A-E

• Alternative investment
  This term is used widely to indicate investments which are not mainstream assets. Examples of alternative investments include: hedge funds, property, exchange funds, managed futures etc. Alternative investments are often perceived as higher risk than the traditional asset classes but for some, this is not always the case.
• Annual Percentage Rate (APR)
  APR is the effective interest rate that will be paid on a loan, taking into account all the upfront fees as well as the ongoing interest, providing a total cost of for that borrowing. It helps to standardise the way rates on mortgages and loans are expressed, and makes it easier for consumers to compare offerings from different providers.
• Annuity
  Most commonly associated with pensions and retirement, an annuity is a financial product which is bought using a lump sum, usually from a life insurance company, which then pays out a regular amount to the purchaser either for a fixed period or, for a lifetime annuity, until the purchaser's death.
• Base rate
  The Base Rate is the interest rate set by the Bank of England's Monetary Policy Committee to help encourage or discourage people from spending their money. The Base Rate is used by British banks as the basis on which they price loans and pay interest on savings. Put very simply, the higher the base rate, the more likely we are to save (as the return we receive on our savings goes up). The lower the base rate, the more likely we are to borrow (as the interest we pay on loans goes down).
• Bond
  A bond is basically a type of investment offered by governments (see also Gilts'), companies and corporations, whereby investors lend' them money over a set period for an agreed rate of interest, which is due to be repaid at the end of the term. The majority of bonds have a fixed life (also known as fixed interest securities) and the principal, or original loan, is repaid at the specified date, or in other words on maturity. Rates of return depend on, for example, the duration of the loan and the level of risk involved.
• Cash flow analysis
  Identifying the difference between your cash inflows and cash outflows.
• Corporate Bond
  A corporate bond is a loan issued by a corporation. In return for an investment by the individual (the bond), the corporation promises to pay regular interest payments, and then return the investment in full on a preset future date. The higher the risk that either of these promises will not be met, the higher the interest payment the corporation will offer to encourage investors to lend them the money.
• Certified Financial Planner Professional
  A CFP Professional will find themselves at the top of their profession in a position to offer a very valuable and profitable service to their clients. When dealing with a CFP professional a consumer knows that he or she is dealing with a practitioner who is academically and practically qualified to provide a comprehensive Financial Planning service at the highest level.
• Child Trust Fund
  A long-term savings and investment account for children in the United Kingdom. The UK government introduced the Child Trust Fund with the aim of ensuring every child has savings at the age of 18, helping children get into the habit of saving whilst teaching them the benefits of saving and helping them understand personal finance. Children living in the UK for whom Child Benefit has been awarded and who were born on or after 1 September 2002 are entitled to a Child Trust Fund account, with an initial subscription from the government in the form of a voucher for at least £250.
• Commodities
  An investment sector consisting of investment into companies whose main business is involved with natural resources such as oil, gas, minerals, precious metals etc. Commodity funds are often included as part of a balanced portfolio for their diversification benefits.
• Critical illness policy
  A policy that pays out a capital sum in the event of a qualifying illness being diagnosed e.g. certain types of cancers. They can stand alone or be written as an 'add-on' to a variety of other contracts e.g. whole of life.
• Defined benefit pension
  This is a pension which promises to pay a specified amount after a set number of years of service. This is also known as a final-salary scheme because the retiree receives a pre-set proportion of their final salary for every year they were in the scheme. Annual contributions to the scheme may vary up and down as forecasts of future growth to achieve that promised amount change.
• Defined contribution pension
  This is a scheme where the contributions are set and left to grow at whatever rate they can until retirement. Contributions may be a set monetary amount (eg: £150 a month) or as a proportion of their salary. The risk here is that no guarantees apply to the final payout. It will vary depending on market conditions both during the life of the scheme and at the point the member takes their pension.

  Deflation Deflation is simply negative inflation. It implies that the prices of goods are falling over time. This encourage people to hold onto their savings as they could buy the same item cheaper in three months time than they could if they bought it now.

