Glossary

An accumulation fund reinvests any dividends you earn back into the fund, which helps boost the value of your investment. This is opposite to an Income Fund.

Active investing tries to beat the market. An investor will select individual shares they think will outperform the overall market index and get them the best returns. Active investing is the opposite of Passive investing.

Alternatives are investments that would not fall under the three main investment types: shares, cash or bonds. Alternatives include private equity, property and commodities.

Asset allocation is the mix of investments within your Plan.  It is typically made up of shares, bonds, commodities, property, and cash. They could be in the UK, US, Europe, emerging markets or elsewhere. Wealthify makes all of the asset allocation decisions on behalf of customers.

The central bank of Japan is responsible for issuing the Yen which is the currency used in Japan, monetary policies such as the setting of interest rates and working hard to ensure a strong financial system within Japan.

A bear market can describe any market index (such as the FTSE 100) where the price falls by 20%. (Also see Bull Market).

A benchmark is an instrument for comparing the performance of investments with others. A FTSE 100 investment fund will use the FTSE 100 as its benchmark.

This is the price a buyer is willing to pay for the investment. (Also see Offer Price).

When you buy a bond, you are lending money to a government or company. In return, they promise to pay you back the face-value of the bond at the maturity of the bond, and usually interest at a regular interval. Bonds are typically low-risk investments. Various bonds are available: Corporate bonds, which are issued by companies and Government bonds, issued by governments (in the UK these are called Gilts).

A bull market is a market in which the prices of investments rise by 20% from their most recent dip. (See Bear Market).

The CAC 40 (Cotation Assistée en Continu) is a French stock market index and measures the largest 40 companies on the Euronext Paris Exchange. Companies listed in this index include L'Oréal, Renault and Airbus.

Capital is simply the money that you invest.

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 allowance. If you invest in an ISA, you don’t have to pay Capital Gains or Income Tax on any gains made.

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

Cash equivalents are low-risk investments like fixed-term bank deposits or bonds with a short time duration. We call them cash equivalents as they provide similar returns to cash.

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.

This is a digital or virtual currency that is typically created using encrypted algorithms (a very long string of letters and numbers) for added security. Bitcoin is an example of a cryptocurrency. It's not regulated by any central authority or government and is not a legal tender.

The DAX (Deutscher Aktienindex) includes the largest 30 companies that are listed on the Frankfurt Stock Exchange. This index includes companies such as BMW, Volkswagen Group and Adidas.

This relates to pension schemes where the amount you’re paid is based on how many years you’ve been a member of the employer’s scheme and the salary you’ve earned when you leave or retire. Defined Benefits pay out a secure income for life which increases each year in line with inflation.

This includes financial instruments such as options, futures, and contracts for differences. They can be used in a number of ways, for example, to alleviate risk in an investment portfolio by hedging, or to increase the amount of risk by speculating on the direction of the market. Derivatives are a specialist investment tool and should only be used by experienced investors.

Diversification involves spreading your investments (and risk) across a range of investment types and countries, so you’re not dependent on the success on only one investment – in other words, you’re not putting all your eggs in one basket!

A payment made by a company to its shareholders. Dividends are paid from a company's profits either current or retained. They are at the discretion of the company, not guaranteed regular payments.

Emerging markets is a term used to describe a country whose economy is growing, such as Brazil, India and China. Emerging markets also tend to grow at a quicker rate than more advanced countries as they can learn from the mistakes made by them.

Just another name for shares.

ESG investing aims to actively identify companies to invest in that demonstrate excellent environmental, social and governance practices. This may include looking at a wide range of factors: how much energy a company wastes; its overall impact on the environment; what it does to champion gender and race equality; whether it gives back to its communities; whether suppliers hold similar values; how transparent it is in reporting and whether its shareholders can vote on important issues. A complex scoring system is often used to determine a company’s ESG score, which determines whether it is a suitable investment. ESG investors constantly monitor and review the companies they invest in using these criteria to ensure standards remain in line with the aims of the fund.

Ethical Investing aims to exclude profiting from activities that are considered harmful to society and the environment. But it doesn’t stop there. Investing ethically means that your money is used to support organisations, companies and projects that are committed to operating in a way that is sustainable for the future.

