Our investing glossary

B

Bear Market

A market scenario with prolonged periods of declining asset prices (20% or more from previous highs). Investors' pessimistic sentiments in such markets, can result in selling of assets such as shares and lowering stock prices. Ultimately this low investor confidence may also result in a vicious cycle. 

Some famous bear markets occurred during the Wall Street Crash, the Global Financial Crisis and the coronavirus outbreak.

Beta

Beta is a number that indicates how volatile a stock might be compared to the overall market, so you can see if the share price moves around more or less than the market.

It shows the volatility of the company’s share price relative to market price volatility over a 5-year period, based on the change in monthly closing prices. Companies with share prices that are more volatile than the market will have a beta over 1.0, while companies with less volatile share prices than the market will be under 1.0. So, a company with a beta of 2.0 has a share price that’s twice as volatile as the market. A beta of 0.0 indicates the company’s share price moves don’t correlate with the market, while a negative beta tells us the share price moves in the opposite direction to the market.

Bid-Offer Spread

The difference between the price at which a seller is willing to sell (ask/offer) and a buyer is willing to buy (bid) a given security. 

The difference is where the selling organisation or trader makes money. It is similar to the buy and sell price differences at a foreign exchange counter. Say you’re buying £1,000 in euros. When you buy it, you’ll pay the offer price, let’s assume it’s €1.30, giving you €1,300 in total. If your holiday were suddenly cancelled, you would have to switch your euros back to pounds at a bid price. As this is usually lower than the offer price, it’s unlikely you’d get your initial £1,000 in full at the exchange kiosk.

Similarly, if a share’s bid price stands at 99p, and the offer price is 101p, the bid-offer spread would be 2p. Buying shares with a low bid-offer spread is important when investing as it reduces the transaction costs when trading your investments.

Exchange-Traded Funds (ETFs) generally have a low bid-offer spread and can be traded easily and quickly at high volume.

Bonds

Bonds are a form of debt. They are 'issued' by companies and governments around the world. This means the company or government is asking to borrow from investors, usually for a fixed term. 

Bonds typically pay a return to investors in the form of coupons, until such time as the bond 'matures' and the sum initially borrowed from the investors is returned. Because bonds should represent a predictable flow of returns, they are often considered to be lower risk than equities. Historically, bonds have returned less than equities over the long-term. They are also more sensitive to interest rate changes and expectations for future inflation.

Broker Forecasts

Broker forecasts show the outlook from a group of independent financial analysts and investment researchers for a particular stock. Analysts consider industry trends, company financials and potential earnings, among other factors when providing their forecasts.

Bull Market

A prolonged market scenario during which prices rise (20% or beyond), typically as a result of a positive investor outlook. When investors feel particularly confident about the economy and expect companies to perform well, asset prices will often rise.

D

Default risk

The risk that a borrower or issuer will fail to make required payments on time and in full under a debt (bond) contract. This could mean missing an interest payment, failing to repay principal at maturity, or breaching terms that potentially trigger a restructuring or bankruptcy process.

Derivatives

Derivatives are financial contracts typically used for the management of risk and more speculatively by some investors. There are four main categories of derivatives: futures, forwards, options and swaps. Made between two or more parties, their value fluctuates based on the price/rate/credit spread of an underlying asset/currency/index.

Derivative contracts relate to a particular investment – it could be related to the price of a company’s shares, or you can also have derivatives tied to bonds, commodities, interest rates and currencies.

Developed Markets

Developed markets are countries generally considered to have highly developed economies and mature financial systems, where capital markets are generally deep, liquid, and well regulated. The term is commonly used in investing to group countries with broadly similar levels of economic development and market infrastructure. Countries such as the UK, US, Japan and Australia fall under this category.

Discretionary Fund Management

Managed investments that see a portfolio manager make discretionary buying and selling decisions on behalf of a client, within agreed limits. Managers typically charge a fee that is a percentage of the assets under management. In exchange, they put their investment expertise to good use.

Diversification

The process of spreading investments across various asset classes and sectors with the aim of reducing risk. 

By not putting all eggs in one basket, you can manage risk and reduce the impact of prices dropping in any one area of your portfolio. It also means you can benefit from investment gains across many different investments.

Diversification can be across investment types – such as bonds, stocks and commodities – but you can also diversify across different industry sectors, currencies and countries. Although a sound investment practice, diversification does not eliminate risk entirely.

