There is a specific kind of dread that comes with financial vocabulary. Not quite fear, more like being handed a menu in a restaurant where you don't recognise any of the dishes and the waiter stares into your soul. Portfolio. Equity. Bull market. Bear market. Yield. People use these words like everyone already knows them, which means admitting you don't feels slightly impossible. Here, for the record: most people don't know them either.

Shares

A share is a tiny piece of a company that you can buy. That's it. The company needed money, you gave them some, now you own a small slice of it. If the company does well, your slice is worth more. If it doesn't, less. Finance people use either Shares, Stocks or Equity in casual conversation when describing the same concept of company ownership, because they like to do that sort of thing.

Stocks

This is the more everyday word people use when talking about shares in general across one or more companies. Saying "I invest in stocks" just means "I buy shares in companies." But you could also say “I own Apple stocks” or “I have a load of tech stocks”.

Equity

This is the broadest of the three. It just means ownership. If you own equity in something, you own a piece of it. You could say “I hold a 20% equity stake”, and really mean “I own 20% of the company”. Accountants also use the term when referring to the value of a company’s assets after debts are paid.

Index fund

An index is a list, like a stock market index is just a list of companies on a specific stock market (the FTSE 100 is the 100 biggest companies in the UK, the S&P 500 is the 500 biggest in the US). An index fund automatically buys a small piece of every company on that list, which means you're not betting on any one company doing well, you're betting on most of them not doing terribly at the same time. Historically, over long enough periods, they haven't. It's boring. This is the point.

Portfolio

Everything you own that counts as an investment, all together. Your index fund, any individual stocks, whatever else you've got going on. "Portfolio" sounds like something a hedge fund manager says in a film, but if you have one index fund on a Kaldi account, that's your portfolio. That counts. Congratulations.

Dividend

Some companies, when they're doing well, share a bit of their profits with the people who own their stock. That payout is a dividend. You don't have to do anything to get it. It just arrives. Not every company pays them, and the ones that do aren't obliged to keep doing it, but it's essentially free money going into your account for owning a thing you already owned.

Bull market / bear market

A bull market is when prices are going up and everyone feels good about things. A bear market is when prices are going down and financial journalists write a lot of headlines. You will hear these terms constantly and they will rarely tell you anything useful about what to actually do. The correct response to both is usually: nothing. Leave it alone.

Volatility

The stock market going up and down a lot in a short period. It often gets described like it's a weather event, "markets experienced significant volatility today", but it just means the numbers moved around more than usual and some people had a bad morning. If you're investing for the long term and not checking your phone every twenty minutes, volatility is mostly just noise.

Compound growth

When your investment makes a return, and then that return also makes a return, and so on, for years, until you look at it one day and the number is considerably larger than you expected. It sounds like a trick. It isn't. It's just time doing its thing. The annoying part is that it works much better the earlier you start, which is something everyone tells you slightly too late.

Find out more about compound growth here

ISA (Individual savings account)

A wrapper you put your investments inside so the government can't tax the returns. You still own the same funds, they're just sitting in a more tax-efficient container. You can select different kinds of ISAs, (Cash, Stocks & Shares, Lifetime, and Innovative Finance) with the annual limit being £20,000 across them all. In April 2027 the Cash ISA amount will be capped to £12,000 but the total amount is frozen at £20,000 until 2030, which is more than most people are putting in anyway. If you're investing through Kaldi, you can open a Stocks and Shares ISA in minutes. Do this before you do anything else.

Liquidity

How quickly you can turn an investment back into actual money you can spend. Cash in a bank account: very liquid. A house: not liquid at all, there's a whole process, it takes months, someone will try to rip you off. Stocks sit somewhere in the middle, as you can usually sell them fairly quickly, but it's not instant, and you probably shouldn't be doing it every time you need to buy something.

Yield

The return you get from an investment, expressed as a percentage. If you put £1,000 into something and it pays you £50 over the year, your yield is 5%. It gets used a lot in conversations about dividends and bonds, usually by people who want to sound like they know what they're talking about. You now also know what they're talking about.

Diversification

Don't put all your eggs in one basket. That's the whole concept. Someone decided this needed one long word. If you own one company's stock and that company has a terrible year, you have a terrible year. If you own a fund with three hundred companies in it, one of them can completely fall apart and you'll barely notice. This is why index funds keep coming up. Eggs. Baskets. Spread them around.

Risk tolerance

How much your stomach can handle watching a number go down before you do something you'll regret. Everyone thinks their risk tolerance is higher than it actually is until the market drops 20% and suddenly they want to sell everything and put it all in a savings account. Worth being honest with yourself about this before you start, not during a bad week in February when everything looks terrible and you're already in a bad mood for unrelated reasons.

Right. You know enough now.

None of those terms are complicated. They just sound it, which is how finance has always worked - keep people slightly confused and they won't ask too many questions. You know what they mean now. The next step is doing something with that. 

Capital is at risk when investing. The value of your investments can go up or down, and you may get back less than you put in. Kaldi doesn’t offer personal financial advice, so if you’re unsure whether investing is right for you, it’s worth speaking to a qualified financial adviser.

Download Kaldi, pick a fund, and let your shopping do some of the heavy lifting.