Investing language can make simple ideas sound mysterious. This glossary is a starting point for understanding, not a list of products to buy.
Index
An index is a rule-based measure of a market or group of assets. It can represent a country, sector or type of company. It is usually a benchmark, not something you buy directly.
ETF
An exchange-traded fund is a fund whose shares trade on an exchange. Some ETFs seek to track an index. Before using one, research what it holds, how it is built, costs, currency and tax implications.
Diversification
Diversification spreads exposure across assets, companies, sectors or regions. It can reduce dependence on one outcome, but it cannot remove market risk or prevent losses.
Volatility
Volatility describes how much and how quickly prices change. It is not the same as permanent loss, but it can lead to difficult decisions if you invest money you need soon.
Compound interest
Compounding is the effect of returns being added to an amount that can then generate future returns. It is powerful in illustrations because of time, but real returns are uncertain. Try the compound interest calculator to compare scenarios.
Fees
Fees are costs charged for a fund, account, transaction or service. Small annual percentages can matter over long periods, so read the fee schedule and understand what is included.
Time horizon
Your time horizon is when you expect to need the money. It informs how much price fluctuation you may be able to tolerate, but it does not guarantee an outcome.
A useful way to learn
Use these terms to ask better questions, not to rush. The guide to starting carefully explains the order: purpose, financial base, diversification, costs and research.
This glossary covers the language around getting started. When you move into individual-company research, continue with the separate financial-statements glossary for P/E, EPS, operating margin, EBIT, CapEx and free cash flow.
Questions beginners often ask
What is the difference between an index and an ETF?
An index is a measurement rule or benchmark. An ETF is a fund that trades on an exchange and may aim to track an index, but it has its own structure, costs and risks.
Why does volatility matter?
Volatility describes how much prices move. It matters because large moves can test your ability to stay with a plan and because short-term price changes may not match a long-term goal.