If you have a Defined Benefit Pension or Final Salary Pension, look out for this term on your pension statement. It shows the rate at which your pension savings build up for each year you are a member of the scheme. It’s usually represented as a proportion of your pensionable earnings, for example 1/60th or 1/80th. The lower the bottom number, the higher the income you will get.

There are different ways to manage investments. Active Investing is an active management approach which means the investment manager will use their knowledge of the financial markets to pick investments they believe will increase in value. This might involve selecting company Stocks & Shares, so these managers are sometimes known as ‘stock pickers’. Active managers tend to make changes to their investments on a regular basis. We can help you with Active Investing.

AER stands for Annual Equivalent Rate and is the rate of interest you’ll earn on savings and investments after a year. It means the cost of borrowing money after a year. It can include fees, like arrangement fees, as well as interest.

To borrow cheaply, you’re looking for a low or even 0% APR, whereas with savings, a higher AER is better.

Annual Allowance is the maximum you can pay into a Pension each year tax-free and is currently set at £60,000 a year.

The government has also introduced a tapered annual allowance that affects those with a threshold income of more than £260,000 a year (incl. pension contributions).

Your annual allowance is reduced by £1 for every £2 of 'adjusted income' earned over £260,000, up to a maximum reduction of £56,000, leaving a minimum tapered annual allowance of £10,000. Non-earners can also get tax relief on contributions up to £10,000 a year.

Annuity allows you to trade all or part of your Pension savings for a guaranteed income for the rest of your life. You don’t have to buy an Annuity, but it can help provide certainty in retirement.

Your money can be invested in various different ways. Stocks & Shares, Bonds, Commodities, even property are all types of investments, or investment ‘assets’. Your Asset Allocation refers to the mixture of investments you hold, and the proportion of each. For example, you might have a portfolio that’s half company shares and half government bonds - that’s your Asset Allocation. The mix of assets in your portfolio depends on factors like how much risk you’re willing to take and how long you’re planning to invest for.

An Asset Class is simply a type of investment or investment category. As there are so many different types of investments or ‘assets’ available, it helps to be able to sort them into groups. The three main asset types are cash, Stocks & Shares and Bonds, but there are also many others.

To help people save for retirement, the government has made it compulsory for companies to enrol employees in a Pension scheme, A.K.A. Auto Enrolment. This happens automatically, but you can opt out if you wish.

Workplace Pensions are regulated by The Pension Regulator.

The balance of an account is simply how much money is in the account, but it can work in different ways. Whereas the balance of your current account is how much money you have in the bank, the balance on a loan account is the amount you owe, rather than the amount that you have available.

Set by the Bank of England’s Monetary Policy Committee (MPC), many financial institutions use the base rate to set the interest rates they charge customers. When the base rate rises, expect savings and mortgage rates to increase - and vice versa.

A bear market is a general decline in the stock market over time. It’s generally used when the value of the market falls by 20%, during at least a two-month period.

A lack of confidence sees people selling shares, which pushes stock prices down, in turn creating a vicious circle. Bear markets have occurred during the Wall Street Crash, the global financial crisis, and recently, the coronavirus outbreak.

Bed and ISA is the process by which you can fund your Stocks and Shares ISA using existing investments. If you have investments outside of an ISA and want to make them tax-free, you can sell your investments and buy them back at the same time within your ISA. If the two trades take place at the same time, you remove the risk of your investments changing value in the meantime.

Overall, Bonds are a broad spectrum of investments in different categories, but the two most common are Corporate Bonds and Government Bonds. Corporate Bonds are issued by companies, while Government Bonds are issued by governments.

Essentially a Bull Market describes rising or rallying stock markets. When investors feel particularly confident about the economy and expect companies to perform well, share prices will often rise. It’s an extended period of stock market growth and that overall feeling of optimism. Commonly when the value of the stock market rises by 20% or more without a significant decline.

