Buzzword Busting: decoding economic updates, what they are really saying, and what is really happening in plain language

The more uncertainty there is in global financial markets, and volatility in asset prices, it seems there are more voices using lots of complicated language and jargon to try and predict the future and explain the past. You can see this on the traditional media and you can also see it on social media platforms. But it’s not just the media, new and old, you may also see this in communications from your bank and other financial institutions. We can all fall into the trap in our own area of expertise sometimes- including us- but we do try and avoid the buzzwords and industry jargon.

The problem with jargon is that it tends to put people off obtaining information, and reading their investment and pension reports. It can hinder them from making the most appropriate decisions for themselves. It’s hard to understand your options when everything is in a coded language.

We believe transparency and clarity is better, and that expats in Europe should have access to plain language and clear explanations, when it comes to finance.

In this article, we address general financial terms and how they are used when people are talking about the financial markets this year.

Let us know what you think and if there are any terms missing. The objective of the list is to give a clear overview and help expats in Europe to break through the jargon.

General terms and market-speak

Stocks/shares/equities/actions – All different ways of saying a small portion of a big company that you can buy or sell. If you invest in this asset class, you are most often holding ‘shares’, that is a share or a portion, of a company. A public company is one that has its shares on a stock exchange, where the shares are traded. You may also hold shares in a private company. This is where the company is not publicly traded -also called listed- on a stock exchange. A share is a piece of ownership.

You may hear about different classifications of stocks or shares: growth stocks, value stocks, defensive stocks, cyclicals etc. These tend to refer to their attributes, such as whether they will pay a dividend income or not (stocks purchased for growth are less likely to than those considered defensive or value), their current price relative to their valuations and their considered growth potential. Most portfolios benefit from a mix- diversification- to prevent a concentration in any one area.

Markets – Where stocks are traded. The stock markets are reported in the news and in reports as an increase or decrease in their index. This refers to a change in the price of a sample collection of stocks on the exchange. See index trackers below which follow these indexes passively.

Bonds/debt instruments/fixed interest – Different ways of saying that you are lending money in return for pre-agreed returns. A government bond is where you lend money to the government and they promise to pay you a set interest rate of return every month or year, and at the end of the set period of time, you will receive your initial investment back. A corporate bond is the same format but you lend to a corporation.

Typically, when interest rates are higher and falling, bond prices are stronger, and in the inverse when interest rates are low and rising. This is what is happening now as interest rates begin to rise.

Under this topic, you may hear commentary about an ‘inverted yield curve’. What is this? Normally, if you invest money in bonds, you receive a higher interest rate for locking your money away for longer. A bond that is set for 10 years will pay a higher interest rate than one that is set for 1 year. When we have an inverted yield curve, it means the shorter-term interest rate is higher than the longer term. This can be a sign of inflation and economic slowdown.

Funds/collectives – Companies made up of a selection of investment assets. You can buy and sell shares of these companies at a price often called a unit price. There are many types of funds, with different combinations of assets within them, including shares, bonds and other asset types.

ETFs – ‘Exchange Traded Funds’ hold a range of assets like a fund but are traded on a stock exchange like a share. There are specific ETFs for different parts of the financial markets.

Index funds – also called index trackers. These are set up to follow the performance of a particular stock market index or sector without active decision-making. They may be in the form of a fund or an ETF.

Liquidity – Access to immediate cash. If your investment is liquid, it means you can have access to your cash that is in your investment, in a timely manner, and without exit restrictions or penalties.

Volatility – this is the likelihood of a price going up and down over a period of time. An asset that has a price that fluctuates more than another asset is considered more volatile. Cash in the bank is less volatile than shares on a stock market.

Finally, we would state that markets always follow cycles, they go up and down in the short term but do increase in value over time. When you are reviewing your investments look at them in the context of your goals and not just for their short-term performance.

When you are reviewing your investment reports, if you are unsure ask us. We offer an investment report review meeting to assess your assets, to help you to understand what you have and can also offer advice and recommendations to optimise your position. Contact us at info@blackswancapital.eu and we will be happy to see if we can assist.