Glossary of investing
- Accumulation: An investment strategy where earnings, such as dividends or interest, are reinvested rather than distributed as cash. This helps to increase the overall investment value over time.
- Actively Managed: A type of investment strategy where fund managers actively make decisions to buy and sell securities with the goal of outperforming the market.
- Alternatives: Investments beyond traditional stocks and bonds, such as real estate, commodities, or hedge funds.
- Asset: Anything of value that an individual or entity owns, such as stocks, bonds, real estate, or cash.
- Bond: A fixed-income investment where an investor lends money to a government or company in exchange for periodic interest payments and the return of the principal amount at maturity.
- Compounding: The process of earning interest or returns on both the initial investment and any previously earned interest. Compounding allows investments to grow exponentially over time.
- Diversification: Spreading investments across different asset classes to reduce risk. Diversification aims to minimise the impact of poor-performing assets on the overall portfolio.
- Equities: Commonly referred to as stocks, equities represent ownership in a company. Investors who own equities are shareholders and may benefit from the company's profits through dividends and capital appreciation (the increase in stock value).
- ETF (Exchange-Traded Fund): An investment fund that is traded on stock exchanges, similar to individual stocks. ETFs typically track an index or a basket of assets.
- Fund: A pooled investment vehicle that allows multiple investors to contribute money, which is then managed by a professional fund manager. Funds can invest in various assets, providing diversification.
- Income: The money received by an investor in the form of interest, dividends, or other payments from their investments.
- Inflation: The gradual increase in the general price level of goods and services, reducing the purchasing power of money over time.
- Index: A benchmark that represents a specific market or a segment of it. Indices are used to measure the performance of an investment portfolio or market.
- ISA (Individual Savings Account): A tax-efficient savings or investment account available in the UK, allowing individuals to save or invest money without paying income tax or capital gains tax on the returns.
- Portfolio: A collection of investments owned by an individual or entity, including stocks, bonds, and other assets.
- Risk: The possibility of losing money or not achieving the expected return on an investment. Different types of risks include but are not limited to market risk, credit risk, and liquidity risk.
- Volatility: The degree of variation in the price of an investment over time. High volatility implies greater price fluctuations, while low volatility suggests more stable prices.
Why invest? Make your money work for you
Saving your cash for a rainy day has always been a good idea. But what should you do with your extra savings once you have your rainy day fund? That’s where investing comes in. Investing means giving your cash over to a company, a financial expert or a fund in return for a small piece of that pie. As the value of the asset you are invested in goes up or down, the worth of your savings grow or shrink with it. That’s why it’s important to make sure you’re investing your money the right way.
‘But if my investment value can fall, why invest?’ That’s where inflation comes in. Economic inflation, which refers to the overall increase in the cost of living as a result of price increases over time. This means that as inflation goes up, the value of your cash (amount of stuff you can get for your money) decreases, wearing away at the value of your savings over time. Investing gives you the opportunity to protect against inflation, as the value of your investment can increase in line with inflation.
There are two main ways that you can invest with the aim of beating inflation – active or through an index fund. An index fund tracks the value of a group of companies and maintains the same market value as those companies. A well-known example of an index is the FTSE 100. An active approach or fund means that the investor (private or professional) creates a portfolio of stocks or investments that they think will outperform a passive investment approach such as an index fund. This can be successful or not, depending on the knowledge of the investor! Some funds, such as multi-asset funds, are a combination of investments that allow you to purchase them as one. These can form all, or part of your own portfolio, depending on the fund and your investment goals.
How much can I afford to invest?
For anyone investing for the first time, financial advisers often recommend to build up an emergency cash buffer of at least three months’ salary. This helps you account for those “what if” situations – if you become ill or are made redundant. It also ensures you won’t be thrown off course by a curveball, such as the washing machine breaking down or the car failing its MOT.
Once you have this, it’s a good idea to start with a little and often. As time goes by, if you re-invest the profits from your investments (compounding), the value of your pot can grow and grow, multiplying way beyond the money you put in. As even Albert Einstein (supposedly) said; “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn't … pays it.”1
Take a look at the graph below to see how investing as little as £150 a month over 30 years, in an investment with an average return of 5%2 can impact the value of your savings over time:
For illustrative purposes only.
Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.
The important thing is to stay consistent: Keep investing and leave the money in the pot for as long as you can!