Capital is the amount of money held by a person or organisation. In its most common use in personal finance, your capital is the money that you put into an investment account or Stocks and Shares ISA.

When you see the message ‘capital at risk’, it essentially means that you could lose the money that you put in, as well as any gains.

In general, people buy Stocks & Shares with the aim of selling them for more than they paid. If you manage this successfully and make a profit, you experience a ‘capital gain’, something you may need to pay tax on, i.e. Capital Gains Tax (CGT). In the 2023/24 tax year each indvidual has an allowable gain of up to £6,000 before tax is levied. This will reduce to £3,000 in the 2024/25 tax year.

So this tax is levied when you sell an asset that’s increased in value since you bought it. You only pay tax on the gain itself, i.e. the amount its value has increased. Whether you’ll need to pay CGT on your investment gains will depend on how much money you make. It applies to most personal possessions worth £6,000 or more (apart from your car), and property that isn’t your main home. It also depends on the tax efficiency of your chosen investment, e.g. you don’t pay CGT on ISAs, personal equity plans, UK Government Bonds/Gilts and premium bonds.

These are exclusions which normally apply to insurance policies when you have a pre-existing condition. It means you can’t claim for certain illnesses within a specified time.

Commodities are raw materials used to create consumer products, which are traded on an exchange. 'Hard' commodities include gold, silver, copper, oil and gas; while ’soft’ commodities are wheat, sugar and cocoa beans.

Commodities are usually bought to diversify a portfolio, by either physically purchasing a commodity, buying shares in a commodity company, or indirectly through a Fund or Investment Trust. It’s all about studying the market with the aim of predicting how prices of Commodities will change in the future. Their prices have historically been very volatile, quickly reacting to changes in the political and economic landscape.

Note that as F&T is underpinned by sustainable investing, your money won’t be invested in Commodities that harm the environment, like oil and gas.

This is the official measure of inflation and is the growth in prices over time for the UK. It measures changing prices of a basket of goods and services that reflect UK spending habits. It’s published every month by the Office for National Statistics (ONS).

Corporate Bonds are essentially loans to companies who need to raise money. After all companies often need to raise money to pay for things like new factories and machinery, and one way of doing this is to issue Bonds. The investor hands over a lump sum for an agreed period of time, in exchange for a fixed rate of interest. Risk varies according to the company in question and its ability to repay its loan, but Corporate Bonds are usually considered to be lower risk than Stocks & Shares.

There isn’t actually a universal definition, but generally speaking when a stock index falls between 10-20%, the market is said to have fallen into a Correction. These periods can be brief or continued, but it’s called a Correction because historically the fall ‘corrects’ itself and returns prices to the longer-term trend.

A Credit Score is a number used by lenders to help view the risk of lending you money and whether you qualify for a particular loan, mortgage, service. This is based on a credit report of your history on what kind of borrower you are.

This is an amount of money which has been borrowed from a lender and is owed or due.

This is a type of Pension where the benefit you'll receive in retirement is known at the outset. The income paid out is based on the Accrual Rate, your earnings (could be your final salary or career average), and length of service. Your income will be paid directly once you retire and start drawing benefits.

Public sector pensions are Defined Benefit Pensions, but they’re becoming increasingly rare in the private sector because they are so costly to run.

The most common type of Defined Benefit Pension is a Final Salary Pension.

A Defined Contribution Pension is one where the value or size of your pot at retirement depends on what you have contributed - the amount of money paid in and performance, less any charges. Here you (and your employer if it’s a workplace scheme) pay into your pension and invest that money into one, or a number, of investment funds. When you retire it’s your responsibility to turn your pot into an income.

A Derivative is a type of financial contract, which relates to a particular investment. It could be related to the price of a company’s shares, or tied to Bonds, Commodities, Interest Rates and currencies.

Discretionary Fund Management is a type of investment management where decisions to buy or sell are taken by a Portfolio Manager within agreed limits. Portfolio Managers typically charge a fee (a percentage of the assets under management), in exchange for their investment expertise.

