Alpha - The amount of return expected from an investment from its inherent value.

Annualized rate of return - The average annual return over a period of years, taking into account the effect of compounding. Annualized rate of return also can be called compound growth rate.

Appreciation - The increase in value of a financial asset.

Asset allocation - The process of dividing investments among cash, income and growth buckets to optimize the balance between risk and reward based on investment needs.

Asset class - Securities with similar features. The most common asset classes are stocks, bonds and cash equivalents.

Association for Savings and Investment SA (ASISA) - ASISA represents the majority of South Africa’s asset managers, collective investment scheme management companies, linked investment service providers, multi-managers, and life insurance companies and their investors.  The primary aim of the Association is to facilitate the development and growth of the industry, through its dealings with the authorities and regular communication with the media and investing public. Working on behalf of its members, the Association acts as the custodian of codes of practice and standards throughout the industry, and is the forum for identifying and fulfilling common goals.

Bear market - A bear market is a prolonged period of falling stock prices, usually marked by a decline of 20% or more. A market in which prices decline sharply against a background of widespread pessimism, growing unemployment or business recession. The opposite of a bull market.

Benchmark - A standard, usually an unmanaged index, used for comparative purposes in assessing performance of a portfolio or collective investment scheme.

Beta - A measurement of volatility where 1 is neutral; above 1 is more volatile; and less than 1 is less volatile.

Bonds - A bond is an interest-bearing debt instrument, traditionally issued by governments as part of their budget funding sources, and now also issued by local authorities (municipalities), parastatals (Eskom) and companies. Bonds issued by the central government are often called “gilts”. Bond issuers pay interest (called the “coupon”) to the bondholder every 6 months. The price/value of a bond has an inverse relationship to the prevailing interest rate, so if the interest rate goes up, the value goes down, and vice versa. Bonds/gilts generally have a lower risk than shares because the holder of a gilt has the security of knowing that the gilt will be repaid in full by government or semi-government authorities at a specific time in the future. An investment in this type of asset should be viewed with a 3 to 6 year horizon.

Bull market - Any market in which prices are advancing in an upward trend. In general, someone is bullish if they believe the value of a security or market will rise. The opposite of a bear market.

Capital - The funds invested in a company on a long-term basis and obtained by issuing preferred or common stock, by retaining a portion of the company's earnings from date of incorporation and by long-term borrowing.

Capital gain - The difference between a security's purchase price and its selling price, when the difference is positive.

Capital loss - The amount by which the proceeds from a sale of a security are less than its purchase price.

Cash equivalent - A short-term money-market instrument, such as a Treasury bill or repurchase agreement, of such high liquidity and safety that it is easily converted into cash.

Collective Investments - Collective Investments are investments in which investors’ funds are pooled and managed by professional managers. Investing in shares has traditionally yielded unrivalled returns, offering investors the opportunity to build real wealth. Yet, the large amounts of money required to purchase these shares is often out of reach of smaller investors. The pooling of investors’ funds makes Collective Investments the ideal option, providing cost effective access to the world’s stock markets. This is why investing in Collective Investments has become so popular the world over and is considered a sound financial move by most investors.

Compound Interest - Compound interest refers to the interest earned on interest that was earned earlier and credited to the capital amount. For example, if you deposit R1 000 in a bank account at 10% and interest is calculated annually, your balance will be R1 100 at the end of the first year and R1 210 at the end of the second year. That extra R10, which was earned on the interest from the first year, is the result of compound interest (“interest on interest”). Interest can also be compounded on a monthly, quarterly, half-yearly or other basis.

Custodian - A bank that holds a mutual fund's assets, settles all portfolio trades and collects most of the valuation data required to calculate a fund's net asset value (NAV).

Cut-off time - The time of day when a transaction can no longer be accepted for that trading day.

Diversification - The process of owning different investments that tend to perform well at different times in order to reduce the effects of volatility in a portfolio, and also increase the potential for increasing returns.

Dividend - A dividend is a portion of a company's profit paid to common and preferred shareholders. Dividends provide an incentive to own stock in stable companies even if they are not experiencing much growth. Companies are not required to pay dividends.

Dividend yield - Annual percentage of return earned by a mutual fund. The yield is determined by dividing the amount of the annual dividends per share by the current net asset value or public offering price.

Dow Jones Industrial Average (Dow) - The most commonly used indicator of stock market performance, based on prices of 30 actively traded blue chip stocks, primarily major industrial companies. The Average is the sum of the current market price of 30 major industrial companies' stocks divided by a number that has been adjusted to take into account stocks splits and changes in stock composition.