• Dividend
  A dividend is a proportion of a company's earnings that is distributed to its shareholders. Payment of a dividend is not automatic and is decided and declared by the board of directors. In Europe, dividends are generally paid every 6 months, in the US it is usually every 3 months. Most established companies offer dividends, but high-growth companies tend to reinvest most of their earnings back into the business and so pay few, if any, dividends.
• Dividend yield
  A financial ratio showing how much a company pays out in dividends each year relative to its share price. It is a way of measuring how much cash flow is generated for each pound invested. Dividend yield is calculated by dividing the annual dividends per share by the price per share.
• Endowment policy
  A rather complicated financial product which combines life insurance and investment growth in one policy. They were most commonly used as a way of repaying a mortgage by home buyers in the Eighties and Nineties, but are less popular now due to the fact that many f them have failed to reach the capital sum required to pay off the mortgage at the end of the term.
• Equity
  Equities are ordinary shares in companies listed on the stock exchange. Holders of equities qualify for a share of the company's profits and have voting rights.

F-K

• Financial Advice
  A financial adviser can give you advice about managing your money as a whole, or help you with specific needs, say if you're planning to start saving for a pension. They can give you:

  1) Advice and recommend a product after discussing your needs and financial situation (and they will give you their recommendations in writing); or
  2) Information on a range of products for you to choose from, after having asked you a few questions.

• Financial Plan
  A written document which provides an analysis of a person's current financial and future cash flow position and provides a blue print for how that person can achieve their lifetime goals, plans and objectives.
• Final salary pension scheme
  One type of occupational pension provided by some employers. The pension amount is directly related to how many years the recipient has been with the company and how much they are earning when they retire. These are also called defined benefits.
• Fixed income or fixed interest
  Fixed income (or fixed interest) securities pay a rate of interest which is fixed in advance and is paid at regular intervals. Such securities include government and corporate bonds.
• Fund of funds
  An investment fund that is itself made up of a number of different underlying funds. The fund manager will usually attempt to pick the best investment funds in each sector and these are then combined into a single fund.
• Fund supermarkets
  This is typically a website where a person can purchase a range of collective funds from different investment companies in one place. There are a number of fund supermarkets available and they offer a range of services and charge a range of fees.
• Future
  Futures are a form of derivative contract in which an investor agrees to buy or sell an asset on a set date in the future at a price agreed in the present.
• Gilt
  Gilts are corporate bonds issued by the UK Government when it needs to borrow money. They are considered to be very safe investments as the UK Government has never defaulted on payments. They are used as a benchmark against which the yields, or interest rates, of other bonds are set.
• Hedge fund
  The term hedge fund covers a plethora of strategies. Generically, they are collective investment funds which use derivatives to either maximise growth or minimise losses. They are generally considered to be higher risk due to the complexity of their strategies and the high turnover of investments within these funds.
• High yield bond
  A high yield bond is a corporate bond which is rated by an independent rating agency as being below investment grade (BB through to CCC or UR) and therefore carries a higher risk of default. They are so named because they pay a higher level of income to encourage investors to lend them money.
• Income protection plan (PHI)
  This is a policy intended to replace lost earnings. It will provide a regular monthly or annual benefit if a person suffers illness or injury which limits their ability to work and leads to a loss of earnings.
• Independent Financial Adviser
  An authorised and qualified professional who can advise on all financial services products available and tailor them to your needs.
• Inflation
  Inflation is the rate at which prices of goods are rising over time. In an inflationary environment, a person's income need to rise in line with the rate of inflation in order that they can purchase the same basket of goods in the future as they can now without being worse off.
• Inheritance tax (IHT)
  May be payable on an estate when someone dies, or when assets are transferred into a discretionary trust or to a company. For the majority of estates there will be no IHT to pay because they fall within the nil rate band. If the estate is worth over £231,000 a 40 percent IHT applies.
• Investment bond
  A life insurance policy that provides a convenient method of investing in assets covering a wide spread of investment.
• Investment fund
  An investment fund is a general term used to describe unit trusts and OEICs. It describes a form of collective investment where assets are pooled and jointly managed for investors. The investment fund may invest monies in sercurities or real estate for example. Investors participaten by owning shares.
• Investment portfolio
  The range of investment held by an individual investor, which provides diversification through the use of different asset classes.
• Investment trust
  An investment trust is a company whose business is to make money for shareholders through investment in other assets. An investment trust is a closed-end fund and shares will be listed on and traded through a major exchange, just like any other company.
• Interest rate
  See base rate
• ISA
  An Individual Savings Account or ISA is a tax efficient wrapper available to UK residents to make gains on the assets held within it, without any further liability to income or capital gains tax. The total amount that each person can subscribe to ISAs in one tax year is £7,000. This can be done as either one maxi ISA or two mini ISAs.
• ISA - Mini
  These can hold:

  Up to £4,000 in stocks and shares - which can include qualifying funds from insurance companies - and
  Up to £3,000 in cash

• ISA - Maxi
  This can hold:

  All £7,000 in stocks and shares OR
  Up to £3,000 in cash and the balance in stocks and shares

  A form of Mini ISA account which invests purely in cash type assets. Subscriptions is limited to £3,000 per annum and interest in tax free. Mini ISAs can be taken out with different providers; Maxi ISA investments must be from a single provider. Care must be taken not to invest into mini and maxi ISAs in any one tax year.

• Joint ownership
  Used in connection with property ownership, it is the opposite of ownership based upon a Tenants-in-common arrangement. Here, the co-owners do not have the particular shares in the property; they own the whole thing together. each has a right to live in and use the property (if they are a beneficial owner), during their lifetime. When one of the owners dies, the property becomes the possession of the other owner(s).

L-R

• Multi Manager funds
  A multi manager funds have been developed to lessen investment risk, through diversification, by using several investment managers. Net Asset Value (NAV) This is the market value of a unit or share in a fund, calculated from the value of the underlying assets, before any costs of the transaction are added.
• Net Worth
  In creating your own personal Financial Plan, it is imperative to establish all of your assets and liabilities. The difference between the two is your net worth.
• Open ended fund
  A fund which continually issues or cancels units or shares as money is invested or withdrawn by investors. An open ended fund has no fixed wind up or maturity date on which the underlying assets must be sold and their value returned to investors.
• Open Ended Investment Company (OEIC)
  An OEIC is an open ended fund which issues shares to investors in return for investing their money, with other investors' money, across a range of assets. They are considered more transparent than unit trusts in that the pricing of assets and the costs of transaction are separated from each other.
• Personal Equity Plan (PEP)
  A Personal Equity Plan, or PEP, was an individual, tax efficient savings scheme which has now been replaced with Individual Savings Accounts (ISAs). You can no longer put new money into a PEP, but existing portfolios within such arrangements have been allowed to continue, under the same tax regulations as the new ISAs.
• Personal Pension (money purchase)
  A personal pension is one that you take out yourself, for example, if you are self-employed or your employer doesn't offer a pension arrangement. They are a type of money purchase pension.

  You choose the provider and make arrangements for your contributions to be paid. The provider claims tax relief at the basic rate and adds it to your pension fund. If you are a higher rate tax payer you will need to claim the additional rebate through your tax return. You choose where you want your contributions to be invested from the range available from your provider. There are many types of personal pensions including stakeholder and SIPP.

• Platforms
  Generic term used for an administration service provided to investors for them to hold a range of funds, pensions, ISAs, shares etc. in one place. It provides administrative efficiency and ton facilitate asset allocation and investment management strategies. See 'wrap' and 'fund supermarket'.
• Power of attorney
  A legal document that enables someone (the donor) to appoint one or more persons (attorney(s)) to act on their behalf; this can be helpful in times of absence or illness, for example.
• Private Equity
  Private equity covers a wide range of activities relating to investment and fund raising for share buy backs, joint ventures, management buy-outs etc. Private equity investors generally demand a higher return on their investment than, say, taking a loan out with a bank, but in return, they may be prepared to take more risks. Some private equity firms look to get heavily involved in the running of the business whilst others are happy to take a back seat (so long as their bills are being paid).
• Protection policies
  A type of insurance contract which is intended to recompense in the event of incurring a financial loss. This could cover such eventualities as illness, death or suffering a critical illness.
• Qualifications (from Institute of Financial Planning)
  For more information please check financialplanning.org.uk

  It is likely that advisers could have a range of qualifications which can often be confusing for consumers, as examinations are provided by a number of examining bodies.