Maintaining a diverse portfolio of investments helps to manage risk and reduces the impact of price drops in any one area of your portfolio. It also means you can benefit from investment gains across different investments. Essentially Diversification means spreading your risk and not putting all your eggs in one basket.

Diversification can be across investment types – e.g. Bonds, Stocks & Shares and Commodities, but you can also diversify across different industry sectors, currencies and countries.

Dividends are payments made by companies to their shareholders from their profits. They’re the shareholder’s ‘share’ of the company’s annual profits. Dividend payments are often made by companies to their shareholders once or twice a year.

If you hold Stocks & Shares or Funds you may receive dividend payments. The amount you’ll receive depends on how many shares you hold.

You have to pay tax on any dividend payments above £1,000 in any one tax year, unless the investment is held in an ISA, which are tax free.

People typically buy shares in companies for two main reasons – 1) to make a return by selling them at a higher price in the future, and 2) to receive a regular Dividend.

In the event of a divorce or the dissolution of a civil partnership, an Earmarking Order permits a portion of one person's pension income to be paid to their ex on retirement. The original pension member retains control over the pension.

This is a tax-free savings account that allows you to make withdrawals instantly, whenever you like, without it impacting the rate of interest you earn. Accounts may limit the number of withdrawals you can make.

Emerging Markets are developing nations – their economies are deemed to not yet be fully developed, but where strong economic growth is predicted for the future. The most well-known Emerging Market economies are the BRIC countries (Brazil, Russia, India and China).

Emerging Markets are closely monitored because companies in these nations can increase in share price very quickly if there’s good economic growth in the region or increased global trade. But they can also experience big decreases in share price too, which is why Emerging Markets are often seen as quite volatile and best suited to high-risk investment strategies.

Usually used with companies (their Stocks & Shares) and property, the Equity that you hold in something, is the value or percentage of it that you own.

(So, if you buy a house with a 10% deposit, at first you’ll have 10% equity in your home. As you pay off your mortgage, or the value of the house increases, you will gain more equity. If the value of your home decreases, your equity will decrease too - which is why you hear talk of Negative Equity if house prices crash).

Equity is typically referred to as Shareholder Equity, which means the amount of money that would be returned to a company’s shareholders if all of the assets were liquidated and all of the company's debt was paid off.

Equities are popular because investors can make more money than they could through savings accounts or Bonds, provided they’re prepared to accept more risk.

Also known as an Impaired Life Annuity, these policies pay a higher rate of income to people who have health problems or have aspects of their lifestyle (for example, they smoke) that means they are likely to have a reduced life expectancy.

Equity Release plans enable you to unlock some of the equity that’s built up in your property. The most common type is a lifetime mortgage, which involves taking out a loan secured to your home. Interest is rolled up and repaid alongside the loan when the property is eventually sold.

This acronym stands for Environment, Social, Governance and refers to a style of investing or way of running a business that takes a range of ethical criteria into account. In addition to environmental factors (such as consideration of climate change) it also extends to social issues (like a firm's labour practices or safety record) and matters relating to its governance (for example executive pay, diversity on its board and its overall business ethics).

F&T investments invest in this way – see our Socially Responsible Investing section.

This is the name for everything you own - your home, possessions, as well as your savings and investments.

Exchange-Traded Funds (ETFs) contain many individual investments and can span many different Asset Classes. They could contain shares in hundreds of Japanese companies, for example, or be linked to the US’s S&P 500.

The aim of an ETF is to reflect the performance of a whole section of the stock market. This is so that investments aren’t dependent on the potential fortunes of just one company or investment type. They’re a good way of spreading your money across a high number of investments, and in so spreading risk.

ETFs are attractive because they can be traded quickly and easily at high volume, and are cost-effective to trade. They can be bought and sold just like individual shares, making them really accessible to small investors.

