Glossary

Active investing

(also see passive investing)

Active investing is a strategy some investors use to try and beat the market. An investor will rely on their experience and knowledge of the markets to select individual shares they think will outperform the overall market and get them the best returns. Passive investing is the opposite of active investing.

Asset Allocation

Asset allocation is simply choosing which assets to invest in.  It could be shares, bonds, commodities, property, hedge-funds or others, and the assets could be in the UK, US, emerging markets or elsewhere. Wealthify make all of the asset allocation decisions on behalf of our customers.

Bonds

When you buy a Bond, you are lending money to a government or company. In return, they pay you back the face-value of the Bond, plus some interest. Bonds are typically low-risk investments. Various Bonds are available: Company Bonds, are issued by companies; Government Bonds are issued by governments (in the UK these are called Gilts).

Capital

You will often see the warning: ‘your capital is at risk’. Capital is simply the money that you invest.

Capital Gains Tax (CGT)

This is the tax you pay on any profit you make from investments that are subject to CGT. Like income tax, you only pay after you go over your annual tax-efficient allowance. For 2018/19 CGT is set at 10% or 20% depending on your level of income. If you invest in an ISA, you don’t have to pay Capital Gains Tax on any gains made.

Cash

Cash is generally considered to be the least risky asset type. Wealthify may convert customers’ investments into cash, or cash equivalents, to protect them during periods of turbulence in the markets. However, even cash can lose value through inflation or currency devaluation.

Cash Equivalents

Cash Equivalents are an asset class used in Wealthify Investment plans. They are very low-risk investments like fixed-term bank deposits or very short dated Bonds.

Charges

(see management fees)

Compound returns

Compound returns are an investor’s best friend. It is when your profits are added to your original investment, which can then grow more, and so on, creating a snowball effect that ultimately means your money should grow faster.

Commodities

An asset class that includes physical goods such as gold, silver, grains and oil.

Diversification

Diversification is where you spread your investments (and risk) across a range of asset classes and markets, so you’re not dependent on the success of a single stock or market – in other words, you’re not putting all your eggs in one basket!

Diversified Plan

Your Wealthify Personal Investment Plan is diversified because it spreads your investments across a wide range of asset classes, markets and countries worldwide.

Dividends

A payment made by a company to its shareholders. Dividends are paid from a company's post-tax profits. They are at the discretion of the company, not guaranteed regular payments.

Emerging market fund

A fund that mainly invests in countries with developing economies e.g. China, Eastern Europe or South America.

Equities

(see Shares)

Exchange-Traded Fund (ETF)

Exchange Traded funds (ETFs) are a type of fund that can be traded on a stock exchange. This separates them from OEICs and Unit Trusts, which are purchased through a fund administrator. ETFs are known as passive investment vehicles, because they allow investors to track a market index like the FTSE 100.

Hedge fund

A hedge fund is a type of pooled investment vehicle. They are considered alternative investments and have varying strategies, which they use in order to produce extra return per unit of risk taken. Because hedge funds typically perform differently to a traditional basket of stocks and bonds, having exposure to them can be a good diversifier.

Investment horizon

Your investment horizon is simply the length of time you plan to hold your investment for. It doesn’t mean your investment is tied in. Wealthify lets you withdraw your money at any time, but it is good practice to think about investing as a long-term prospect.

Inflation

The rate at which goods and services get more expensive year after year. The rate of inflation directly affects the value of your money – a £10 note will still be worth £10 in five years, but you may not be able to buy as much with it.

Interest

As a consumer, there are two types of interest: the interest you earn on your savings when you save, and the interest you’re charged for borrowing money, say for a mortgage. When you lend money to someone, they pay you interest on the money you’re lending them.

Individual Savings Account (ISA)

An ISA is an easy way for UK residents to save and invest tax-efficiently. It’s a wrapper you put around your money to protect it from the tax man. Adults get a personal allowance each year that they can save in an ISA tax-efficiently. You must be 16 or over to open a Cash ISA, and 18 or over to open a Stocks and Shares ISA. Wealthify offers Stocks and Shares ISAs.

