By Gabriele Denaro · 1 October 2026
In general, the higher the risk of an investment, the higher its potential return, but there is no guarantee you will get it. Volatility measures how much an investment's price varies over time: the higher it is, the wider the swings. That is why past returns do not guarantee future ones: conditions change and the past is not a promise.
Diversifying means spreading investments across different asset classes to reduce overall risk. How a portfolio is split among these classes (stocks, bonds and others) is called asset allocation. Over time the weights drift: rebalancing means bringing them back to the chosen percentages, to keep the intended level of risk.
Buying shares makes you a part-owner of a company; some companies pay part of their profits to shareholders as dividends, periodic payments. A bond, instead, is a debt security: the issuer commits to pay interest and repay the capital at maturity, unless it defaults; some bonds pay no coupon. When market interest rates rise, the market price of existing fixed-rate bonds tends to fall, all else being equal. For stocks, a horizon of at least 5-10 years is often suggested, because short-term swings matter less over time.
A mutual fund pools money from many investors to invest in a diversified portfolio run by professionals. An ETF (Exchange Traded Fund) is a fund that tracks an index and trades on an exchange like a share. A stock index (for example MSCI World) is a basket of securities that represents a market. Some ETFs reinvest income inside the fund (accumulating), others pay it out to the investor (distributing): taxation depends on the country and the instrument.
The TER (Total Expense Ratio) shows part of the annual running costs of a fund or ETF, as a percentage of assets; trading costs and taxes, for example, are left out. An annual cost reduces, every year, the capital that can earn a return: over the long term even a 1% yearly difference can have a significant cumulative effect.
Compound interest is interest calculated not only on the initial capital but also on interest already earned, which is why time is such a decisive factor. DCA (Dollar Cost Averaging) means investing fixed amounts at regular intervals regardless of market conditions, averaging the purchase price.
Value investing looks for companies believed to be undervalued relative to their intrinsic value. Anyone investing in a currency other than their own is also exposed to currency risk: movements between currencies can change the final return, for better or worse.
General educational information, not personal financial, tax or legal advice. It may be incomplete or out of date. Terms of use.