Dividend

Portions of a firm's excess earnings or cash reserves that are distributed to shareholders in the form of cash or stock. Firms may pay out dividends annually, twice a year, quarterly, or even more regularly, however, not all companies pay them. Dividends can also be stopped or lowered.

The amount you’ll receive depends on how many shares you hold. Investors typically buy shares in companies for two reasons: to hope to make a return by selling them at a higher price in the future, and to receive a regular dividend.

F

Face Value (Par Value)
Face value, also called par value, is the nominal value assigned to a financial instrument when it is issued.

It is most commonly used for bonds and other debt securities. This value is the amount the issuer promises to repay at maturity and the figure used to calculate coupon interest payments. The market price of a bond can be above or below its face value, but the face value is typically the redemption amount at maturity unless the terms say otherwise. For shares, par value is usually a small nominal amount set for legal and accounting purposes. It does not represent the share’s market price and is generally not meaningful as a valuation measure.

Example in one line: A bond with a face value of £1,000 and a 5 percent coupon pays £50 a year and typically repays £1,000 at maturity, even if it trades at £950 or £1,050 in the market.

FTSE – 100

Financial Times Stock Exchange or FTSE is an index (list) of the 100 biggest firms trading on the London Stock Exchange, and is pronounced as “footsie”. This index also has other versions such as FTSE 250 (tracks smaller companies), FTSE-All Share Index and more which are used to chart the fluctuations in company share prices over time. 

Fund

A fund is a general term for a collective investment. This means many investors can pool their capital into one fund, allowing them to gain exposure to a greater range of assets than they could effectively achieve on their own. Funds can take a wide variety of forms and structures.

There are many types of funds and they may be managed actively or passively. (See Active investing, Passive investing)

Every investment fund has a particular objective, which could be steady growth or, alternatively, high risk for potentially larger rewards. The fund manager usually oversees and makes new investments, with the aim of generating profit for the investors, while also sticking to the objectives of that fund.

I

Index

An index is a group of assets, like stocks, that are put together to track and measure how a market or part of the economy is doing. Indices help show big trends, such as how businesses or industries are growing. Well-known indices include the FTSE 100 in the UK, the S&P 500 and Dow Jones in the US, and the DAX in Germany.

Individual Savings Account (ISA)

Individual savings accounts, commonly known by the acronym ISA, have been available in various forms in the UK since 1999 and offer a tax-free or tax-efficient way to save money. The more commonly known types are; stocks and shares ISAs; innovative finance ISAs; Cash ISAs and Lifetime ISAs. There are also Junior ISAs for children.

J.P. Morgan Personal Investing offers a Stocks and Shares ISA, Lifetime ISA and Junior ISA, all available in different investment styles and risk levels.

Inflation

The rate at which the average cost of goods and services increases over a period of time, resulting in a gradual loss of purchasing power. 

Savers and investors particularly track inflation owing to its impact on firm performance (share prices) and an individual’s personal savings (interest rates).

Initial Public Offering (IPO)

An initial public offering (IPO) is the process by which a company offers investors the opportunity to buy its shares on a public market for the first time. This is typically followed by the company listing on a stock exchange. An IPO is often described as the transition from a privately owned company to a publicly traded one.

In an IPO, a company may sell newly issued shares to raise fresh capital and it may also include existing shares sold by current shareholders, although not every IPO includes both. When newly issued shares are sold in the IPO, investors are buying in the primary market and the proceeds go to the company. Once the shares are listed and trading begins, most buying and selling takes place in the secondary market, where investors trade shares with each other and the proceeds go to the seller.

It is important to note that buying shares after listing gives an investor exposure to the newly listed company, but it does not mean the investor participated in the IPO offering itself or received an IPO allocation at the offer price.

L

Line Charts

Line charts use a simple line connecting data points to graphically illustrate how the price has changed over time.

Liquidity

Liquidity is the ease with which an asset can be converted into cash quickly and at or near its current market value. Generally, cash is considered to be the most liquid asset. Liquidity may differ as per market conditions.

There are two common ways to think about liquidity.

Market liquidity is how easily you can buy or sell an asset in the market without materially moving its price. Highly traded instruments, such as shares in large, widely held companies, typically have high market liquidity because there are many buyers and sellers and tight bid and ask spreads.

