Glossary

Asset
Possession that has intrinsic value.
Asset class
A distinct category of investment such as bonds, equities or cash.
Asset allocation
The practice of distributing an investment across different types of investment to meet investor requirements or respond to market conditions.
Bond
A security issued by a company or government that usually pays a fixed income and promises to return the original capital paid for it on maturity.
Capital
Money used for investment.
Capital Gains Tax
A tax paid on the sale of chargeable asset.
Cash
The collective term for uninvested capital and money held on deposit.
Compounding
The practice of continually reinvesting investment income to create a larger pool of capital.
Corporate Bond
A bond issued by a company (as opposed to a government bond such as ‘gilt’).
Coupon
The income paid on a bond expressed as a percentage of its issue value.
Credit rating
An assessment of a bond issuer’s financial strength, indicating its ability to meet the payments promised on its bonds.
Default
A situation where a company or government is unable to meet the income or capital payments on its bonds.
Dividend
The slice of profits that a company pays out to its shareholders.
Emerging market
A developing economy, often in the early stages of applying free market principles. Can be volatile but can experience high growth rates.
Employee share scheme
A scheme by which an employee acquires shares in their employer.
Equity
Another name for an ordinary company share; the collective term for investment in shares.
Estate
The total value of all assets and possessions.
Exchange Traded Fund (ETF)
A tradeable share that tracks the value of a market index or sector.
Fixed income/Fixed interest
An alternative term for bonds.
FTSE 100
A stockmarket index that follows the overall value of the largest 100 companies traded on the UK stock market.
Gilt
A bond issued by the British government.
Gross
Income before any deductions including tax.
High-yield bond
Bonds with a sub-investment grade credit rating that have to pay a higher yield to compensate for the higher risk they involve.
Income tax
Tax payable on all forms of income, including salary, bank account interest, bond income and share dividends.
Index
A measure that follows the rises and falls in value in a stock market.
Index-linked
Any investment whose return is linked to inflation in order to keep its purchasing power.
Individual Savings Account (ISA)
A tax free wrapper for investments with the option of a stocks and shares and/or cash account.
Inflation
The tendency of the price of goods and services to rise over time, reducing the purchasing power of your money.
Inheritance tax
A tax paid on certain lifetime transfers and the value of an estate on death.
Interest
The return earned on a cash deposit or bond.
ISA
See Individual Savings Account.
Laddering
The practice of investing across different maturities of bond to create a regular stream of maturing capital and/or take advantage of different rates of interest.
Liquidity
Refers to how easily an investment can be bought and sold; general term for cashbased investments.
Liquidity fund
A fund that invests across a wide range of different cash investments in order to diversify risk and achieve an attractive yield.
Money market fund
Another name for a liquidity fund.
Net
Income after any deductions including tax.
OEIC (Open Ended Investment Company)
An investment fund that is very similar to a unit trust but with a more flexible structure.
Potentially Exempt Transfer
A lifetime transfer of value that will only be subject to tax if you die within seven years of making the transfer.
Real returns
The investment return you make after the effect of inflation has been taken into account.
Risk
The likelihood that an investment can fall in value.
Save As You Earn (SAYE)
An all employee share scheme that enables employees to save regular amounts with the intention of buying shares in their employer.
Share
A security issued by a company that gives the holder the right to vote on company issues and receive a slice of the company’s profits in the form of a dividend.
Self Invested Personal Pension
A flexible personal pension scheme managed on behalf of an individual that can hold a very wide range of investments.
Unit trust
A pooled investment fund managed by a professional fund manager. So-called because the fund is divided into units of equal size whose value tracks the performance of the underlying portfolio.
Volatility
The tendency for an investment’s value to fluctuate.
Yield
The income being earned on an investment expressed as a percentage of its current value.