Investment funds

A generic term describing a vehicle that bundles assets up together to be traded. In the UK the most common ones are Exchange-Traded Funds (ETFs) Unit Trusts and OEICs. They all do the same thing, but are called different things because of the way they are structured.

Also see Exchange Traded fund (ETF),  Unit Trusts and Open Ended Investment Company (OEIC).

Liquidity

Liquidity relates to how quickly your investments or assets can be turned into cash. Cash is the most liquid asset. At the other end of the scale is property, which can take months to sell and the value of which is often determined by what someone is willing to pay for it.

Management fees

Charges and fees for traditional investment management services can be numerous, confusing and often seemingly hidden to the less experienced investor. They can include: set up fees, trading or broking charges, auto dividend reinvestment fees, commissions, rebalancing fees, performance fees and account change fees. Some newer investment service providers, like Wealthify, charge a simplified, single management fee calculated as a percentage of the value of your investments.

Market Index

You may have heard people say "the FTSE closed 15 points up today…" in news bulletins. That's a market index. It is simply a collection of stocks grouped together and quoted as one group. The FTSE 100 is a group of stocks from the 100 largest companies listed on the London Stock Exchange. It features companies like HSBC, Royal Dutch Shell, BP, Barclays etc. Other indices you may recognise include the Dow Jones, S&P 500, Nikkei and Hang Seng.

Maturity

Maturity refers to the end of a fixed-period investment, like a bond or cash deposit. On the maturity date the investor can expect the original investment to be paid back to them, plus any interest earned.

NISA

A New ISA (individual savings account) is the same as an ISA - just new, and better. The main differences are a higher tax-efficient savings allowance and they also eliminate any restrictions between the amount you can hold in cash and stocks and shares.

Open Ended Investment Company (OEIC)

Often referred to as OEICs (pronounced oink without the 'n'), this is a fund set up using company law (rather than trust law, as with Unit Trusts). Investors are issued shares (rather than units). A fund manager sets up a company that is independent from their own, and entrust the fund’s assets to an established custodian, such as a bank.

Passive investing

Passive investing is where you track market performance by investing in the whole market, rather than trying to beat the market by selecting individual stocks to buy (see active investing). Research shows that passive investing is generally a more effective long-term strategy than active investing and as few as 14% of active fund managers manage to beat the market each year.

Private equity

These are investments in companies that are not publicly-traded on a stock exchange.

Property

Exactly what it says on the tin. Property investments are most often in commercial and industrial property like office buildings, warehouses and shopping centres, but can also be residential.

Portfolio

A posh name for all the investments you own, or in the case of Wealthify, an alternative name for your Personal Investment Plan.

Shares (or Stocks or Equities)

They’re all exactly the same thing. At Wealthify, we prefer to call them shares. Buying one means you buy a tiny piece of a company. If you buy one share of Coca-Cola, it means you own a very small piece of the company. You are also however at the mercy of the company’s fortunes – great if you’ve held shares in Apple for the past 10 years, not so great if you’ve held shares in Woolworths, for example.

Stocks & Shares ISA

A Stocks and Shares ISA (or investment ISA as it’s also known) is a tax-efficient ‘wrapper’ for your investments. You can invest up to your personal ISA allowance in any stocks and shares ISA and it’ll be exempt from Capital Gains or Income Tax.

Stock Exchange

This is where shares are bought and sold. It used to be a physical place, but nowadays trading is mostly done online.

Securities

Another generic name given to shares, bonds and similar things you can invest in.

Unit Trusts

This is an investment vehicle set up using trust law. A fund manager sets up a trust that is independent from their own company and appoints a third party (usually an independent financial institution) to act as trustee – this is often a bank. The trustee oversees the fund manager and the assets invested in the fund. Investors are issued with ‘units’ rather than shares.

Venture capital

(also see private equity)

This is finance provided for a usually significant stake in small, emerging companies that show promise, to become highly profitable. Think Dragon’s Den. Venture capital investments tend to take place during the first three years of a company (in what’s called its 'seed stage') and currently tends to be in the areas of green technology, life sciences & internet companies.