The Financial Conduct Authority is the independent regulator of the UK’s financial services industry. It sets the standards providers need to meet to protect consumers and has the power to take action against those that don't meet them. It doesn’t investigate individual complaints however. Consumers should complain directly to a firm and then to the Financial Ombudsman Service if the provider’s response is insufficient.

This is the most common form of Defined Benefit Pension. Often referred to as gold-plated pensions, these workplace schemes pay members a guaranteed income for life when they retire, with benefits linked to their final salary and the length of time they were in the scheme.

This is an Annuity that pays a guaranteed income for a designated period, providing flexibility for those that don’t want to commit to a Lifetime Annuity. It also provides a guaranteed maturity amount at the end of the term.

Flexi-Access Drawdown Pension Plans mean you can take out as much, or as little, of your pension as you like. (Versus Capped and Flexible Drawdown Pension Plans, that were sold prior to the pension freedoms in April 2015).

These Individual Savings Accounts let you withdraw money and then put it back in in the same tax year, without it counting towards your ISA limit. For example, a Flexible ISA would allow you to pay in £20,000, withdraw £20,000, and then pay another £20,000 back in within the same tax year. Not all ISAs are flexible.

If you’re a freeholder, you own both the property and the land it stands on. Detached houses are generally sold on a freehold basis, whereas flats are leasehold.

FTSE (pronounced “footsie”) stands for the Financial Times Stock Exchange. The FTSE 100 is an index, or list, of the 100 biggest companies trading on the London Stock Exchange. There are other indices, like the FTSE 250 and FTSE All-Share Index, which are used to chart the fluctuations in company share prices over time.

A fund pools money from many people and puts it into different types of investments. It’s a basket of money pulled together from different investors and then invested in various types of assets - like Equities, such as property, Stocks & Shares, Bonds and cash. (Also known as a portfolio of assets).

The fund basket is made up of equities that usually have something in common. For example, a ‘tech fund’ might include stocks from tech and innovation companies only, while a ‘sustainable fund’ would only include stocks that meet certain economic, social and governance criteria.

Every investment fund has a particular objective, which could be steady growth in value, to deliver a regular income, or, alternatively, high risk for potentially larger rewards. The Fund Manager is there to oversee and make new investments, with the aim of generating profit for the investors, while also sticking to the objectives of that fund.

Using funds is a great way to diversify your investments, which can help to mitigate risk. They can be a more cost-effective way to get your money into these investments because, to do it all on your own, you may have to pay trading, admin and set-up fees each time.

There are many types of Funds, and they may be managed Actively or Passively.

Gilts is another name for Bonds issued by the UK government.

With a Government Bond, essentially, you provide a lump sum of money to help the government raise cash. The original money invested is returned after an agreed period, when the bond is said to have ‘matured’, along with the pre-agreed interest.

Government Bonds are regarded as one of the safest types of long-term investment. They’re popular with financial organisations and private investors who want minimum risk, but a good fixed rate of annual interest. But although generally regarded as low risk, government bonds aren’t risk-free investments, as governments have occasionally been known to default on their debts.

Bonds issued by the UK government are also called ‘Gilts’, whereas those by the US government are also called ‘Treasuries’.

Some older pensions (sold when interest rates were much higher than they are today) will offer you a rate on your annuity that is much higher than rates payable on annuities now. They may however require you to retire and start taking benefits on a specific date.

An Independent Financial Adviser (like us!) searches the whole market to find the best financial products for their clients. They charge clients a fee for their services. (See our Simple fee structure section).

This is when in retirement you choose to take an income out of your pension pot on either an ongoing basis or in ad hoc lump sums, rather than buying an Annuity (where you trade your pension savings for guaranteed income - see Annuity definition). Following the introduction of the pension freedoms in April 2015, there aren’t any caps or limits on how much you can withdraw. Whilst your savings remain invested, there’s the opportunity for your pot to carry on growing, but there’s also the risk it may fall in value too.

