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Glossary of Terms

Whether you’re a ‘new’ investor or a seasoned professional, it helps to have a glossary of common investor terms to provide quick clarification on a particular word. Listed below are simple definitions of words used regularly in our articles and newsletters.


To show on an annual basis.

There are different types of annuities but essentially, an annuity is a pension that is bought from an insurance company with your retirement savings.

Asset class
A type of investment such as stocks, bonds, property or cash.

Any possession of economic value that is owned by an individual or business.

Asset allocation
Is an investment strategy that attempts to balance risk versus reward by adjusting the percentage of each asset in an investment portfolio according to the investors risk tolerance, goals and investment time frame.


A pre-defined, independently calculated index used to measure the relative performance of an investment portfolio.

Benchmark return
The investment return delivered by the benchmark.

A debt instrument issue for a period of more than one year with the purpose of raising capital by borrowing.


Defensive share
A share that tends to remain stable under difficult economic conditions. Defensive shares include food, tobacco, oil & utilities. These shares hold up in hard times because demand does not decrease dramatically as it may in other sectors. Defensive shares tend to lag behind the rest of the market during economic expansion because demand does not increase as dramatically in an upswing.


Earnings is net income for the company during a period. It is often the most important element of a share price as it gives an indication of the company’s expected future dividends and its potential for growth.


The overall general upward movement price movement of goods and services in an economy, usually measured by the Consumer Price Index. As the cost of goods and services increase, the value of a rand is going to fall because a person won’t be able to buy as much with that rand as he/she previously could.

Investment horizon
The length of time a sum of money is expected to be invested.

Investment return
The percentage change in value of the investment over a given period of time.

Investment risk
The probability that an actual return on an investment will be lower than the investor’s expectations. All investments have some level of risk associated with it due to the unpredictability of the market.


Market Capitalisation
Market capitalisation represents the total value of a company or stock.


Price Earnings Ratio (P/E ratio)
The most common measure used to compare how expensive a share is relative to other shares. Comparison is most valuable for companies within the same industry. The P/E ratio is equal to a share’s market capitalisation divided by its after-tax earnings over a 12 month period. The higher the PE ratio, the more the market is willing to pay for each rand of annual earnings.


Risk-adjusted return
A measure of how much an investment returned in relation to the amount of risk it took on.


Another term for financial instruments that are listed on a recognised exchange and include shares, bonds and property.

A share of a company held by an individual or group.


The annual rate of return on an investment, expressed as a percentage.

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