JARGONBUSTING Part 1 - Equities, Bonds and Dividends
Do you know your ISA’s from your JISA’s? Your SIPPs from your SSAS? Or is it all Greek to you?
There is a lot of jargon out there which can leave you feeling confused, here we explain some of the most common terms in investment to help you begin your investing journey.
Equities are shares in a company, the ownership of which typically gives the holder the entitlement to dividends (more on these later) and voting rights on matters of company corporate policy. You can achieve growth on your investments through increases in a company’s share price, which are driven by factors such as company announcements, market sentiment or news and the receipt of dividends. Over time, equities have tended to achieve higher rates of return than other asset classes, but, and this is a big but, you must be able to take on a greater amount of risk and they are not recommended for shorter-term investment horizons.
Put simply, bonds are a form of debt. They are issued by governments and companies as a way to borrow money from you, the investor. As the holder (buyer) of the bond you are entitled to receive interest for lending the money and the amount you lent back at a later date, known as the maturity date. Government bonds are known as gilts in the UK and are money which you lend to the government. As the government is unlikely to default on their repayment of the money you lent to them, gilts are known as low risk investments.
There are two ways of making money from shares (equities) the first is an increase in the share price, the second is through the receipt of dividends. Dividends are payments to shareholders from the company profits. They are typically paid twice a year and the dividend payment received will be greater the more shares you hold.
This guest blog post was written for the Female Investor Network by Alice Wright and Rebecca Jones at Investec Wealth and Investment.