Currency risk arises from exchange rate moves between pairs of currencies. If you have investments or assets in a foreign country with a different currency, you face currency risk, unless the foreign currency is pegged to your domestic currency or your exposure is hedged. A simple example shows how currency risk affects your returns. Suppose [...]
Financial glossary
Growth investing is about putting your money into companies you think will make much bigger profits in the future.
The earnings yield is a way of looking at the income generated by a company in a similar way to the yield you’d get from a bond or the dividend yield of a share. It tells you what percentage return the company is making, on the basis of its after-tax income and the price you [...]
If you have to ask “What is an IPO” then with respect you’re probably not yet ready to invest in them yet!
Subscription shares are not very well-known among private investors, but they can greatly multiply your returns (or conversely lose you a lot of money!)
An introduction to gilts – the fancy name for UK government bonds that are sold by The Treasury to balance the nation’s books.
It’s vital to take tracking error into account when choosing your index tracker funds. Funds with high tracking error can add substantially to your costs.
What is naked short selling, and why is it so unpopular in Germany, the home of the nudist? (Oh I see! Not that kind of naked…)
Preference shares offer a fixed income like corporate bonds, but with fewer of their safety features.
AIM can be a rich hunting ground for private UK investors looking for bargains, since shares listed on AIM are less well researched than on the main market.
While it’s primarily an accounting practice, mark to market is relevant for private investors in several ways.
Investment trusts are companies that invest money in other companies, both listed and private, and/or other assets like bonds and property.
Horizontal diversification is when you hold different instances of the same asset class. In this form of portfolio diversification, you’re trying to reduce localised or industry sector specific risks. A broad index-based ETF is a good example of horizontal diversification. The classic example of horizontal diversification given in textbooks involves the weather, and two companies: [...]
Vertical diversification is when your investment portfolio is spread across different types of assets. Cash, government bonds, corporate bonds, property and shares can each be expected to behave slightly differently and so produce different returns, as circumstances change. For instance, government bonds may soar when stock markets crash, because frightened investors sell their shares to [...]
When deciding whether to buy a particular asset, we should also pay attention to the assets we already own. A collection of assets is called a portfolio. By buying and holding assets with different characteristics, we can try to create a portfolio that offers the greatest return for the risk we’re prepared to take. Holding [...]
An asset is an item of economic value that can be converted into cash. Assets likely to be held by private investors include: cash in bank deposits, securities (such as shares issued by private companies, and government or corporate bonds), property, insurance policies, foreign currencies, cars, art and antiques. Company assets include plants and machinery, [...]