If you have started exploring investment opportunities, you have probably come across terms like global markets, currency risk, international equities, and hedging. Sound familiar? For many people, the language of investing can feel like learning a whole new vocabulary.
The good news? You don’t need a finance degree to understand it.
At Standard Investment Bank(SIB), we believe that informed investors make better investment decisions. Whether you’re investing for your children’s education, saving for retirement, growing your wealth, or simply looking for ways to make your money work harder, understanding the basics can help you invest with greater confidence.
Here are 10 investment terms you’re likely to encounter and what they mean in plain English.
- Global Markets
Global markets are financial markets around the world where investors buy and sell assets like shares, bonds, currencies, and commodities. Because these markets are connected, events in one country can create opportunities or risks for investors elsewhere.
- International Equities
Equities are simply shares of ownership in a company. When you buy equity, you become a part-owner of that company and may benefit from its growth through increases in share price and dividends.
International equities are shares in companies that are based and listed outside your home country. For example, if you are in Kenya, shares of Family Bank listed on the Nairobi Securities Exchange are considered local equities. On the other hand, shares of companies listed on the New York Stock Exchange such as Apple Inc. or Microsoft are considered international equities for a Kenyan investor.
Owning international equities gives you access to businesses and industries around the world, helping you diversify your investments instead of relying on just one economy.
- Global Bonds
When you buy a bond, you are lending money to a government, municipality, or company. In return, the issuer agrees to pay you regular interest payments (known as coupon payments) and repay your original investment, called the principal, when the bond reaches its maturity date.
Global bonds are bonds issued by governments or companies in different countries around the world. By investing in global bonds, you gain exposure to a wider range of economies and interest rate environments, which can help diversify your investment portfolio and reduce the risk of relying on a single country’s bond market.
- Emerging Markets
Emerging markets are countries with economies that are developing rapidly and undergoing significant growth and industrialization. They often present attractive investment opportunities because businesses, infrastructure, and industries are expanding, creating potential for strong economic growth.
Examples of emerging markets include Kenya, South Africa, India, China, Brazil, Indonesia, Mexico, and Vietnam. These countries have growing industries, expanding consumer markets, and increasing participation in global trade and investment.
On the other hand, these markets can experience greater price fluctuations due to factors such as political changes, currency movements, economic uncertainty, and less developed financial systems compared with more established economies.
- Developed Markets
Developed markets are countries with mature economies, strong institutions, and well-established financial systems. Examples include the United States, United Kingdom, Japan, Germany, and Canada. These markets typically have stable businesses, reliable regulations, and more predictable economic conditions compared with emerging markets.
Because of their stability and broad range of investment opportunities, developed markets are often a key component of diversified investment portfolios such as the Mansa-X Special Fund, helping investors gain exposure to established companies and global industries.
- Currency Risk
Currency risk is the possibility that changes in exchange rates will affect the value of your investment when investing in foreign assets.
For example, if a Kenyan investor buys shares in a U.S. company priced in U.S. dollars, the investment’s value can be affected by changes in the USD/KES exchange rate. Even if the share price rises, a weakening of the dollar against the Kenyan shilling could reduce the investor’s return when converting the money back to shillings.
Currency risk is one of the risks investors consider when investing in international equities, global bonds, or other foreign assets. It can work both ways, currency movements may reduce returns or increase them.
- Commodity Markets
Commodity markets are where raw materials such as gold, oil, coffee, wheat, and copper are bought and sold. Commodity prices are influenced by factors such as global demand, weather conditions, geopolitical events, and changes in supply.
For example, disruptions to agricultural production caused by extreme weather events can reduce supply and push food commodity prices higher. Including commodities in an investment portfolio, such as through the Mansa-X Special Fund, can provide diversification and help spread investment risk across different asset classes.
- Inflation Risk
Inflation is the gradual increase in the cost of goods and services over time.
If your investments don’t grow faster than inflation, your money could lose purchasing power. That’s why investing is often seen as a way to help your money keep pace with the rising cost of living.
- Market Volatility
Market volatility refers to how much investment prices rise and fall over time.
While sudden market swings can feel unsettling, they’re a normal part of investing. Experienced investors often stay focused on their long-term goals rather than reacting to short-term price movements.
- Hedging
No investment is completely free from risk, but there are ways to manage it.
Hedging is a strategy used to reduce the impact of unexpected market movements. Think of it like insurance, it doesn’t eliminate risk, but it can help limit potential losses under certain market conditions.
Knowledge Builds Confidence
The world of investing doesn’t have to be intimidating. Understanding a few key investment terms can help you make more informed decisions, ask the right questions, and feel more confident when exploring investment opportunities.
At Standard Investment Bank(SIB), we’re committed to making investing more accessible through practical insights and expert guidance. Whether you’re taking your first step into global markets or looking to diversify your portfolio, we’re here to help you invest with confidence.
After all, one of the best investments you can make is in your financial knowledge.
