Glossary
A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
A
A new pony for Lavinia – The cause that all those fees you’re paying support.
Active – An active fund is one in which the fund manager and a cohort of analysts actively mess up the performance. They charge you, the investor, heavily for the privilege.
Advice – Advice from an Independent Financial Advisor (IFA) is whole-of-market advice that has no restrictions on the scope of funds to which your money can be allocated. “Advice” given by a “tied” or “restricted” advisor might have some positives and might, indeed, be from a decent, well-intentioned individual. However, if the said advisor is tied to a bank or investment company, they will only “advise” you according to what the company offers by way of its own limited and potentially expensive selection of investments.
AFM – See Authorised Fund Manager
Allocation – This refers to the different proportions of your money that go into different types of investment. For example, a 50% allocation to bonds means that half of your money will be used to buy bonds, while a 5% allocation to cryptocurrencies means that 5% of your money will disappear never to be seen again.
Alternative – This refers to a bunch of investments that are neither shares (identify as “he”/“his”) or bonds (identify as “she”/“hers”) but other investments (identify as “eh?”/“huh?”) such as property and gold.
Annuity – Ageuk.org.uk offers some good info on annuities. Its definition of an annuity is a product which “converts your savings into an annual pension, giving you a guaranteed income for life, or for a specific period.” Finding a good annuity is a challenge because the people who sell them are, understandably, out to make a profit. AgeUK has a short video on retirement tips from the excellent Paul Lewis, the host of BBC Radio 4’s Moneybox. Paul Lewis (no relation to any other TV financial expert) is like a professorial uncle whom you wish you’d listened to more when you were growing up. You can see it here https://www.ageuk.org.uk/information-advice/money-legal/pensions/annuities/
Arbitrary – Done on a whim or with no apparent justification or foundation. A favourite process among some investment managers.
Asset – Something that is worth money and could be sold for cash. For example, a young child who is wide-eyed and curious could grow up to be a successful surgeon and pay for your retirement. A teenager who smells and doesn’t get up before 11am is a social and financial liability.
Asset classes – Different types of investment such as shares and bonds. These can be divided by region or other classes e.g., Asian small company shares or North American government bonds.
Asset manager – Someone who lifts and separates assets (those of you of a certain age will get that gag). An asset manager is really just another name for someone who keeps an eye on different investments. You can have active asset managers who interfere, ruin performance, and charge a high fee; or passive asset managers who set up assets to follow the performance of, say, the FTSE 100 or the price of gold, and then disappear behind the bike shed for a cigarette with Wayne.
Authorised Fund Manager (AFM) –The Financial Conduct Authority’s definition of a fund management company that is legally ripping people off, as opposed to one that is doing so illegally.
B
Bad debt – This is debt that is expensive (i.e., with high interest rate charges) and which isn’t for essentials. I think of hire purchase for a TV or credit card payments for a holiday as bad debt. Yes, we all need a holiday, but live within your means if you possibly can.
Belmarsh Prison – Retirement home for some financial professionals.
Benchmark – This is not the part of the park bench that the birds have targeted and which you don’t want to sit on. It’s another way of saying “target”. For example, the benchmark for qualifying for the Olympic 100 metres final might be 10 seconds. And I might be a minute slower than that.
Best-in-class – This is a big, fat fib. It really means “investment choices that are the most expensive and which give some of the crappiest performance”. When I get wind of anyone referring to their offering as best-in-class, I scarper.
Bitcoin – See Cryptocurrency
Bonds – Genuine bonds are those sold by companies and governments to investors. They pay the investor an annual payment (see “coupon”) and return the entire investment plus a bit to the investor after a fixed period of time. Note: these are different from the “bonds” that a bank or building society might sell in the UK. These bonds are just saving accounts with rules. They’re not bad in themselves but it’s important to note that their name is a misuse of genuine “bonds”.
Britain’s Got Talent – An oxymoron.
C
Capital Gains Tax (CGT) – This is when the taxman takes a chunk of any growth in value of your assets if he possibly can. I get that nuclear missiles and Downing Street parties won’t pay for themselves, so the money has to come from somewhere. However, CGT provides an excellent reason to make use of “tax wrappers” such as Individual Savings Accounts (ISAs) or Self-Invested Personal Pensions (SIPPs).
Cash buffer – Not some old fart who marches past wearing a top hat and falls asleep during debates in the House of Commons. A cash buffer is readily available cash that will cover short-term emergencies, preventing you from having to dip into your investments.