An Index is simply a list of investments, which have been grouped together for tracking and analysis purposes. Indices are used to get a big picture of economic growth and measure business trends.

An investment fund can be designed to mirror the investments in a particular Index, either exactly or partially. These funds are called Tracker Funds or Index Funds.

Investing in an Index is attractive because it means your money is invested in a number of investments, rather than relying on the fortunes of just one or two, which is a higher-risk strategy.

Popular indices include the FTSE 100 in the UK, the S&P 500 and Dow Jones in the US, and the Dax in Germany.

Inflation measures the change in the cost of goods and services. As inflation increases, the cost of goods and services rises. In the UK, the Consumer Prices Index (CPI) tracks inflation and is published by the Office for National Statistics each month. The rate of inflation is the level at which prices of goods/services increase over time.

This is the amount either earned when saving money, or charged by a lender when borrowing money. So essentially there are two types of interest – 1) interest on your savings, and 2) interest on any debt you might have.

Simple interest is interest that is only ever paid or charged on the principal of your savings deposit or debt, i.e. how much you deposited or borrowed in the first place.

Compound interest, on the other hand, is when you earn interest on the interest you’ve already earned. For example, if you have £100 in a savings account paying 10% a year, after one year you will earn £10, leaving a balance of £110. In the second year you will earn £11 in interest as you are earning interest on the first year’s interest.

Spending any interest income received on your investment you’ve earned right away can be really tempting for those immediate wants and needs, but it can sometimes be wise to re-invest any returns as you could end up with a much larger return on your investment.

Compound interest is great news for savings and investments, especially those long-term ones, but it can spell trouble on loans and credit cards.

These are mortgages where the borrower only pays the interest on the loan each month, rather than paying down the debt itself. Customers must have an alternative repayment vehicle in place, so they can repay the initial loan when the mortgage term ends.

This is the percentage of the amount you’ll earn on the money you’re saving, or the percentage you’ll be charged on the money you’re borrowing.

Investing is putting some of your money away with the aim of increasing the amount, while taking on a degree of risk.

An investment is an asset or item you purchase in the hope that it will generate future wealth.

Say you were to invest in a company, you wouldn’t turn over profit until you sold your shares on the stock market.

The appeal is that by putting a sum of money into a company, in the long term you might be able to make a profit that will pay back your initial investment and then some.

These are companies who invest in a portfolio of assets. These companies are listed on the stock exchange and you can then buy shares in each Investment Trust. Unlike Funds, there are a finite number of shares available in each Trust – this is called being ‘closed ended’.

ISA stands for Individual Savings Accounts. They’ve been around in various forms since 1999 and are savings accounts that offer a tax-free or tax-efficient way to save money. There are 4 main types: Cash ISAs, Stocks & Shares ISAs, Innovative Finance ISAs; and Lifetime ISAs. There are also Junior ISAs for children.

Allowances:

ISA: £20,000 per annum

JISA: £9,000 per annum

Lifetime ISA: £4,000 per annum

This is the amount of money you’re able to save tax free into an ISA each year. For the 2020/21 tax year, the ISA allowance is £20,000. There are four different types of ISA and you can save into one of each kind in any one tax year, so long as you don't pay in more than £20,000 in total.

This is when you move funds from one ISA provider to another. The key here is not to withdraw your funds and then move them to a new provider, as it will lose its tax-free status. Instead, they should be transferred to an alternative ISA provider.

These are tax free savings accounts for children aged under 18. Cash and Stocks & Shares Junior ISAs are available and you can pay in as much as £9,000 a year (2020/21 tax year). Parents or guardians can open the account but the money belongs to the child. Once the child turns 16 they can start managing the account but they can’t withdraw any money until they turn 18.

This is a legal document that gives your chosen representative/s the power to make decisions about your finances, and/or your health and welfare on your behalf if you lose your physical or mental capacity. It needs to be registered with the Court of Protection to be enforced.

