You aren’t alone if you find it difficult to get to grips with some of the words and phrases that are often used to describe different aspects of investment. Here we look at a few terms that might be new to you.
This is the process of apportioning your portfolio across different investment categories. There are four main types of assets – cash, equities, bonds and property. The theory is that by diversifying, having a mix of these asset classes, an investor can lessen their risk, which in simple terms means they’ll do better by not putting all their eggs in one basket.
These are payments made by companies to their shareholders and represent the shareholder’s portion of the company’s annual profits.
People buy equities or shares in companies not just in the hope of making a return by selling them at a higher price in the future, but also because they receive a regular income from them, though a company may reduce or even suspend its dividends if under financial pressure.
These are economies in developing countries around the world that experts predict have good growth prospects for the future. Brazil, China, India, Mexico, South Africa and Russia are examples of emerging or developing markets.
Over time, certain investments in your portfolio are likely to perform better than others, which could mean that it’s no longer suitably apportioned to meet your needs. Rebalancing is the process of reviewing your portfolio and adjusting it in line with your investment goals and the level of risk you are comfortable with.