Jargon buster

The finance world loves confusing words. Here's what the main ones actually mean, in plain English, with a quick picture to make each one stick.

The pots (where your money lives)

These are accounts, not investments. The account decides how much tax you pay.

Stocks & Shares ISA

A tax-free pot for investing. You can add up to £20,000 a year, everything it grows is yours with no tax on gains or dividends, and you can take money out whenever you like. A tax-free greenhouse for your money.

SIPP (Self-Invested Personal Pension)

A pension you control yourself. The government tops up what you pay in (£100 in costs a basic-rate taxpayer £80), but it's locked away until your late 50s. A pension pot with a padlock and a top-up.

Workplace pension

The pension your employer sets up and pays into alongside you. Their contribution is free money, so pay in enough to get the full match. A colleague chipping in every time you do.

Lifetime ISA (LISA)

A pot for your first home or retirement. The government adds a 25% bonus to what you pay in, up to yearly limits. A savings pot with a government bonus attached.

General Investment Account (GIA)

A plain investing account with no tax perks, used once you've filled your ISA and pension allowances. Gains here can be taxed. The overflow bucket, for when the tax-free pots are full.

LISA penalty Withdrawing from a Lifetime ISA for anything other than buying your first home, retirement (age 60+), or terminal illness triggers a 25% government penalty, so you get back less than you put in.

What you put in the pots

These are the actual investments that go inside your ISA, SIPP or pension.

ETF (Exchange-Traded Fund)

A ready-made basket of lots of investments that you can buy and sell like a single share. One purchase gives you a slice of hundreds or thousands of companies. Buying the whole fruit bowl instead of one apple.

Index fund

A fund that simply copies a whole market (like the S&P 500 or a global index) instead of paying a manager to pick winners. Cheap, boring, and very hard to beat. Autopilot for investing.

Fund vs share

A share is a piece of one single company. A fund (or ETF) is a bundle of many companies in one wrapper, so your money isn't riding on a single name. One egg versus a full carton.

Bonds & gilts

Loans to governments (gilts) or companies (bonds) that pay you interest. Steadier than shares, with lower long-term returns. The shock absorber in a portfolio.

Dividend

A share of a company's profits paid out to the people who own it, usually as cash. Some funds pay it to you, others reinvest it for you. Rent your investments pay you for owning them.

Fees and fund labels

Small words on a fund name that tell you what it costs and how it behaves.

OCF (Ongoing Charges Figure)

The yearly fee a fund charges, shown as a percentage of your money. Under ~0.25% is cheap; over ~1% is expensive and worth avoiding. The fund's annual ticket price.

Platform fee

What the website or app that holds your ISA charges to look after it, either a flat yearly fee or a percentage of your pot. Rent for the shelf your investments sit on.

Acc vs Inc

Accumulation (Acc) automatically reinvests dividends to grow your pot. Income (Inc) pays them out to you as cash instead. Acc feeds the snowball; Inc hands you the cash.

Passive vs active

Passive funds quietly track the whole market for a tiny fee. Active funds pay a manager to try to beat it, and most fail once fees are counted. Follow the crowd cheaply, or pay someone to guess.

Mindset words

The ideas that matter far more than picking the "right" fund.

Compounding

Growth earning its own growth. Leave money invested long enough and the gains start making gains of their own. A snowball rolling downhill.

Diversification

Spreading your money across many companies and countries so no single flop can hurt you much. Don't put all your eggs in one basket.

Pound-cost averaging

Investing the same amount every month, so you automatically buy more when prices are low and less when they're high. Steady drip beats trying to time the tap.

Volatility

How much prices bounce up and down day to day. Normal and expected when you're investing for years, not a sign of danger. Weather, not climate.

Still stuck on a word? The full InvestEarly Guide walks through all of this properly, with worked examples. This page is just the quick reference.