CGT – see Capital Gains Tax
Charges – See Fees
Chartered IFA -An independent financial advisor who has done extra studies to attain “Chartered” status. This will make that person more expensive but might be an indicator of someone more dependable.
Costs – See Fees
Coupon – Not the fistful of torn-off slips of paper that the person in front of you in the supermarket queue is wasting your life with. A coupon is the annual payment paid out by bond issuers to the people who bought their bonds.
Cryptocurrency – (AKA Craptocurrency) The quickest way to lose everything. Cryptocurrencies are heavily promoted by various folk who have recognised that they can make loads of money by bigging up the excitement of holding this snake oil. Remember that moment in the movie Indiana Jones and the Last Crusade where Indy is reaching into a crevice to try to retrieve the Holy Grail? His dad, Sean Connery, recognises that Indy has been seduced by the idea of eternal life but will get killed trying to retrieve the grail and says “Leave it, son”. Don’t be Indy, be Sean.
D
DFM – see Discretionary Fund Management
Discretionary Fund Management (DFM) – This is where you grant complete freedom to the fund manager to make all sorts of useless decisions to justify his fees and ruin your investment.
Diversification – Not putting all your eggs in one basket. When I was at school, I didn’t just annoy one teacher by mimicking them, I did it to most of them. That meant that I’d diversified the investment of my talent and would almost always be rewarded with a detention. Alternatively, you might want to think of it as investing in a range of shares and bonds perhaps with some alternatives as well. That’s not as amusing, but it will get you home from school sooner.
Dividend – The share of profits which companies pay out to shareholders.
Draw down – To take out of. When you draw down from your Self-Invested Personal Pension (SIPP), you’re taking money out of it.
E
Environmental, Social and Governance Funds (ESG) – What you and I think of as “sustainable” investing. It considers the implications for the environment, the people involved, and the rules that are supposed to be followed. Much of this is meaningless noise (see Greenwashing) and is likely to remain so for a few years yet.
Equity – see Shares
ESG – see Environmental, Social and Governance Funds
ESMA – see EuropeanSecurities and Markets Association
ETF – see Exchange-Traded Fund
Ethereum – see Cryptocurrency or self-immolation
European Securities and Markets Authority (ESMA) – A bunch of Continental Europeans who tear their hair out as they try to keep up with and regulate the financial shenanigans of fund managers and the like.
Exchange-Traded Fund (ETF) – In a conventional investment fund, you buy “units” in that fund (see “Unit” below). In an ETF, the fund is treated as if it is a company in which you can buy shares. The ETF is listed on a stock exchange (such as the London Stock Exchange, so called because it is a stock exchange what is located in London and stuff, innit). All the “company” is, is a selection of shares in other companies or holdings of bonds or other assets such as gold or property. The point to remember is that it tends to be a passive fund with relatively low fees, hence I’ve included them in my selection of preferred funds.
F
Factsheet – This is a document that makes hilarious use of the word “fact”. I should know, I used to write them. Investment companies, banks and whatnot have to provide them and they have to include information such as past performance and what they invest in. They’re largely useless in my opinion.
FCA – See Financial Conduct Authority
Fees (costs, charges…) – The fund manager’s favourite subject. These are what they charge in such a way that they look small (e.g., 1%) but are, in fact, what destroys your investment growth while guaranteeing the fund manager a six-figure salary plus bonus, pension and benefits.
Fellow IFA – An independent financial advisor.
Financial Advisor – See Independent Financial Advisor and Restricted Advisor.
Financial Conduct Authority (FCA) – The beleaguered financial watchdog that has scant chance of keeping up with the extremely well-paid and highly intelligent individuals who run investment companies and the like.
Financial Services Compensation Scheme (FSCS) – The UK government-backed guarantee of your money if the company you have it with goes bust (à la Northern Rock). The company in question has to have a UK banking licence and the FSCS only covers you up to £85,000 under each respective banking licence (which can cover more than one company, e.g., Virgin Money, Clydesdale Bank and Yorkshire Bank are all under the same licence so that’s a total of £85,000 that you might hold across all three). www.fscs.org.uk
Fixed income – You’d think it was what fund managers ensure they get from all the fees they charge despite your investments going down in value. It’s not that. It’s a general term used to cover bonds and the like. The point being that most bonds pay a fixed annual return to people who’ve invested in those bonds no matter what’s going on with interest rates, inflation and company profits. The contrast is with shares which tend to pay dividends based on annual profits, and that varies.
