Introduction to Investment Jargon

Buy-Sell Spread:
There is usually a difference between the price at which an investor can buy and sell assets. This is due to a number of factors e.g. government stamp duty, commission or fees charged by brokers and agents. This difference applies to both individuals and companies when they invest. The difference is particularly large for property investments due to the high stamp duty, the auctioneer’s fees and the legal costs of buying and selling property. Individual investors who invest directly in assets will always have to suffer this difference. Investors in unit-linked funds can often avoid this cost. This is because unit-linked funds will often have new investors willing to invest at the same time as you want to withdraw your funds. However, when there are no new investors unit-linked funds will have to pass on this difference to be fair to continuing investors.

Basis Point:
1/100th of 1% or .0001 (needs to be expanded)

Bear Market:
Bear market is the term used to indicate a market that is falling in value ie a seller’s market. “Bears” are investors who take a pessimistic view of how the market is likely to perform.

Bull Market:
Describes a market that is likely to perform well ie. A buyer’s market. “Bulls” take an optimistic view of how the market will perform.

“Bid-offer” spread:
This described the units in a unit-linked fund that have two prices, the offer price which is the price at which the policyholder purchases units from the fund. The bid price is the price at which the office purchases units from the policyholder. Commonly the bid price 95% of the offer price, the 5% bid/offer spread being a margin taken by the office to recoup expenses.

Corporate Bonds:
Corporate bonds are effectively bonds issued by large corporations (rather than by a Government). As the availability of Government gilts diminishes, corporate bonds are gaining considerably in popularity. In investment circles, the term “credit” is sometimes used when referring to corporate bonds.

Diversification
Essentially means spreading your investment risk across different funds or asset mixes. If the value of one or several should fall, the relative strength of the other funds will lessen the overall impact on your portfolio. It’s the investment equivalent of not putting all your eggs in one basket.

Dividend:
A payment made to shareholders (equity holders) at intervals – often half-yearly – representing a distribution of part of the profits for a given period of the company in which they hold shares.

Equities:
These are company shares, thus representing part ownership by the investor in a particular company. Ownership of equities / shares will often entitle the investor to a portion of the company’s profits (paid out in the form of a dividend at particular intervals). Equities also offer considerable potential for capital growth, but as their value will fall as well as rise, there is also the risk of capital loss. Hence, equities are risk investments, which are best suited to those who are prepared to tolerate such risk and invest their funds for the long term.

Gilts / Bonds:
Gilts (often called Bonds) are issued by Governments, effectively as a means of borrowing capital from investors. Investors in gilts are entitled to a fixed income (usually paid half-yearly) up to the maturity date of the gilt, and are guaranteed to be repaid their original capital at maturity. For example, investment in 4.6% Treasury Bond 18/4/2016 (an Irish government gilt) entitles the investor to interest of 4.6% p.a. between now and April 2016, when the gilt matures and the capital is repaid.

Guaranteed Bonds:
Investments usually with life assurance companies that guarantee to provide a certain return on a future date.

Inflation:
The rate at which the Consumer Price Index increases – it is a measure of how quickly your Euro is losing the ability to buy things.

Management charges:
There is usually a management charge on any fund in which you invest. These charges can vary from 1-2% and come off the value of your investment.

Maturity date:
The date at which your stipulated investment period finishes.

Market Value Adjustment:
With profit funds adopt an investment strategy that is geared towards the maturity date of the policies. This allows it to adopt a long-term strategy, which means that it can invest in more volatile assets. The unit price does not reflect the rise and fall of the underlying assets. It reflects the bonus rates declared from time to time. These bonuses are not guaranteed except at maturity. If you wish to withdraw your funds before the maturity date then the company may adjust the unit price to reflect the value of the underlying investments. This is often referred to as a Market Value Adjustment.

Terminal Bonus:
This is an extra bonus determined when a death or maturity claim is paid. Terminal bonus is often only paid if the policy has been in-force for a minimum number of years at claim time.

Tracker Bonds:
These are fixed term investment products (often fixed for 5 years) offering a return linked to a specific stockmarket index (or basket of indices) over the investment term or the return of the original capital (or a pre-agreed percentage of it) – whichever gives the greater return. The higher the level of capital guarantee provided, the lower the potential return from the Tracker Bond and vice versa.

Unit Linked:
Investment vehicles in which the monies of numerous investors are pooled together and the entire pool used to purchase assets, i.e. equities, bonds, property, cash etc. depending on the particular fund. Each investor share in this pool is represented by a certain number of units. Unit prices are struck for the fund and reflect the value at that time of the underlying assets. The value of each investor’s holding at a given point in time is determined by the number of units they hold multiplied by the prevailing unit prices.

With-Profit Funds:
When taking out a with-profits fund, the investor chooses a fixed investment term (say 10 years). Although the fund itself invests in a range of different assets, including equities, gilts , cash and the returns from such investments will fluctuate, the returns from a with-profits fund are smoothed out over the investment term. This is carried out by an annual “bonus” being declared and added to the fund, guaranteed to be repaid at the end of the term.

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