This is typically done by filtering out harmful activities (negative screening) and proactively seeking to invest in companies that are committed to making a positive impact through their environmental, social and governance (ESG) practices (positive screening).

This index is made up of the 50 largest companies in the Eurozone (the countries using the Euro as their national currency). It includes companies such as AXA, Nokia and Unilever.

The ECB manages the Euro and aims to keep prices stable across all countries who changed from their local currency to the Euro. The ECB sets the interest rates within the Eurozone (the countries using the Euro as their national currency) to control the supply of money and inflation. The ECB also control the issuance of the Euro banknotes by the Eurozone countries and ensures the financial markets within the countries are supervised.

Exchange Traded funds (ETFs) are a type of fund that can be traded on a stock exchange and the price can change throughout the day. This separates them from mutual funds, which are purchased through a fund administrator at a single price point, usually determined at midday. As with mutual funds, ETFs are used in passive investing because they allow investors to track a market index like the FTSE 100.

Exposure is the amount invested in a particular investment, market sector or industry, usually expressed as a percentage of the total value. The percentage of your plan that is invested in the Emerging Markets will be equal to the exposure to Emerging Markets investments.

This is the US equivalent of the UK Monetary Policy Committee. They are responsible for managing the conditions of the US economy. The FOMC operate independently from the Federal Reserve just like the UK MPC operate independently from the Bank of England.

The Federal Reserve System (The Fed) is the central banking system for the US. It was created with the aim of stabilising the US economy which it achieves through the Federal Open Market Committee's policies such as the setting of interest rates to target inflation and controlling the supply of money.

The Financial Times Stock Exchange (FTSE) 100 is a share index of the largest 100 companies listed on the London Stock Exchange. It includes large UK companies such as Aviva, HSBC and Vodafone.

The FTSE 250 represents the next 250 largest UK listed companies that fall outside the top 100. It includes medium sized UK companies such as Greggs, Halfords and National Express.

The FTSE All-Share Index includes the companies from the FTSE 100, FTSE 250 and the FTSE Small Cap indices. It includes the top 619 companies listed on the London Stock Exchange

This is an index of small UK companies listed on the London Stock Exchange and covers the companies listed from 351st place to the 619th placed in the list of largest companies.

Funds may charge an ongoing fee for looking after the investments within it. This is taken by the provider at source.

When selecting the funds included in your plan, each one will have gone through a process to determine the best options available to us. The process of picking the fund based on certain criteria such as the cost and performance is called fund screening.

The GDP represents the sum of all goods & services a country has produced in a period of time. A high GDP shows that a country is producing a lot, and as this rises (per person), it typically means people are earning more and are spending more.

The Hang Seng Index includes the largest 50 companies listed on the Hong Kong Stock Exchange, including HSBC Holdings Plc and Bank of China Ltd.

A hedge fund is a type of investment product that uses non conventional strategies to invest. The strategies used tend to be much more exotic than an ETF or mutual fund that tracks a market index, but the risk versus reward can be higher.

Currency hedging is a process where investors who hold investments in foreign currencies protect themselves from the effects of exchange rate movements on returns. 

An income fund will pay any interest or dividends from the fund directly back to the investor. You may see these in your plan activity as a dividend.

Index funds aim to track the returns of a designated stock market index, i.e. FTSE 100 or S&P 500. The fund manager will do this by mirroring the index they’re following and investing a proportionate amount in the companies and organisations that make up that market to provide similar performance over time.

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 a UK tax resident aged 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.

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.

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.

Your investment horizon is simply the length of time you intend 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.

Also referred to as market sentiment, it refers to the general perception of the stock markets and investments which considers the direction in which prices are expected to go.

Junior Individual Savings Accounts (ISAs) are long-term, tax-efficient accounts for children which can be held as a Junior Cash ISA or a Junior Stocks & Shares ISA.

Liquidity relates to how easily your investments can be turned into cash. The easier it is for an investment to be sold and converted to cash, the more liquid it is.

Wealthify charge one management fee which covers a range of benefits, such as investment management, administration, customer support and custody of your investments.

Often written as 'Market Cap’ for short. It's the total value of a publicly listed company's outstanding shares. The position in a share index will often be determined by this figure. For example, the FTSE 100 contains the top 100 of the largest companies on the London Stock Exchange determined by their ‘market cap’.

