THE financial jargon or language that relates to investments can make the entire process of decision-making quite overwhelming for investors.
Hymne Landman, head of Momentum Wealth at Momentum Investment said that it is vital that investors get to know the financial terminology and jargon when they start saving.
“By understanding at least, the basics of financial language, you will empower yourself to make better decisions when you are presented with options,” Landman said.
Here are five important financial terms that an investor or a potential investor should know:
Investment return
Investment return is the amount of money you will receive over and above the amount you have invested. The investment return is shown as a percentage of the investment amount per year.
Landman said, “For example, if you invested R1 000 in an investment that gives you a 10% return per year, you will get R100 over and above the R1000 at the end of the year.”
Investment risk
Investment risk refers to the uncertainty linked to your investment, according to Landman.
Some investment risks are bigger and more uncertain than others, so you need to make sure that you know the odds before you invest your money. Investors need to keep in mind that an investment is a long-term commitment and that your money should work for you over a long-term.
Assets
An asset is something that has economic value, something that can be sold or traded such as houses, cars and investments. Assets like investments are better than assets such as cars because investments gain more value over time, while cars lose value over time.
Investment products
Investment products allow you the investor to save and invest. Examples of investments products include bank savings accounts, pension funds and flexible investments’ accounts.
Investment products are usually regulated because they are taxed differently, and have different rules around the flexibility you have with the investment.
With the help of a financial adviser you can identify the investment product that suits your needs and your investment goals.
Diversification
Diversification allows investors to put money into different investments and manage the risk of their investments.
This may mean investing your money in different assets and asset classes such as shares, bond investments or property.
IOL Business