  The basic level qualification advisers initially need to have attained is:
  Certificate in Financial Planning (or its predecessor the Financial Planning Certificate/ FPC)
  OR
  Certificate for Financial Advisers (CeFA) to gain authorisation to give advice to clients.

  These are the absolute minimum qualifications required and advisers qualified to this level will use the designation CertPFS or CeFA after their name.

  Many advisers and planners will have more advanced qualifications, such as:
  Diploma in Financial Planning (DipPFS),
  Associateship of the PFS (APFS) or
  Chartered Financial Planner status
  which indicate that they have passed a series of examinations set by the Chartered Insurance Institute on such topics as taxation, investments, pensions etc.

  The CERTIFIED FINANCIAL PLANNER designation on is an advanced qualification, being an internationally recognised certification awarded to individuals who have already proven their technical competency by passing appropriate examinations to the level of DipPFS or equivalent, but who then are tested specifically on their Financial Planning skills to become CFP professionals. In the UK, the Institute of Financial Planning is responsible for the assessing and the certification of CFP professionals.

  Other organisations such as the Securities and Investments Institute (SII) and Chartered Institute of Bankers in Scotland, offer appropriate qualifications for financial advisers however these tend to be less commonly held.

• Real return
  A real return is the return on an investment over and above the rate of inflation. It is the real return which generates the increase in wealth of an investor over the long term.
• Risk
  A measure of uncertainty or the possibility of suffering from harm or loss. In the financial world this could include investment risk, inflation risk, interest rate risk and longevity risk i.e. the risk of outliving your capital.

  It is possible to reduce risk for example by diversifying your investment or by transferring the risk e.g. to an insurance company.

S-Z

• Self Invested Personal Pension (SIPP)
  A Self-Invested Personal Pension is specific type of personal pension which allows the investor to take full control of the underlying assets. The portfolio therefore may include a range of mutual funds from different managers and may also include individual share holdings and other allowable assets. This differs from traditional pension schemes where the investment options may be limited only to the funds available from the individual pension provider.
• Shares
  Share represents ownership in a company or fund. Shares generally give the holder a fraction of the decision-making power, and potentially a fraction of the profits, which may be issued as dividends. The value of a share is based on how a company or fund is performing at any given time and, in the case of company shares, how much in demand they are - hence their ability to fluctuate on a daily or even hourly basis.
• Stake holder pensions
  Is a type of flexible low-cost pension, introduced in 2001 to encourage people on lower incomes to start saving for retirement.
• Stock market
  A Stock Market or Stock Exchange has two functions within a capitalist economy. Primarily it is a facility for companies, governments and other organisations to raise money by offering shares or loans in the form of fixed interest securities. Thereafter it provides a means for investors to buy and sell these assets.
• Tenants in common
  A form of asset ownership in which two or more people hold the asset in either equal or unequal shares. On the death of a co-tenant, the share of the asset is dealt with under the terms of their will or by the rules of intestacy. It does not automatically pass to the co-tenant as it would under joint ownership.
• Term insurance
  A term insurance is an insurance contract which lasts for a set time period e.g. for 10 years or up to a certain age.
• Timescales
  When considering an investment, it is important that the term over which you are prepared to invest is matched to the type of investment you select. the following are general guidelines only:
  Short-term = Up to five years
  Med-term = Five to ten years
  Longterm = over Ten years
• Trusts
  A Trust Deed is a legal arrangement that places property under the control of appointed trustees, to administer to the benefit for those named in the Deed or Will. A trust can be a great way of managing and protecting your assets during your lifetime and beyond and can also reduce the amount of inheritance tax payable on your death.
• Trustee
  These are individuals who are appointed by donors when setting up a trust arrangement, to administer the trust that has been established.
• Volatility
  Volatility refers to the up and down movements of the price of an investment. When an investment is in favour, the price will rise because investors believe its potential is high and demand rises. When it is out of favour, demand falls and therefore the price will fall.
• Wrap account
  An administration platform used to provide custodian facilities for investors who wish to collate their holdings for ease of management. A fee is usually charged for the service based upon the value of the investments held upon the platform.
• Yield
  The annual income in dividends or interest expressed as a percentage of the market price of the security.