If you own a leasehold property you have a legal agreement with the Freeholder which states how long you own the property for. Generally speaking you’ll pay a ground rent to the Freeholder and other service charges may apply. Most flats are sold on a leasehold basis, where the Freeholder is usually responsible for maintaining the communal areas of the building.

Historically, there has been a maximum you can save in your pension during your lifetime before taxes apply. For the 2020/21 tax year the lifetime allowance was £1,073,100.

However, in the 2023 Spring Budget the government announced it would abolish the LTA.

These ISAs are designed to help people either buy their first home or save for later life. You can save up to £4,000 in one in each tax year and the government will top it up by an extra 25%. So if you save £4,000, the government will add £1,000. The money can only be accessed to buy a home or once you have reached age 60. If you withdraw your cash for any other reason, you’ll be hit with a severe 25% penalty. You must be aged 18-40 to open a Lifetime ISA but can continue to pay into one until you reach 50.

Liquidity refers to the ease with which an asset, or security, can be converted into ready cash without affecting its market price.

Cash is the most liquid of assets, while tangible items (property, fine art, etc.) are less liquid.

The two main types of liquidity include market liquidity and accounting liquidity.

The Loan To Value or LTV of a mortgage tells you what percentage of a property’s cost you’re borrowing from a bank. If you borrow £150,000 for a property worth £200,000, your loan to value will be 75%. In general, providers offer lower mortgage rates to smaller LTVs.

This is the highest rate of tax you pay on your income. Different rates of income tax are charged depending on your income. Starting at 20% and rising to 40% and 45% for the highest earners. If you pay one of the higher rates of income tax however, you’ll only pay this rate on the portion of your income that exceeds the threshold. So your income may be taxed at more than one rate. Put more simply it’s sometimes just referred to as your highest rate of tax.

This what happens when a fixed term savings product comes to an end. Once the product has matured, you’re free to cash it in. If you leave your money where it is, it's likely that the interest rate will be reduced. For this reason it’s best to keep an eye on your savings' maturity date and shop around for a better deal, unless you need the money.

MPAA kicks in if you start taking money out of a Defined Contribution Pension. It means the amount you’re able to pay in each year falls from £60,000 to £10,000. It’s pertinent for savers who wish to dip into their pension while they’re still working. MPAA doesn’t apply though if you are taking tax free cash and putting the remainder of your fund in income drawdown, if you are purchasing an annuity, or if your pension is worth less than £10,000.

A property enters Negative Equity if it’s worth less than the outstanding mortgage. For example, if you have a £150,000 mortgage balance, but the value of your home is only £130,000.

This is a feature of equity release plans which ensures that you’ll never owe more than the value of your home.

This is when you need to tell your savings provider that you want to make a withdrawal before you need the money. This could be anything from 30 days to a number of months. As a rule, the more notice you need to give, the higher the rate of interest you’ll earn.

Open-Ended Investment Companies (OEICs) are a type of shared investment. They’re popular because they allow lots of people to pool their money and invest. By coming together with hundreds or thousands of others in a fund, small investors can get access to a much greater range of investment opportunities.

A passive investment strategy tracks the performance of an Index, like the FTSE 100, or pool of investments. This is rather than using a Fund Manager to actively manage funds. The idea is to spread risk and create a portfolio that mirrors the performance of an overall stock market or index, normally over a long period of time. They’re usually cheaper than actively managed funds.

Pensions are schemes that enable you to invest money for later in life. The idea is to build up a pot that’ll help to fund your desired lifestyle once you reach retirement age. Contributing to a pension pot offers a number of benefits and is often a tax-efficient way to invest because of tax relief on pension contributions.

There are three main types of pensions: 1) workplace pensions, where both you and your employer usually pay in a fixed monthly amount, 2) personal or private pensions, where you pay in lump sums or monthly contributions as you see fit, but there’s no link to your employment status, and 3) state pensions, which you contribute to in the form of regular national insurance contributions.

