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Investment terminology - a short guide

Here at Elson Associates, we take pride in providing first class online investment management to our clients and we understand that entering the world of investment can be intimidating for people of all ages and backgrounds. Admittedly, many firms do not make it easy for end users, often using economic jargon that is difficult to follow.

To make things a little easier for you, take a look at this short guide to some of the terms that you may come across.

Asset Allocation

An investment strategy that is used to balance risk and reward by apportioning a portfolio's assets according to an individual's goals, risk tolerance and investment horizon.

Asset Management Company

A company that invests its clients' pooled funds into securities that match declared financial objectives.


An instrument of indebtedness of the bond issuer to the holders. The most common types of bonds are municipal bonds and corporate bonds. A bond is a form of loan or IOU. The person who issues the bond is the debtor, and the coupon is the interest. Bonds provide the debtor with funds to finance long-term investments.

Common Stock

A form of corporate equity ownership. This is a form of security that represents ownership in a corporation.


A type of security with a price that depends upon or is derived from one or more underlying assets.

Dividend-Adjusted PEG Ratio

A modified version of the PEG ratio that considers dividend income, making it easier to compare mature companies with smaller companies that are growing quickly.

Dividend Yield

The dividend per share, divided by the price per share. It is also a company's total annual dividend payments divided by its market capitalisation, assuming the number of shares is constant. Dividend yield is often expressed as a percentage.

Exchanged Traded Funds

A type of investment fund that is traded on a stock exchange. It is a marketable security that tracks and index, a commodity, bonds, or a basket of assets like an index fund.

Hedge Funds

An offshore investment fund, typically formed as a private limited partnership, that engages in speculation using credit or borrowed capital.

Index Funds

A type of mutual fund with a portfolio constructed to match or track the components of a market index.

Investment Mandate

Allocation of funds to an investment manager to be managed for a specific purpose or style. Also refers to the formal appointment to advise on or arrange a project financing.


The amount paid by the customer when using a broker's credit to buy or sell a security.

Master Limited Partnerships

A limited partnership that is publicly traded. It combines the tax benefits of a limited partnership with the liquidity of publicly traded securities.

Mutual Funds

An investment programme funded by shareholders that trades in diversified holdings and is professionally managed.

PEG Ratio

A valuation metric for determining the relative trade-off between the price of a stock, the earnings generated per share (EPS), and the company's expected growth.

Preferred Stock

A class of ownership in a corporation that has a higher claim on its assets and earnings than common stock.

Price-to-Earnings Ratio

The ratio of the market price of a company�s stock to its earnings per share (EPS).


A real estate investment trust is a company that owns, and in most cases operates, income-producing real estate.

Short Selling

The sale of a security that is not owned by the seller, or that the seller has borrowed. Short selling is motivated by the belief that a security's price will decline, enabling it to be bought back at a lower price to make a profit.

Stock Broker

A regulated professional individual, usually associated with a brokerage firm or broker-dealer, who buys and sells stocks and other securities for both retail and institutional clients through a stock exchange or over the counter in return for a fee or commission.

Stock Exchange

A type of exchange whereby stock brokers and traders can buy and sell their stocks, bonds, and other securities.

Stock Trades

An individual or company involved in trading equity securities.

Trust Funds

A fund consisting of assets belonging to a trust, held by the trustees for the beneficiaries.


The degree of variation of a trading price series over time as measured by the standard deviation of logarithmic returns.

At Elson Associates, we aim to make it as easy as possible for our customers to get started with investments. For more information on all our offers and services, contact us today via our contact page or call us on 0800 096 1111.

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Elson Associates does not offer advice as to the suitability of investments. If you are unsure whether an investment is suitable for you, you should obtain expert advice. Past performance of an investment is not necessarily a guide to its performance in the future. The value of investments or income from them may go down as well as up. You may not necessarily get back the amount you invested.

Elson Associates plc, 5 Queen Street, Kings Hill, West Malling, Kent, ME19 4DA | Freephone: 0800 0961111

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Registered in England No. 3595128