FTSE – This stands for Financial Times Stock Exchange. Just accept it. It’s a bit like having to accept that Germans have six words for “the” (der, die, das, dem, den, des). Why? They just do. Stelle dir das vor.
FTSE 100, 250 and 350 – The FTSE 100 is the largest 100 companies whose shares you can buy and sell on the London Stock Exchange. The FTSE 250 is companies 101 to 350 (not the top 250). Just to make it fun, the FTSE 350 is the top 350 companies i.e., the combination of the FTSE 100 and the FTSE 250.
FTSE All-Share – This is all the shares listed on the London Stock Exchange, i.e., all the companies on the London Stock Exchange in which you and I can buy and sell shares.
Fund – A collection of investments in which investors can buy units (see “Units”).
Fund manager – Fund managers of passive funds are people who tend not to charge too much for setting up and running a fund that tracks an index (e.g., the FTSE All-Share). Fund managers of active funds must never be referred to as “pinstriped criminals”. That would be mean.
G
General Investment Account (GIA) – An ordinary investment account that you can set up on a platform (or directly with a bank if you want your financial face ripped off). It has no tax efficiency or tax wrapping such as is offered with a Self Invested Pension Plan (SIPP) or Individual Savings Account (ISA).
GIA – see General Investment Account
Gilts – Another name for UK government bonds. Today, they are just numbers on a screen as far as you and I are concerned. However, the physical bits of paper that those numbers represent used to have a silver gilt edging which showed that they were government bonds and, therefore, supposedly less risky. I could make a quip about a different spelling and how it might apply to active fund managers, but I think you’ve got the idea.
Government bonds – Guess what, these are bonds issued (sold) by governments. They’re also referred to as “govvies” and sovereign bonds (because they’re issued on behalf of the sovereign state government).
Govvies – See Government bonds
Gross – The number before fees or other deductions are charged. Nothing to do with the character of, or salaries paid to, any financial service industry executives.
H
Hedging – Counterbalancing or reducing the exposure to risk. For example, if you think your spouse won’t like the birthday present you’ve got for them, you might hide a second back-up present to ensure that you can continue to occupy the bed between midnight and 7am. In investment terms, you might keep more cash if you think share prices are going to fall so that you don’t lose too much money. Frankly, I think the birthday present thing is more important because you can ignore your investments for a year and both they and you will benefit. Try that with your spouse and you’ll soon find out how comfortable or otherwise the couch is.
High-yield – Yield is another word for return. High-yield just means high return, but it also carries the almost certain likelihood of higher risk. Hence “high-yield” bonds are also referred to as “junk” or “sub-investment” grade bonds coz they are highly risky.
I
IFA – See Independent Financial Advisor
Independent Financial Advisor (IFA) – A UK advisor who can advise on the full range of investments available to retail investors like you and me.
Index-linked – A fancy way of saying that it roughly follows or allows for changes in the rate of inflation. The index to which something is linked is likely to be the Consumer Price Index or the Retail Price Index, both of which are measures of the rate of inflation.
Individual Savings Account (ISA) – An account in which you can keep cash or buy investments and for which any profits made cannot be taxed. Yay! UK only I’m afraid.
Inflation – The rate at which prices are increasing, usually measured on an annual basis.
Instrument – just a jargony way of saying “type of investment” or “investment thing”.
International Securities Identification Number (ISIN) – This is the unique collection of letters and numbers that each fund has and which I use to find the funds I want to invest in when I’m using a platform.
Investment Association – A coven of wizened incubi who meet under a full moon to fashion new and colourful PowerPoint presentations that enchant investors and make their savings vanish in a puff of fees.
Investment grade – A short way of saying “bonds that carry a lower level of risk”.
Investment manager – See fund manager. They’re close enough for the purposes of this book.
Investment trust – This works in much the same way as a fund in that it owns a bunch of shares or bonds or alternatives. The difference is that, instead of buying units in a fund, a trust is set up like a company in which you buy shares.
ISA – see Individual Savings Account.
ISIN – International Securities Identification Number.
J
Junk bonds – See High-Yield.
K
Key Investor Information Document (KIID) – Another largely pointless document that fund managers have to produce to provide a veneer of honesty about what their fund invests in.
KIID – see Key Investor Information Document.