There are two main ways pensions can be structured - 1) A Defined Contribution Pension, and 2) A Defined Benefit Pension.

In the event of a divorce, or dissolution of a civil partnership, this allows a portion of a person's pension to be transferred to a former spouse. These are now used more commonly than an Earmarking Order because the transfer is made into a new contract, under the new member's name, giving them control over the pot of money.

This is the amount most people can earn before being subject to income tax. For the 2023/24 tax year the allowance is £12,570.

Basic rate taxpayers can earn up to £1,000 from savings income tax-free each year. Higher rate taxpayers can earn up to £500 but additional rate taxpayers don’t receive an allowance.

A financial portfolio is a collection of investments and can include anything from cash in the bank, to company Stocks & Shares. Portfolios are either held by investors or managed by a financial institution such as F&T. How your own personal financial portfolio is made up will affect everything from the amount of risk you face, to the amount of money you might make or lose.

Rebalancing is what you do to your portfolio to help keep it in line with your initial investment goals and the level of risk that you’re comfortable with.

For example, you start a portfolio with half of your money invested in Stocks and Shares and half in Bonds because this reflects your tolerance for risk. Over time some investments will perform well and others less so. In this way your shares go up in value by 10%, whilst your bonds fall in value by 5%. The good news is overall you’re in profit. But your portfolio has become imbalanced and no longer reflects your desired risk level. You’re overweight in shares, as it doesn’t have the same 50/50 balance of stocks vs. bonds it had at the start.

To get it back to your starting position, you need to sell some stocks and buy more bonds. This is where many investors struggle sticking to a disciplined approach because it can seem counterintuitive to sell investments that’ve been doing well and buy more of ones that haven’t. F&T’s fixed allocation portfolios are rebalanced automatically.

This is a type of advice which uses computer algorithms to recommend products, or create investment portfolios, based on your stated financial attitudes and circumstances. Robo advice is generally cheaper than traditional alternatives. At F&T we don’t believe Robo Advice is sufficient though, which is why we offer advice in the cost-effective way we do – see our About us and Simple fee structure sections.

This happens when you don’t pay off the interest on your loan each month. Instead, it’s added to the overall amount you owe. This means you’re being charged interest on the interest and the costs can quickly mount up. This type of agreement is common with equity release mortgages.

The S&P 500 is an Index of 500 big, listed businesses in the US.

Secured debt is tied to an asset, for example a property. A mortgage is an example of secured debt, which basically means that your property may be used to pay back a debt if you don’t keep up with repayments. Some loans and credit cards are unsecured debt, because they’re not tied to an asset.

The term Securities used to just mean the paper certificates sent out to investors as proof of an investment. Now, it’s used more broadly as a way of describing the most common types of investments – from Stocks & Shares, to Commodities like oil and gold, and Bonds.

An organisation that sells a Security is known as the Issuer. In the UK, the London Stock Exchange is the main domestic securities market.

Seen the movie ‘The Big Short’? It’s all about Short Selling, or Shorting, which is an investment strategy that tries to predict a decline in the price of an investment.

Short selling involves borrowing a security and selling it on the open market. It’s where an investor identifies and borrows shares they believe will fall in value on a predicted date. They then sell the borrowed shares at market price, in the hope they can buy back later at a lower price, and return to the lender, before pocketing the difference.

For example, let's say a stock is trading at £50 a share. You borrow 100 shares and sell them for £5,000. But the price suddenly declines to £25 a share, at which point you purchase 100 shares to replace those you borrowed, netting £2,500 in the bargain.

Rather than ‘buy low, sell high, think ‘buy high, sell low’.

Short selling is considered an extremely risky strategy and is something we never do at F&T.

These two terms are used fairly interchangeably, and can also be known as Equities. Essentially a Stock or Share is a little piece of a company, which you own. For example, if a company is worth £100 million, and there are 50 million shares, each share is worth £2.

