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Explaining Investment Terms

·        Cut through the jargon

 

Asset allocation
This is the spread of investments across the asset classes.

 

Asset classes
The underlying investments – for example, shares, bonds, property and cash deposits.

 

Bonds
These are loans made to a company (often called Corporate Bonds) or the Government (often called Gilts).

 

Capital
The money you invest.

 

Capital growth
Any increase to your original investment after costs, charges and depreciation have been taken into account.

 

Collective investment scheme
A way of pooling contributions from lots of people into a single investment fund.

 

Contracts for Difference (CFD)
An agreement between two people to settle at the close of their contract the difference between the opening and closing price of a company's share price.

 

Cooling off period

A cooling off period is defined as the period of time you're allowed, after signing an agreement, to cancel it without incurring a financial penalty. This does not normally apply in Spain.

 

CNMV

Comision Nacional del Mercado del Valores is the principal financial services regulator in Spain and responsible for authorising investment products. A CNMV adviser can be recommended, please click here

 

Coupon
A bond's fixed rate of interest as a percentage of its nominal value.

 

Debt securities
Another name for a bond.

 

Derivatives
A right or an obligation to buy or sell another type of asset – such as a share or a bond – to someone else at a specific date and time in the future.

 

Distribution Bond
A type of investment bond that provides a regular income.

 

DGS

Direccion General de Seguros y Fondos de Pensions is the Spanish regulator for insurance products which can be marketed in Spain. Email me to be referred to an authorised adviser.

 

Diversification
Spreading your investments across different asset classes, or different types of investments within an asset class.

Equities
This is another name for shares in companies.

 

Friendly Societies
These are similar to mutual life assurance companies but with different tax rules.

 

FSA
The Financial Services Authority - the UK's financial services regulator.  For a recommended adviser click here

 

Gearing
The use of borrowing potentially to increase the amount you get back, but can also increase the risk.

 

Gilts

These are bonds issued by the Government.

 

Gross
Before tax has been deducted (as opposed to 'net', which is after tax has been deducted).

 

High-yield bond funds
The same as bond funds but investing in higher-risk bonds that offer a higher interest rate.

 

Investment or Insurance Bonds
These are pooled investments or lump-sum life-assurance investments. They can also be called Life Assurance Bonds and With-Profits Bonds.

 

Investment Trusts
A pooled investment. The investor is buying shares in a company that invests in other investments. The Investment Trust has shares and is quoted on the stock exchange. It is a closed-ended fund as there are a set number of shares available.

 

ISA

Individual Savings Account is a UK tax-efficient way of saving or investing, with limits on how much you can pay in each tax year. These are not available to UK non-residents.

 

Life assurance investment
A pooled investment offered by a life assurance company.

 

Net asset value (NAV)
An expression used with investment trusts to mean the value of the fund's underlying assets.

 

Nominal value
Sometimes called the face value; this is the cost of the bond when it is issued and the amount you get back at the end of the term.

 

OEIC

Open-Ended Investment Company, this is a type of open-ended investment fund.

 

PEP
Personal equity plan – a wrapper for investments. No longer available as all PEPs have now automatically became stocks and shares ISAs.

 

Pooled investments
A way of putting various levels of contributions from lots of people into a single investment fund. There are different types and they work in different ways.

 

Rate of return
This is the change in the value of your investment taking into account both income and growth.

Rating
This is a formal opinion of an organisation's investment quality and credit risk.

 

Redemption date
Usually associated with gilts or bonds, it is the date (set in advance) when the gilt or bond will be repaid by the issuing government or company and you will receive the nominal value of the bond.

 

Shares

These are the stake or share in a company.

 

Stocks

These are often linked directly to Shares, but have the same meaning.

 

Tax year

In the UK, the tax year is from the 6thApril in one year to the 5th April in the next year. In Spain the fiscal year is the same as the calendar year

 

Unit trusts
A pooled investment, which is an open-ended investment that gets bigger as more people invest and smaller when they take money out.

 

With-profits funds
A type of fund available within a life assurance investment. The investor shares the return from these investments and the profits and losses of the company (if it's a mutual) or the with-profits business fund (if it's a plc).

 

 

Most Investment Advisers, including the ones that I recommend, will be happy to cut through the jargon. Email me for a recommendation.

 

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