The financial services industry is renowned for its use of jargon which may be unfamiliar to a lot of people. The following is an abridged version of an article in the Autumn newsletter from our Australian Financial Service Licencee: Futuro Financial Services.
Share Investing Jargon Buster
Many industries utilise jargon (technical words) when disseminating information. The finance industry is no exception in this regard. You may come across finance-related jargon in the finance section of the news, share market summaries and investor reports. Importantly, we are conscious of this fact, which is why we ave put together an article to help you understand some of the commonly used jargon in the share investing environment.
Basis point: A unit of measure to describe percentage change , for example, in the value of a share or market index. One basis point is equivalent to 1% of 1% (0.01%).
Bear market: The share market is currently experiencing a downtrend, which is commonly associated with a fall in share prices.
Blue chip: Large, industry-leading companies with an extensive history of profitability and stability.
Bull market: The share market is currently experiencing an uptrend, which is commonly associated with a rise in share prices.
Dividend: The share of company profits paid to shareholders. Dividend income is typically taxable income to the shareholders.
Dividend reinvestment plan (DRP): An arrangement offered by the company that allows shareholders to reinvest their dividends in additional shares in lieu of receiving the dividends in cash.
Franked dividends: The amount of dividend paid by a company out of profits on which the company has already paid tax. the shareholder is entitled to an imputation credit, or reduction in the amount of income tax that must be paid, up to the amount of the tax already paid.
Initial Public Offering (IPO): A process whereby a private company raises capital through the sale or offering of its shares for the first time to the public via an exchange, such as the ASX. Following an IPO, a company is ‘listed’ on the exchange, and its shares can be traded.
Investment market cycle: Often used to explain the trends and patterns that emerge with regards to assets and their movements over time. An investment market cycle consists of four cyclical phases. When overlaid, with the share market, these phases can generally be illustrated as followed:
- Recovery/bull run (rising share price)
- Boom/peak (highest share price)
- Downturn/bear run (falling share price)
- Slump/trough (lowest share price)
Market index: A measure of the movement in value of the market or various sectors of the market. For example:
- The All Ordinaries is a market index containing the top 500 listed companies on the ASX. This market index is considered a total market barometer for the Australian share market.
- The S&P/ASX 200 is a market index containing the top 200 listed companies on the ASX. This market index covers roughly 80% of the total Australian share market capitalisation.
Market capitalisation: The value of a company, calculated by multiplying the value of each share by the number of shares on issue.
Price to earnings ratio (P/E ratio): P/E ratio represents the number of years it will take to recover the price you’ve paid for the share based on the current variables remaining stable, calculated by the price of the share divided by the earnings per share.
Returns: Shares can provide two forms of return for shareholders, namely, shares can pay income in the form of dividends and/or the price of the share can change in value (capital gain/loss).
Sector: A group of shares that are in the same industry. Shares within the ASX are typically classified according to 11 sectors;
- Consumer discretionary
- Consumer staples
- Energy
- Financials
- Healthcare
- Industrials
- Information technology
- Materials
- Real estate
- Telecommunication services
- Utilities
Share (or Equity): Part ownership of the company.
For more information on any of this jargon, or any other ‘technical terms’ you may not understand, give the team at Steve May Financial Services a call and start a conversation today.
You need to consider with your financial planner (or adviser), your objectives, financial situation and your particular needs prior to making an investment decision. Sensibly Pty Ltd and its authorised representatives (or credit representatives) do not accept liability for any errors or omissions of information supplied on this website
Nick Shanley, Steve May, Luke Styles and Shanley Financial Planning T/A Steve May Financial Services are Authorised Representatives / Corporate Authorised Representative of Sensibly Pty Ltd, AFSL 533923. Please refer to our website at www.stevemayfs.com.au to reference our Financial Services Guides.