The value of your shares will rise or fall depending on the performance of the company. If the company increases in value, the value of your stock will increase too; whereas if the company loses value, your stock will be worth less. So it’s important to remember with shares that investments can go down as well as up, so you could get back less than you have paid in.

Often companies will offer investors with the highest number of shares more of an exclusive insight into decision making processes and roadmaps of the company's future.

You may also receive an income from the shares if it pays a Dividend.

AKA Investment ISAs, these allow you to hold individual shares, funds and investment trusts within an ISA wrapper to enjoy tax-free growth.

This is a sum of money the government collects from taxpayers, so that it can pay for public services.

This term refers to a product that can be wrapped around your savings to shelter them from tax. Both ISAs and Pensions are commonly referred to as Tax Wrappers.

A simple returns would just show the difference between what you put in at the beginning of an investment vs. what you have at the end. Time-Weighted Returns go further and take into account deposits and withdrawals in that period, to give a less misleading picture of how a portfolio has performed.

This method basically breaks down the lifetime of your investment into shorter periods of time, then calculates the simple return for each period, before putting them all together, which smooths out the distorting effect of contributions and withdrawals.

A Trading Halt is when trading is temporarily stopped on a security or even on an exchange, either in anticipation of news (positive or negative) that will affect a stock’s price, or to discourage excessive volatility.

This mechanism to halt trading on a stock exchange is sometimes called a circuit breaker or curb. It suspends trading for as little as 15 minutes, or as long as a day. They are triggered by sharp, steep selloffs, and give investors time to digest the situation and keep a lid on rising panic.

Tracker or Index Funds are designed to track, or match, the performance of an Index. They can be set up to track indices either perfectly, by tracking every investment in an index; or partly, to track just part of an index with other investments also included.

A trust is a vehicle to hold assets on behalf of others. Trusts are attractive because they can minimise inheritance tax liabilities and reduce the time and cost of transferring assets after death.

This is when a lump sum is withdrawn from a pension without moving the remaining funds into Flexi-Access Drawdown, or to buy an Annuity. You don’t pay tax on the first 25% of any withdrawal, but the remaining 75% will be taxed as income at your highest rate. It’s only available with Defined Contribution Pensions.

A Unit Trust is a type of investment fund that contains lots of individual investments. Although private investors can buy shares in companies on their own, funds like Unit Trusts allow lots of people to come together to invest in stock markets around the world. Because of the number of people involved, they mean investors spread risk and access a wide range of investments. The trust is split into ‘units’ (hence the name) with different prices, which are either created or cancelled as investors enter or leave the fund.

VAT stands for Value Added Tax and is the tax you must pay for on goods and services. The standard rate of VAT in the UK is 20%.

Volatility relates to how much a stock’s price rises and falls. If a share is deemed highly volatile, it’s likely to fluctuate in price over the short-term. Whereas the value of a low-volatility investment is more stable. Investors who invest in highly volatile stock take on more risk but could enjoy potentially larger returns. While low-volatile stock are typically less risky but grown slower. One of the key things to keep in mind when it comes to investing, is that prices can go down, as well as up, although history suggest that over the long-term they go up.

A Wrapper is just another word for a financial product. But it’s a way of consolidating a number of different investments so they can either receive a particular tax treatment, e.g. ISAs and pensions, or simply be administered and managed together. Depending on your investment goals, different wrappers might be suitable for you.

Yield is a way of measuring how well an investment is performing and how it’s predicted to perform in the future. So whereas returns involves past criteria like interest, dividends and capital, Yield is forward-looking. It incorporates the income an investment earns, including dividends and interest, putting capital gains to one side.

When it comes to cash in a savings account, Yield refers to the annual interest you might get from the bank. When it comes to shares, Yield is worked out by adding up the value of any dividends paid out during the year, and expressing that number as a percentage of the cost of buying the shares in the first place. So if you had £3,000 invested in shares, and were paid an annual dividend of £140, the Yield would be 4.7% (£140 ÷ £3,000 x 100).