L
Laughably unlikely – See Outperformance
Liquidity – How easy or difficult it is to turn something into cash. Your savings are liquid because you can get the cash out of them relatively quickly. Your house is illiquid because it would take time and hassle to sell it i.e., to convert it to cash. Your smelly teenage son hasn’t seen any cleansing liquid since the age of 13; thoroughly illiquid.
M
Market – For investments, this term is misused quite a lot. When folk say “the market has risen” they’re actually talking nonsense. I’ve never been to a market and seen it levitate. Don’t get me wrong, I’d love to see that. While I wait for that, I can tell you that the market is, in fact, the virtual (i.e., online) marketplace in which shares and bonds are bought and sold. When folk say the market is “up”, “down”, “nervous”, “succulent” (I’ve never heard them call it succulent, but it would be just as nonsensical), what they mean is that the general mood across buyers and sellers or the overall value of shares or bonds.
Model portfolio – This is the target portfolio that I want my investments to be as similar to as possible. Much like my reflection and that of Henry Cavill (ha, he wishes).
Mutual fund – This is normally what you’re referring to when you say “fund”. It’s a collection of investments in which us retail investors can buy a bit of that fund i.e., a “unit”. The price of a unit will fall or rise in line with the value of the investments that the fund owns.
N
National Insurance (NI) – A UK tax that is, in theory, used to pay for the NHS, unemployment benefit, sickness and disability allowances, and the UK state pension.
Net – What’s left after costs etc. have been removed. Net performance is the only number that matters, which is why active fund managers will move Heaven and Earth to avoid telling you what your net numbers are.
NI – see National Insurance
O
OCF – See Ongoing Charges Figure
Ongoing Charges Figure (OCF) – This is what you get charged for the running of a fund. It is similar to the Total Expense Ratio (TER). I only refer to the OCF, and not the TER, in this book to keep things simple. The point being that I want the right fund covering the right asset class and charging me as low an OCF as possible.
Outperformance – Snake oil, Scotch mist, pipe dream. It’s what active fund managers say they “strive for”, “aim to achieve”, “design their funds to deliver” but NEVER guarantee and very, very rarely actually achieve. I want reasonable performance in line with the general improvement in the values of shares, bonds and alternatives.
Overperformance – See Outperformance.
P
Passive – Not active i.e., a fund that just aims to follow the performance of, say, the FTSE 100, UK government bonds, or the price of fish. Passive funds are much cheaper than active funds because you’re not subsidising anyone’s private yacht.
Performance – The profits or losses on an investment over a period of time. A cynic might suggest that “performance” is what fund managers put on to convince you that they’re overpriced, underperforming funds are really, really good.
Platform – A website on which I can set up an investment account and buy the funds that I want.
Portfolio – just a posh way of saying “collection” or “group”. Hence you can have a portfolio of your artwork, a portfolio of the investments you hold or a portfolio of the people you offended last night by going too far with your toilet humour.
Pound-cost averaging – Drip feeding. Rather than paying a large sum of money (e.g., £10,000) into a fund at once, you might pay it into a fund a bit at a time (e.g., £1000 a month for 10 months). The theory is that this makes your portfolio less likely to suffer from a sudden drop in the value of investments shortly after you’ve made a large investment. The counter argument is the transaction and tax fees that will be incurred every time an investment is made. My preference is to set up my investment portfolio up front with low-cost funds using whatever money I can afford to put into investments, and then add to it on a regular basis. I cover this in more detail in the main body of the book.
Q
Q – Famous for saying “Don’t press that button James”. He was probably referring to the “buy active funds” button.
R
RDR – see Retail Distribution Review
Rebalancing – Adjusting a portfolio of investments to bring it back in line with the model portfolio that you’re copying.
Restricted advisor – Appropriately named person who should be restricted from giving you advice on where to invest because they are only going to point to the funds of the company that pays their salary. This is genuinely sad because I know a lot of restricted advisors and the majority of them are really decent folk who have their hands tied by their employers.
Retail Distribution Review – This was the painfully overdue review of how and what fund managers and advisors charged the vulnerable retail investor. It had a very positive effect by forcing everyone to reveal what they charged and how they charged it. That has brought about some price competition, but there’s still plenty of room for improvement.
Returns – See Performance
Risk – A good thing. You can’t avoid taking some risk, nor should you try. Holding cash carries risk as it gets eroded by inflation and your sneaky teenage kid. The key is to take the right amount of risk for you.