Accounting liquidity is how well a person or business can meet short-term obligations using cash or assets that can be converted to cash in the near term.

N

Net Asset Value (NAV)

The net asset value (NAV) is the value of the assets held by the trust minus any money it has to pay out, per share.

The NAV is calculated by taking the total value of all the assets held by the investment trust, minus any money it has to pay out (called liabilities), then dividing by the number of shares.

Net Dividend Per Share (DPS)

This is the dividend amount the company pays each shareholder per share, after deducting corporate tax.

Net DPS is calculated by dividing the total dividends after deducting corporate tax by the number of ordinary shares.

Net DPS = Total dividends after corporate tax / Number of shares

Net Dividend Yield

This shows how much the company pays in dividends after deducting corporate tax, relative to the share price, as a percentage.

Net dividend yield is calculated by dividing the dividend per share (DPS) after deducting corporate tax by the share price.

Net dividend yield = (DPS after 
corporate tax / Share price) x 100

Next Dividend Date

This is the date the company will pay dividends to shareholders.

P

Passive Investing

An investment strategy which limits the active decisions or intervention of the investor (typically either an individual, fund manager or portfolio manager). Usually, passive investment funds track the performance of an index such as the FTSE 100 or a pool of investments to mimic its returns. The idea here is to spread risk and achieve long-term gains at a lower cost by attempting to reduce costs of buying and selling securities.

Pension

Schemes that enable you to invest money for later use in life (retirement). The idea is to build up a pot that will help to fund your desired lifestyle once you stop working. Contributing to a pension pot affords you a number of benefits and is often a tax-efficient way to invest owing to the tax relief on pension contributions.

There are three main types of pensions: 

• Workplace pensions: Both you and your employer usually pay in a fixed monthly amount
• Personal or Private pensions: You pay in lump sums or monthly contributions as you see fit but there is no link to your employment status
• State pensions: Funded by regular National Insurance contributions

One way that pensions can be structured is the defined contribution method. Here, the size of the pot depends on your contribution and/or that of your employer. This is the kind of pension we provide to clients. A defined benefit pension offers an income based on your final salary, years of service, or some other variable. It is becoming rare to find defined benefit schemes that are open to new entrants.

Portfolio

A financial portfolio is a collection of investments and can include anything from cash in the bank to company shares. Portfolios are either held by investors or managed by financial institutions.

How your own personal financial portfolio is made up will impact the amount of risk you are exposed to, and the potential money you might gain or lose.

Portfolio Rebalancing

Adjusting the weight (proportions) of different assets in a portfolio with the goals of managing risk while staying aligned with initial investment goals. 

For instance, imagine you start a portfolio with half of your money invested in shares and half in bonds to match your tolerance for risk. Over time, certain investments will perform well and others less so. Let’s say that your shares go up in value by 10% and your bonds fall in value by 5%. Overall, you’re in profit, which is great. But your portfolio has become imbalanced and no longer matches your desired risk level because you’re now overweight in shares – it doesn’t have the same 50/50 value of stocks and bonds as it did at the start.

To get it back to its starting position, you need to sell some of your stocks and buy more bonds. This is where many investors struggle to stick to a disciplined approach because it is against their nature to sell the investments that have been doing so well for them and buy more of the ones that haven’t.

Price Target

The price target shows you what a group of independent financial analysts think the share could be worth in the future (12+ months) and how that compares to the current price. Analysts consider industry trends, company financials and potential earnings, among other factors when providing their price targets.

Their price targets are organised into low, median and high, where low is the lowest of the targets submitted, high is the highest, and the median is the middle value in the set. You can also see how much higher or lower the current price is than the price targets, as a percentage.

Price to Earnings to Growth Ratio (PEG Ratio)

The price-to-earnings-to-growth (PEG) ratio measures the relationship between the company’s price-to-earnings (P/E) ratio for the last calendar year and the historical earnings per share (EPS) growth rate, to work out if the stock may be overvalued or undervalued.

PEG ratio = Last calendar year P/E ratio / Historical EPS growth rate

Price to Earnings Ratio (P/E)

The price-to-earnings (P/E) ratio measures the company’s current share price against its earnings per share (EPS) from the past 12 months, known as the ‘trailing 12 months’ (TTM) earnings per share. It’s popular with investors as it helps to establish whether a stock may be overvalued or undervalued.