A Market index, commonly referred to as a stock market, is simply a collection of companies grouped together and quoted as one group. The FTSE 100 Index is an example of this.

A market maker is a company or individual who provides a buy and sell price to investors, hoping to make a profit based on the difference between the two prices.

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.

The MPC is the part of the Bank of England responsible for setting interest rate and uses this to control inflation within the UK economy.

The MSCI AC World Index includes developed countries like the UK and the US as well as emerging market countries such as China, India and Brazil. The MSCI AC World Index includes the 23 developed countries within the MSCI World Index and an additional 24 emerging countries. Over 2,400 companies are included within this index.

This index includes large and medium sized companies across 23 different developed countries such as the UK, US and Japan to name a few. It includes shares in 1,649 companies from around the world.

The Nikkei 225 is a stock market index that represents the top 225 companies listed on the Tokyo Stock Exchange. Companies in this index include Sony, Toyota and Yamaha.

This is the price that the holder of an investment is willing to sell for.

Often referred to as OEICs (pronounced oink without the 'n'), this is a fund set up as a company that issues shares (rather than units). The Open-Ended nature of this investment benefits a new investor that is looking to buy shares as the OEIC has the ability to create brand new shares. This is an advantage as you won’t have to wait for an existing shareholder to sell their shares in order to buy shares in the OEIC.

Passive investing is where you track market performance by investing in the whole market index, rather than trying to beat the market by selecting individual stocks to buy (see active investing). This can be achieved by investing in Exchange-Traded Funds and Mutual funds track a whole market or index like the FTSE 100.

Another name for all the investments you own. At Wealthify, we call it your Personal Investment Plan.

Private Equity is an investment in a company that is not publicly-traded on a stock exchange, which means shares in the company are not publicly available.

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.

This is a policy used by central banks across the world to lower interest rates. Central banks purchase government and other bonds in the hope of stimulating their economies.

Rebalancing is the process of adjusting the mix of investments that determine the investment styles. This is carried out by the investment team typically on a quarterly basis, or as required.

Robo-advisors are investment companies and financial advisors who incorporate technology such as algorithms or rules to the management of their clients or investments. ‘Robo-advisor’ has been adopted by the industry but is important to note that not all robo-advisors provider financial advice and the level of automation involved in the investment process varies widely between providers.

The Standard and Poor's 500, or S&P 500, is an American stock market that includes the largest 500 companies listed on the New York Stock Exchange. Companies in the index include Apple, Microsoft and Netflix.

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

The duration between when a purchase or sale is instructed and the date in which payment must be made is the settlement period. Typically, this is between 1-3 working days depending on the investment or fund provider.

This is an owner of shares in a company.

They’re all 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. The value of shares will be determined by how well the company is performing.

A Self-Invested Personal Pension is a pension that allows the holder to choose how the pension is invested.

The spread cost is the difference between the bid or buy price, and the offer or sell price. It is typically referred to as the Bid-Offer spread.

A stakeholder in investment terms (not to be confused with a shareholder) is somebody who has an interest in a company. Examples of stakeholders can include employees, customers, governments and communities.

This is where shares are bought and sold. In the UK during the 16th and 17th century, traders used to meet at Jonathan's Coffee-House in London which is now the site of the famous London Stock Exchange.

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 annual allowance in any Stocks and Shares ISA and it’ll be exempt from Capital Gains or Income Tax.

A thematic fund looks at a specific characteristic which allows companies to be grouped together with a shared theme. A few examples include renewable energy, gender equality or Infrastructure. Thematic funds allow for greater diversification but usually costs more to maintain.

Tracking error measures how closely a fund follows the index in which it tracks. The bigger the tracking error, the larger the difference in performance between the fund and the index.

Unit trusts are commonly referred to as mutual funds where investors are issued with ‘units’ rather than shares. When an investor buys the units, the money will be pooled together with other investors and managed by a fund manager.

Venture Capital funds use their capital to take usually significant stakes in small, emerging companies that show promise, to become highly profitable. Think Dragon’s Den without the TV cameras. 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 and internet companies.

Volatility refers to the size of the movements in price of an investment. The more volatile an investment, the larger the swings you will see up and down in price.

The yield shows the income return on an investment, which counts for the dividends and interest received, when owning an investment. It is usually represented as a percentage.