A

Accumulation

The phase in your life where you are building up the value of your pension or investments through regular contributions and potential growth, before you start taking an income from them.

Active Management

An investment approach where a fund manager actively makes decisions on which assets to buy and sell with the aim of outperforming a specific benchmark or index.

AER (Annual Equivalent Rate)

A figure used in savings accounts to show what the interest rate would be if interest was paid and compounded once each year. It allows you to compare different savings accounts easily.

Annuity

A financial product purchased with a pension pot that provides a guaranteed regular income for the rest of your life or a fixed period.

APR (Annual Percentage Rate)

The official rate used to help you compare the cost of borrowing. It takes into account the interest rate and any other charges (like arrangement fees) you have to pay.

Asset Allocation

The strategy of dividing your investment portfolio across different asset classes – such as equities, bonds, property and cash – to balance risk and reward according to your goals.

Asset Class

A category of investments that exhibit similar characteristics and behave similarly in the marketplace. The main classes are cash, fixed interest (bonds), property and shares (equities).

AVC (Additional Voluntary Contribution)

Extra contributions you pay into your workplace pension scheme on top of your standard contributions to build up a larger pot.

B

Base Rate

The official interest rate set by the Bank of England. It influences the interest rates high street banks charge borrowers and pay savers.

Bear Market

A market condition where share prices are falling, typically defined as a drop of 20% or more, encouraging selling.

Benchmark

A standard against which the performance of a fund or investment portfolio can be measured. For example, a UK equity fund might be benchmarked against the FTSE 100 index.

Beneficiary

The person or entity you nominate to receive the benefits from your will, trust, life insurance policy or pension after you die.

Bond

Essentially an IOU issued by a government (see Gilts) or a company (Corporate Bond). You lend them money for a set period and they pay you regular interest and return the capital at the end of the term.

Bull Market

A market condition where share prices are rising or are expected to rise, encouraging buying.

C

Capital Gains Tax (CGT)

A tax on the profit when you sell (or ‘dispose of’) something (an ‘asset’) that’s increased in value. It’s the gain you make that’s taxed, not the amount of money you receive.

Cash Flow Modelling

A process used by financial planners to forecast your future finances. It projects your income, expenditure, assets and liabilities to show if you are on track to achieve your financial goals.

Compound Interest

Interest calculated on the initial principal, which also includes all of the accumulated interest from previous periods on a deposit or loan. It is often described as “interest on interest”.

CPI (Consumer Prices Index)

The official measure of inflation of consumer prices in the UK. It tracks the changing cost of a fixed basket of goods and services.

D

Defined Benefit (DB) Pension

Also known as a ‘final salary’ pension. This pays you a secure income for life which increases each year. The amount is based on your salary and how long you worked for your employer.

Defined Contribution (DC) Pension

A pension where the amount you get when you retire depends on how much was paid in and how well the investments performed.

Diversification

The practice of spreading your investments around so that your exposure to any one type of asset is limited. This helps to reduce the overall risk of your portfolio.

Dividend

A payment made by a corporation to its shareholders, usually as a distribution of profits.

Drawdown

A flexible way of taking income from your pension pot. You keep your money invested and take amounts out as and when you need them.

E

Equities

Another name for stocks and shares. When you buy equities, you are buying a small part of a company.

Equity Release

A way for homeowners aged 55 or over to release tax-free cash from the value of their home. The most common type is a Lifetime Mortgage.

ESG (Environmental, Social and Governance)

A set of standards for a company’s operations that socially conscious investors use to screen potential investments.

ETF (Exchange Traded Fund)

A type of investment fund that is traded on a stock exchange. ETFs often track an index, a commodity or a basket of assets like an index fund.

F

FCA (Financial Conduct Authority)

The conduct regulator for financial services firms and financial markets in the UK.

Fiduciary

A person or organisation that acts on behalf of another person or persons, putting their clients’ interest ahead of their own, with a duty to preserve good faith and trust.

Fixed Interest

Investments such as bonds and gilts that pay a fixed level of income over a set period.

FSCS (Financial Services Compensation Scheme)

The UK’s statutory compensation fund of last resort for customers of authorised financial services firms. It can pay compensation if a firm is unable, or likely to be unable, to pay claims against it.

G

Gilt

A bond issued by the UK government. They are generally considered low-risk investments.

Gross

The total amount of money earned before tax and other deductions are taken off.

H

HMRC (HM Revenue & Customs)

The UK’s tax, payments and customs authority.

I

IFA (Independent Financial Adviser)

A professional who offers unbiased advice on financial matters to their clients and recommends suitable financial products from the whole of the market.

IHT (Inheritance Tax)

A tax on the estate (the property, money and possessions) of someone who has died.

Inflation

The rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of currency is falling.

ISA (Individual Savings Account)

A tax-efficient way to save or invest. You do not pay tax on interest, income or capital gains from cash or investments held within an ISA.

L

LTV (Loan to Value)

A ratio used by lenders to express the amount of a loan as a percentage of the value of the asset purchased. For example, a £180,000 mortgage on a £200,000 house is 90% LTV.

M

Market Volatility

The rate at which the price of an investment moves up and down. Higher volatility usually means higher risk.

O

OEIC (Open-Ended Investment Company)

A type of investment fund in the UK that is structured as a company. It issues shares and the price is directly linked to the value of the fund’s underlying assets.

P

Passive Management

An investment strategy that tracks a market-weighted index or portfolio rather than trying to beat the market.

Platform

An online service that allows you to buy, sell and hold your investments in one place.

Portfolio

A collection of financial investments like stocks, bonds, commodities, cash and cash equivalents.

R

Risk Profile

An evaluation of an individual’s willingness and ability to take risks. This helps determine the proper investment asset allocation for a portfolio.

S

SIPP (Self-Invested Personal Pension)

A type of UK government-approved personal pension scheme, which allows individuals to make their own investment decisions from the full range of investments approved by HMRC.

Stamp Duty Land Tax (SDLT)

A tax paid if you buy a property or land over a certain price in England and Northern Ireland.

State Pension

A regular payment from the government that most people can claim when they reach State Pension age, provided they have paid enough National Insurance contributions.

T

Tax Relief

When the government gives you back the tax you have paid on money you put into a pension. It is a way of encouraging people to save for retirement.

Term Assurance

A life insurance policy that provides coverage for a defined period of time (the term). If the insured passes away during this term, the policy pays out.

Trust

A legal arrangement where you give cash, property or investments to someone else so they can look after them for the benefit of a third person.

U

Unit Trust

A type of collective investment scheme where money is pooled with other investors to buy a portfolio of assets.

V

Volatility

A statistical measure of the dispersion of returns for a given security or market index. In simpler terms, it refers to the amount of risk or uncertainty about the size of changes in a security’s value.

W

Wrap Platform

A type of investment platform that ‘wraps’ all your investments – such as ISAs, pensions and other funds – into a single manageable account.

Y

Yield

The income return on an investment, such as the interest or dividends received from it. It is usually expressed as an annual percentage based on the investment’s cost or its current market value.