Checklist for how much you can afford to invest:
- Think about your future goals and how you plan to get there
- Calculate your income and outgoings to start a basic budget
- Build up an emergency cash buffer of a few months’ salary
- Work out how much you could part with on a regular basis
- Shop around for the best digital investing or trading platform
- Make those first investments in a diversified portfolio
- Add small amounts when you can afford them or as regularly as possible
Building confidence in investing
Everyone loves seeing the value of your investments go up, and when you first start you may be tempted to check in almost every day to see if there has been an increase in your pot. But just as investment values can rise, sometimes they can fall too. This is often much more unsettling.
The trick to building your confidence is to keep your goals in mind. Long-term investments are exactly that, they need time to show their value! For this reason, we recommend setting and forgetting – automate your monthly deposits and set yourself a reminder to check in every now and again. This way you don’t need to worry too much about the daily fluctuations in the market.
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You don’t need to be an expert to invest, you just need to decide on a strategy and then find a partner you trust. Investing in MyMap funds means that you can lean on the expertise of BlackRock’s fund managers, rather than picking up a second full-time job and doing it yourself!
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Investing has become more accessible than ever, with options that suit various budgets. Index funds tend to be slightly cheaper than active options, because you’re not paying for an expert’s time to rebalance* your portfolio. But MyMap is special, we offer the benefits of active management at cost-effective prices.3
* Rebalancing a portfolio is the process of changing the weightings of assets in an investment portfolio.
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Investing is for everyone, regardless of income or background. Whether you're just starting out, have limited funds, or don’t know anyone else who invests, solutions like MyMap can help you achieve your long-term goals. The trick is just to get started as soon as you can!
Risk tolerance and diversification
Diversifying – or spreading risk – is the spreading out of your investments. Not just between stocks and bonds but asset classes, sectors, countries and even currencies. The wider your diversification, the less likely you will be hit by one stock dipping or even by a general market downturn.
Risk: Diversification and asset allocation may not fully protect you from market risk.
Some industries and currencies / markets tend to mirror each other. This is called a correlation and can make creating your own diversified portfolio tricky – especially when trying to work out what level of risk it may carry. That’s why many investors choose to invest in a ready-made portfolio, in which a financial professional or fund manager has created a balanced mix of stocks, bonds, industries, asset classes and currencies, weighing them up to meet one of 6 industry-standard risk levels. (Level 1 is lowest and level 6 is highest!).4
Typically, bonds may be seen as ‘safer’ investments as they come at fixed interest rates which promise a certain return.5 This means that the higher the proportion of your portfolio is in bonds, the lower the risk level is considered to be. Many index tracking portfolios are comprised of 60% equities to 40% bonds, however, over 2023 the correlation between bonds and equities broke down as the value of bonds reduced sharply in comparison to equities, meaning that for some index funds the investors with the lowest risk tolerance saw the biggest negative impact to their investments.6 That’s why the MyMap funds are actively managed, this allows our experts greater flexibility and the chance to try and off-set unexpected macro trends.
When working out the level of risk that is right for you, you should ask yourself three main questions:
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The longer you invest for, the greater chance you have of fluctuations balancing out. That’s why some long-term investors choose higher risk levels with a higher chance of reward.
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It’s a good idea to check that your choices are diversified, and that your company, financial adviser or fund has a good reputation.
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If you know you’re not likely to be checking every day, or panicking when there is a downward change, then a higher risk may be for you. If you know that you will be worried whenever there are fluctuations, maybe stick to a lower level!
Who is BlackRock?
If you know you’re not likely to be checking every day, or panicking when there is a downward change, then a higher risk may be for you. If you know that you will be worried whenever there are fluctuations, maybe stick to a lower level!
BlackRock is one of the world’s largest asset managers7, trusted by institutions all over the world to manage their investments. This includes many pension funds, official institutions like governments, and private investors (big and small).8
BlackRock’s mission is to create a better financial future for our clients. We do this by acting as a fiduciary, this means that the interests of our clients always come first in all of our decisions.
“What does this mean for me?” BlackRock’s size, global nature and local teams mean that across the globe we have assembled teams from across the globe and set them to work with one mission – delivering on outcomes for our clients’ investment goals. We also make sure our teams have access to complex financial data and technology, meaning our fund managers can dedicate their time to making smart investment choices – freeing you up to focus on other things!
The MyMap funds are no different. Each quarter, our team of investment experts combine global insights with local knowledge to determine how to re-balance the portfolios of each of the funds. This can stay within the risk level you have chosen, and may mean greater returns than index-only options!
Risk: Risk management cannot fully eliminate the risk of investment loss.
Risk: Manager skill. There is no guarantee that a positive investment outcome will be achieved.