Risk-rated funds – Funds that have been designed to carry a set level of risk, e.g. lower-risk, medium-risk and higher-risk. These funds almost always carry a mixture of bonds, shares and alternatives (such as property funds). Generally speaking, lower-risk rated funds include a larger proportion of bonds, while higher-risk rated funds tend to carry more shares and alternatives.
S
S&P 500 – The US equivalent of the FTSE 100. The S&P 500 is an index of the 500 largest companies that you can buy and sell shares in in the US. This index is put together by Standard & Poor’s, hence the “S&P” bit.
Self flagellation – The physical equivalent of buying cryptocurrency.
Self-Invested Personal Pension (SIPP) – This is a tax-efficient way of investing the UK. Money put into a SIPP is not subject to tax. Money taken out of (drawn down from) a SIPP is subject to tax but at potentially favourable rates.
Shares (stocks, equity) – A bit of a company. If you own a share in a company, you are entitled to a share of that company’s profits when they are distributed as dividends. Not all companies issue dividends (Amazon has never paid a dividend). However, your ability to hold onto that share means that the value of your share could rise or fall with the fortunes of the company.
SIPP – see Self-Invested Personal Pension.
Sovereign bonds – See government bonds.
Stock – See Shares
Stock market – Where shares in companies are bought and sold. This is largely just done electronically now. The days of Dan Ackroyd and Eddie Murphy in a trading pit partaking in open outcry trading are now few and far between. This form of verbal abuse and aggression has transferred to slow-moving traffic on urban roads, especially during rush hour.
Stock picking – The art and science of selecting individual company shares to invest in rather than buying funds that are themselves invested in lots of different company shares. Successful stock-picking is difficult but not impossible. Read Robbie Burns’ The Naked Trader if you think it’s for you.
Store of value – Something that holds its value even as inflation or other factors change. For example, gold has traditionally been a store of value as it had risen in value as inflation rose. This is less evident these days.
T
Tax – Like death but sooner.
Tax wrapper – A way of keeping or investing money that is tax-efficient and restricts what access, if any, the taxman can have.
TER – See Total Expense Ratio
Tied advisor – See Restricted Advisor
Tiers – Layers. I’ve arranged my portfolios in layers, “tiers”, according to how much money I might have to invest.
Total Expense Ratio (TER) – This is a calculation of how much it’s likely to cost the investor to own a share in a fund. For example, if you invest £10,000 and the TER is 1%, you can expect to pay £100 a year.
Tracking – Following. A tracking fund or tracker might track the FTSE 100. It would be designed to go up 1% when the FTSE 100 goes up 1% and go down 1% when the FTSE 100 goes down 1%.
Tracking error – This measures how closely a tracker follows its target. A tracking error of 0 means that the tracker fund has exactly matched the performance of what it’s tracking. For example, if a FTSE 100 Tracker fund exactly matches the rises and falls in the FTSE 100 then that tracker fund has a tracking error of zero. No tracking fund has such an accurate tracking error. The vast majority of passive funds tracked their targets to with 0.75% in the financial year-ending April 2021 according to the FCA.
Treasuries – See government bonds
U
Underlying funds – The funds contained within a portfolio.
Underperformance – What you pay for with most active funds.
Units – A piece of, or a share in, a fund. If the overall value of a fund is £100 and it has 100 units available to buy, you can reckon on paying about £1 for one unit in that fund.
V
Volatility – What happens to a fund manager’s face when you ask why they charge such high fees for such crappy performance. It’s also another way of saying the speed with which prices move up and down. Highly volatile means large and swift upward and downward swings in price.
W
Watchdog – I have two dogs. One’s called Timex, the other’s called Rolex. They’re watchdogs. The FCA is the UK’s investment watchdog.
Weighted – The proportion of something is the weighting. For example, if I have a portfolio worth £100 with a 10% weighting to bonds and a 90% weighting to shares then I have £10 in bonds and £90 in shares.
Whole-of-market – All the funds in which retail investors can buy units.
Wrapper – Not a tiresome male who can’t play instruments, write music or sing, and who feels disenfranchised by society—hence his need to shoot other men and molest women—that’s clearly a different spelling. No, for the purposes of this book, a wrapper is a barrier to the taxman. ISAs and SIPPs are tax-wrapped investments.
X
X-rated – The language I would use to describe some of the people who’ll take your money.
Y
Yet-to-see-value-for-money – The phrase that, according to the Financial Conduct Authority, applies to far too many banks and investment firms.
Z
Zzzzz – The sound you should be making while your investments work for you.