your stake in the game, sometimes also called ‘equity investment’ or ‘equity security’.
Exchange Traded Funds (ETFs)
ETFs are a combination of investments that you can buy and sell on the stock exchange, just like regular company shares. But instead of buying shares in a single company, ETFs spread your money across a bunch of different things – such as companies, commodities (basic goods or raw materials used in trade), foreign money and bonds.
F
Franked income/dividend
A franked dividend is a tax-free treat from a company to its shareholders. Here's how it works: the company has already paid tax on its profits, so when they share some of those profits with you as dividends, you don't have to pay tax on that money again. It's like getting paid without having to stress about tax time.
I
Inflation
Inflation refers to how the price of things can go up or down over time. Mostly, things start costing more, and the value of your money goes down. Put simply, an ice-cream that cost you $2 last year might now cost $2.50, meaning your cash doesn’t go as far today as it did 12 months ago.
IPO
Sometimes a private company decides to become a publicly listed company. They do this through something called an initial public offering (IPO). That’s like throwing a big party and inviting everyone to become a part of the company by buying shares. If you manage to snag some of those shares during the IPO, you now own a piece of the company. People also call this ‘going public’ or ‘floating’ the company.
M
Market capitalisation
When an investor asks for the ‘market cap’ of a company, it’s like asking, "How much is this company really worth?" To get the answer, you take the price of each share and multiply it by how many shares there are. So if a company's share costs $1 and there are 100 million shares out there, its market cap would be $100 million.
Market closed
As with any shop where things are bought and sold, the stock market has trading hours. It’s usually open from 10am to 4pm (AEST) on weekdays. When people say, “market closed”, that means orders to buy and sell stocks will hang out until the market opens again the following business day.
Market open
The stock market is usually open from 10am to 4pm (AEST) on business days. When people say, “market open”, that means stock orders will be traded immediately.
Market order
Placing a market order is like saying, "I'll buy or sell that stock at the market’s current best available price!" When this happens, your sell or buy will happen ASAP.
Market price
The price that the last person who bought that stock was willing to pay for it.
R
Recession
To understand a recession, you need to understand the economy first. And that is everything that happens in a country to make money, like buying and selling things, making stuff, working at jobs and so on. So when we talk about ‘the economy’, we're talking about how well all those pieces fit together and how much money is flowing around. A recession describes the economy slowing down. That means there’s less money: people are losing their jobs, businesses are struggling, and there’s not as much being bought and sold. We know it's a recession when the economy has been getting smaller for at least six months in a row.
Return
Sometimes when you buy something, it ends up being worth more or less later on. That's called capital growth (a type of return) or loss. Say you buy a rare book for $1, and later it's worth $5 – investors would say you’ve made a “return”. But if it's only worth 50 cents, that's a loss. Then there's income (another type of return), which is the extra money you get just for owning something. For example, you lend someone money and they pay you back with interest, or if you own stocks and they pay you dividends. Think of it as getting a bonus on top of what you already have.
S
Settlement
When you buy or sell shares, there's a little action that happens behind-the-scenes. It's called settlement and is similar to the final handshake in a deal that makes it official. Two business days after you buy the stock, money moves from your account to someone else's, and you legally become the new owner (or you say goodbye to shares you’ve sold).
Share registry
At weddings, event planners manage the guest list and ensure everything runs smoothly on the day. Likewise, when a company is listed on the stock exchange, it appoints a share registry to keep track of all the guests (aka shareholders). The registry also handles all the paperwork and admin, such as sending out invites to shareholder meetings, paying out dividends and making sure shareholders know what's going on with the company. It’s meant to be like a super-organised planner who takes care of all the details.
T
Trading (buying/selling)
When we talk about trading, we're talking about buying and selling pieces of companies that are listed on a stock market or exchange.
Trustee
Think of a trustee as a responsible adult who holds onto assets for someone else. For example, if a parent sets up a special bank account for their child's future savings, they're the trustee, taking care of the money for their child until they're old enough to use it. Or if someone sets up their own retirement trading account, they become the trustee of that account, making decisions about how to invest the money for their future.
V
Volatility
On some days, the price of an asset (i.e. anything that can be bought or sold on the stock market) might go up and down a little. But on others, things can get wild, with prices jumping all over the place. The more ups and downs there are – and the larger the gap between the highest price and the lowest price – the more volatile things are. More volatility means more excitement as the price climbs, but also more risk as the price could also plummet.