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.