P/E ratio = Share price / Earnings per share (TTM)

The P/E ratio shown here is based on the EPS from the past 12 months (TTM), so it factors in performance over the past year. If a company’s P/E ratio is high, it could indicate that the share price is high compared to earnings and is therefore overvalued. And a low P/E ratio could imply the share price is low compared to earnings and is potentially undervalued. P/E ratio can be a valuable tool for comparing companies in the same sector. But it’s worth remembering that the P/E ratio may not provide a reliable way to compare companies in different industries, as earnings and valuations can vary significantly from one industry to another.

S

Secondary Market

The secondary market is where investors buy and sell securities such as shares, bonds, or ETFs after they have been issued in the primary market.

In the secondary market, investors trade with other investors rather than buying directly from the issuing company, although trades are often arranged through brokers, dealers, or market makers. Stock exchanges such as the London Stock Exchange (LSE) and the New York Stock Exchange (NYSE) are examples of secondary markets for shares. Many bonds also trade in secondary markets, but a large proportion of bond trading takes place ‘over-the-counter’ which means they are transacted through dealers or electronic trading venues rather than on an exchange.

Security

The term securities once referred to paper certificates sent out to investors as proof of an investment.

Today, the term is used more broadly as a way of describing the most common types of investments – from stocks and bonds to stakes in commodities like oil and gold. An organisation that sells a security is known as the issuer.

Short Selling

Selling a security without owning it (borrowing), thereby speculating on a decline in price. Short selling or shorting is done in the hope of making a profit when the price of the given security falls. 

For example, an investor borrows shares they believe will fall in value by a predicted date. The investor then sells the borrowed shares at market price in the hope they can buy them back later at a lower price and return them to the lender before pocketing the difference. Think “buy low, sell high,” only in the reverse order. Short selling is considered an extremely risky strategy and is something our portfolio managers never do.

Stock Split

A stock split is when a company splits its existing shares up to increase the number of shares while decreasing the price. For example, with a 2-for-1 stock split, existing shareholders get an additional share for every one they own. This means the number of shares they hold is doubled while the share price is halved, but the overall value of their investment stays the same.

Lower share prices make the stock more affordable to a wider range of investors, increasing trading activity, or ‘liquidity’, without changing the company's market capitalisation.

U

UK PTM Levy

The Panel of Takeovers and Mergers (PTM) levy is a £1.50 charge that applies when you buy or sell UK shares with a value of over £10,000 in one transaction.

W

Withholding Tax

In many countries, dividends paid by local companies to foreign investors are subject to withholding tax. Withholding tax is usually a percentage of the gross dividend and is deducted before your dividend is paid to you.

For example, if the withholding tax rate is 15% and your gross dividend is £200, then £30 would be deducted, leaving you with a net dividend payment of £170.

The rate of withholding tax varies depending on the country and the tax treaties in place.

Wrapper (Tax Wrapper)

The term “wrapper” applies broadly to structures or accounts in which investments are held. A tax wrapper refers to a specific account type – such as an ISA or pension – which can provide different, often advantageous, tax treatment for the investments within.

W-8BEN

It’s a form that certifies you’re a foreign person for US tax purposes, which entitles you to a lower withholding tax rate on dividends from US investments, if applicable. The US Internal Revenue Service (IRS) requires that we collect a completed form to certify you’re not a US person so you can claim tax treaty benefits.

It’s simple to submit your W-8BEN, it’s valid for 
up to 4 years, and we'll let you know when it's time to renew.

Once submitted, you can start investing in US stocks with us.

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50-Day Average Trading Volume

The 50-day average trading volume figure is the number of shares traded each day as an average over the 50 most recent completed trading days. It’s the number of shares traded over the period, divided by 50.

Trading volume gives an indication of how actively the company’s shares are being traded. The higher the volume, the more actively traded and ‘liquid’ it is. More liquidity means better order execution, as it’s easier to connect buyers and sellers.

Risk warning

As with all investing, your capital is at risk. The value of your portfolio can go down or up and you may get back less than you invest. Tax rules vary by individual status and may change. This is general information, not personalised tax advice. Pension/ISA/JISA/LISA eligibility rules apply. If you are unsure if investing is right for you, please seek financial advice.