Jargon Buster
A
Absolute Return – Most traditional equity and managed funds focus on beating a stock market index or other managed funds. This means they tend to go up and down in line with other funds in these sectors – their returns are judged relative to other investments. Absolute Return funds are, as the name suggests, not focused on beating other funds but on generating positive (or absolute) returns, typically over a 3-5 year period.
Actively Managed – An investment strategy where the fund manager buys and sells holdings with the intention of maximising gains and minimising losses. Typically, active management allows the fund manager flexibility to adapt to changing market conditions. This is the opposite of passive management.
Asset Classes – Different types of assets with varying degrees of risk. For example: Company shares (or equities), property, bonds, alternative assets, cash etc.
Asset Allocation – The proportion of each different asset class in an investment portfolio.
B
Benchmark – A standard by which something is measured. In actively managed funds, fund managers typically try to match, or beat, a particular target or benchmark.
Bid offer spread – This is an investment charge and refers to the difference between the buying (offer) and selling (bid) price of a unit in an investment or pension fund.
Bonds – In simple terms, bonds or fixed interest securities are loans to governments (gilts) and companies (corporate bonds). These bonds are designed to pay interest over a fixed term with the original loan being repaid at the end of the term. The level of risk depends on the credit worthiness of the government or company issuing the bond.
C
Capital Security – If you have an investment with capital security, typically this promises that an investor will get back a minimum of 100% of their capital at some point (e.g. in 5 years time) regardless of what happens in the stock market.
Cash – Cash is generally held on deposit at banks or building societies and earns interest. Your capital is generally secure and easily accessible; however, its value can be eroded in real terms due to inflation.
Central Bank of Ireland – This is the bank that is responsible for the supervision of most financial institutions in Ireland.
Commodities – A basic good like gold, oil and crops that is exchangeable with another product of the same type, and which investors buy or sell.
D
Derivatives Contract– An agreement or contract from which a gain or loss is derived from some underlying asset, share or commodity etc, without the underlying asset actually being owned by the parties to the agreement or contract.
Diversification – Spreading an investment across different asset classes, different funds or different types of investments within an asset class, with the aim of reducing risk.
Dividend – The proportion of a company’s profits paid out to its shareholders.
E
European Central Bank (ECB) – The ECB is the central bank for Europe’s single currency, the euro. Its main task is to maintain the purchasing power of the euro and price stability in the euro area. One of the functions of the bank is to set interest rates for the member countries in the euro zone.
Euribor – The Euribor (Euro Interbank Offered Rate) is the rate at which euro interbank term deposits are being offered by one prime bank to another within the EMU zone.
Euro-cost Averaging – Euro-cost averaging refers to the investment of a fixed amount of money in a particular fund at regular intervals over a period of time. This process involves the purchase of extra shares during market downturns and fewer shares during market upturns. Euro-cost averaging is based on the belief that the market or a particular stock will rise in price over the long term and that it is not worthwhile (or even possible) to identify interim highs and lows.
Equities (also known as shares or stocks) – These are issued by companies usually listed and traded on a stock exchange. Each share represents ownership of part of the issuing company. Some shares also pay an income in the form of a dividend.
Exit Tax or Life Assurance Tax – This is a life assurance tax that policyholders are liable for if their policy makes a profit. It is taken off the value of an investment on the happening of a chargeable event, including when monies are withdrawn.
F
Fund– A pool of money which invests in assets. Investors in the various Bank of Ireland Life’s funds actually invest in and hold a life assurance policy.
Fund Manager – The fund manager runs the fund and decides what assets the fund should invest in.
Financial Services Ombudsman – The Financial Services Ombudsman (FSO) is an independent statutory office who deals with complaints from consumers about financial services providers. The FSO only deals with complaints that have not been resolved through the provider.
Fund Management Charge – This is a charge, quoted annually, for the management of a fund.
G
Gilts– In simple terms, bonds or fixed interest securities are loans to governments (gilts) and companies (corporate bonds). These bonds are designed to pay interest over a fixed term with the original loan being repaid at the end of the term. The level of risk depends on the credit worthiness of the government or company issuing the bond.
Government Bonds – In simple terms, bonds or fixed interest securities are loans to governments (gilts) and companies (corporate bonds). These bonds are designed to pay interest over a fixed term with the original loan being repaid at the end of the term. The level of risk depends on the credit worthiness of the government or company issuing the bond.
I
Index – A measurement tool that provides a representation of the prices which constitute it. Indices often serve as indicators for a given market or industry and benchmarks against which financial or economic performance is measured.
Inflation – The increase in the general level of prices of goods and services in the economy over a period of time. Consumers’ buying power goes down as prices increase.
Investment Style – Investment style is the approach that investment managers take to investing.
L
Liquidity – This is the ease or speed with which an investment can be turned in to cash. Illiquid assets, such as property, cannot be converted to cash quickly.
M
Maturity– If an investment is for a fixed term, this refers to the date when the investment will reach the end of the fixed term.
O
Options – These give the holder the right but not the obligation to buy or sell an asset at a pre-determined price on a fixed date or within a certain time period in the future. The predetermined price is called the exercise or strike price.
P
Portfolio – The full spread of investments held by an individual or a fund.
Property – As an investment asset class, a property investment usually involves investing in commercial property such as offices, retail developments, leisure and industrial developments.
Put Options – A put option gives the holder (buyer) the right but not the obligation to sell an asset at a predetermined price (exercise price), on a fixed date or within a certain time frame in the future.
R
Risk (in particular investment risk) – The greater the potential return wanted from savings and investments, generally, the greater the risk that has to be undertaken. Most investments involve an element of risk:
Return Risk – the risk that your investment may not achieve the return expected
Capital Risk – the risk that you could lose some or perhaps all of the original money that you had invested.
Risk can vary from fund to fund and it is very important, before a decision is made that investors understand all the risks associated with any fund.
S
Shares – (also known as equities) – These are issued by companies usually listed and traded on a stock exchange. Each share represents ownership of part of the issuing company. Some shares also pay an income in the form of a dividend.
Stock Exchange – A marketplace where stocks, shares, commodities, derivatives and other financial instruments are traded.
T
Term of the investment – The length of time you hold your investment.
V
Valuation – This is when a fund manager measures and gives you an estimated value of your investment in the fund at a point in time