An investment glossary for beginners

When you buy a bond, you are lending money to a company or a government.

In return, they promise to pay you back the money you lent them on a certain date in the future, plus some extra money (interest) along the way.

Think of it as if you are letting them borrow your money, and they are paying you for letting them use it. Bonds are usually considered lower risk than shares. 

Diversification means investing in a variety of things rather than just one. This way, if one investment doesn't do well, the others can help balance it out, reducing the overall risk of losing money. It's like having a mix of different fruits in a basket - if one type spoils, you still have the others to enjoy.

An investment fund is a way for people to put their money together and invest it in different things like shares and bonds.

When the investments do well, the value of the fund goes up, and the value of each person's holding goes up by the same percentage. If the investments don't do well, the value of the fund goes down, and each person's holding goes down.

It's a simple way to invest in lots of different things without buying them all individually.

Inflation is when the prices of things you buy, like food, toys, or clothes, go up over time. This means that the money you have today won't be able to buy as much stuff in the future.

For example, if a chocolate bar costs £1 today and there's inflation, it might cost £1.10 next year. So, you need more money to buy the same things. Your money slowly loses its power to buy things.

Shares are small pieces of a company that you can buy. When you buy a share, you own a tiny part of that company.

If the company does well and makes money, the value of your shares can go up, and you might make money if you sell them. Sometimes, the company might also share some of its profits with you, which is called a dividend.

But if the company doesn't do well, the value of your shares can go down, and you could lose money. It's like having a little piece of a big business.