EPS - The portion of a company's profit allocated to each outstanding share of common stock. EPS serves as an indicator of a company's profitability.

Equities - A share represents an institution/individual’s ownership in a listed company and is the vehicle through which they are able to “share” in the profits made by that company. As the company grows, and the expectation of improved profits increases, the market price of the share will increase and this translates into a capital gain for the shareholder. Similarly, negative sentiment about the company will result in the share price falling. Shares/equities are usually considered to have the potential for the highest return of all the investment classes, but with a higher level of risk i.e. share investments have the most volatile returns over the short term. An investment in this type of asset should be viewed with a 7 to 10 year horizon.

Federal Funds Rate (Fed Funds Rate) - The interest rate charged by banks with excess reserves at a Federal Reserve district bank to banks needing overnight loans to meet reserve requirements. The most sensitive indicator of the direction of interest rates, since it is set daily by the market, unlike the prime rate and the discount rate, which are periodically changed by banks and by the Federal Reserve Board.

Federal Reserve Board (The Fed) - The governing board of the Federal Reserve System, it regulates the nation's money supply by setting the discount rate, tightening or easing the availability of credit in the economy.

Financial Sector Conduct Authority (FSCA) - The Financial Services Board (FSB) has officially taken up its new mandate as the FSCA, effective 1 April 2018. This marks the formal implementation of the Twin Peaks model of financial sector regulation, as envisaged in the Financial Sector Regulation Act 2017 (FSRA). Finance Minister Nhlanhla Nene, has now signed the Commencement Notice for the FSRA, formally establishing both the FSCA and its sister organization, the Prudential Authority (PA). The FSCA’s key objectives will be to:1) protect financial customers by promoting their fair treatment by financial institutions, providing financial education programs, and promoting financial literacy, 2) enhance and support the efficiency and integrity of financial markets, 3) assist in maintaining financial stability, 4) support the overall policy objectives of financial inclusion and transformation of the financial sector.

Growth investing - Investment strategy that focuses on stocks of companies and stock funds where earnings are growing rapidly and are expected to continue growing.

Growth stock - Typically a well-known, successful company that is experiencing rapid growth in earnings and revenue, and usually pays little or no dividend.

Growth-style funds - Growth funds focus on future gains. A growth fund manager will typically invest in stocks with earnings that outperform the current market. The manager attempts to achieve success by focusing on rapidly growing sectors of the economy and investing in leading companies with consistent earnings growth. The fund grows primarily as individual share prices climb.

Index - An investment index tracks the performance of many investments as a way of measuring the overall performance of a particular investment type or category. The S&P 500 is widely considered the benchmark for large-stock investors. It tracks the performance of 500 large U.S. company stocks.

Inflation - A rise in the prices of goods and services, often equated with loss of purchasing power.

Interest rate - The fixed amount of money that an issuer agrees to pay the bondholders. It is most often a percentage of the face value of the bond. Interest rates constitute one of the self-regulating mechanisms of the market, falling in response to economic weakness and rising on strength.

Interest-rate risk - The possibility of a reduction in the value of a security, especially a bond, resulting from a rise in interest rates.

Investment objective - The goal of a mutual fund and its shareholders, e.g. growth, growth and income, income and tax-free income.

Junk bond - A lower-rated, usually higher-yielding bond, with a credit rating of BB or lower.

JSE Securities Exchange - The primary role of the JSE Securities Exchange is to provide a market where securities can be freely traded under regulated procedures.

Linked Investment Service Provider (LISP) - In layman’s terms a Linked Investment Service Provider is a financial institution which packages, distributes and administers a broad range of unit trust-based investments spanning voluntary to retirement planning products. Any investment made through these products provides a client a single entry into a selection of investment elements wherein a financial adviser assists in designing a suitable investment plan.

Liquidity - The ability to have ready access to invested money. Unit Trust (CIS) funds are liquid because their shares can be redeemed for current value (which may be more or less than the original cost) on any business day.

Long-term investment strategy - A strategy that looks past the day-to-day fluctuations of the stock and bond markets and responds to fundamental changes in the financial markets or the economy.

Market price - The current price of an asset.

Market risk - The possibility that an investment will not achieve its target.

Market timing - A risky investment strategy that calls for buying and selling securities in anticipation of market conditions.

Maturity - The date specified in a note or bond on which the debt is due and payable.

Morningstar ratings - System for rating open- and closed-end mutual funds and annuities by Morningstar Inc. of Chicago. The system rates funds from one to five stars, using a risk-adjusted performance rating in which performance equals total return of the fund.

NASDAQ - National Association of Securities Dealers Automated Quotations system, which is owned and operated by the National Association of Securities Dealers. NASDAQ is a computerized system that provides brokers and dealers with price quotations for securities traded over-the-counter as well as for many New York Stock Exchange listed securities.

Net Asset Value per share (NAV) - The current dollar value of a single mutual fund share; also known as share price. The fund's NAV is calculated daily by taking the fund's total assets, subtracting the fund's liabilities, and dividing by the number of shares outstanding. The NAV does not include the sales charge. The process of calculating the NAV is called pricing.

P/B Ratio - The price per share of a stock divided by its book value (net worth) per share. For a stock portfolio, the ratio is the weighted average price-to-book ratio of the stocks it holds.

Portfolio allocation - Amount of assets in a portfolio specifically designated for a certain type of investment.

Portfolio holdings - Investments included in a portfolio.

Portfolio manager - The person or entity responsible for making investment decisions of the portfolio to meet the specific investment objective or goal of the portfolio.

Preferred stock - A class of stock with a fixed dividend that has preference over a company's common stock in the payment of dividends and the liquidation of assets. There are several kinds of preferred stock, among them adjustable-rate and convertible.

Premium - The amount by which a bond or stock sells above its par value.

Price-to-book - The price per share of a stock divided by its book value (net worth) per share. For a stock portfolio, the ratio is the weighted average price-to-book ratio of the stocks it holds.

Price-to-earnings (P/E) Ratio - A stock's price divided by its earnings per share, which indicates how much investors are paying for a company's earning power.

P/E Ratio (1 yr trailing) (long position) - Price of a stock divided by its earnings from the latest year.

P/E Ratio (1 yr forecast) - Price of a stock divided by its projected earnings for the coming year.

Ratings - Evaluations of the credit quality of bonds usually made by independent rating services. Ratings generally measure the probability of timely repayment of principal and interest on debt securities.

Recession - A downturn in economic activity, defined by many economists as at least two consecutive quarters of decline in a country's gross domestic product.

Reinvestment option - Refers to an arrangement under which a mutual fund will apply dividends or capital gains distributions for its shareholders toward the purchase of additional shares.

Risk tolerance - The degree to which you can tolerate volatility in your investment values.

Sector - A group of similar securities, such as equities in a specific industry.

Share - A unit of ownership in an investment, such as a share of a stock or a mutual fund.

Sharpe Ratio - A risk-adjusted measure that measures reward per unit of risk. The higher the sharpe ratio, the better. The numerator is the difference between the Fund's annualized return and the annualized return of the risk-free instrument (T-Bills).

Short-term investment - Asset purchased with an investment life of less than a year.

Standard & Poor's Index - Broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks commonly known as the Standard & Poor's 500 or S&P 500.

Standard Deviation - A statistical measure of the degree to which an individual value in a probability distribution tends to vary from the mean of the distribution.

Strategic Asset Allocation - The portfolio is managed with a long-term view with no, or limited deviation from the chosen asset allocation.

Time horizon - The amount of time that you expect to stay invested in an asset or security.

Total return - Accounts for all of the dividends and interest earned before deductions for fees and expenses, in addition to any changes in the value of the principal, including share price, assuming the funds' dividends and capital gains are reinvested. Often, this percentage is presented in a specified period of time (one, five, ten years and/or life of fund). Also, a method of calculating an investment's return that takes share price changes and dividends into account.

Tracking Error - The active risk of the portfolio. It determines the annualized standard deviation of the excess returns between the portfolio and the benchmark.

Turnover Ratio - Percentage of holdings in a mutual fund that are sold in a specified period.

Valuation - An estimate of the value or worth of a company; the price investors assign to an individual stock.

Value investing - A strategy whereby investors purchase equity securities that they believe are selling below estimated true value. The investor can profit by buying these securities then selling them once they appreciate to their real value.

Value stock - Typically an overlooked or under-priced company that is growing at slower rates.

Volatility - The amount and frequency with which an investment fluctuates in value.

YTD total return - Year-to-date return on an investment including appreciation and dividends or interest.

YTD - Year-to-date return on an investment including appreciation and dividends or interest.

Yield - Annual percentage rate of return on capital. The dividend or interest paid by a company expressed as a percentage of the current price.

Yield to maturity - Concept used to determine the rate of return an investor will receive if a long-term, interest-bearing investment, such as a bond, is held to its maturity date.