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A – Z Guide to Investments – Part 2

By Balance team, Jul 14 2017 09:39AM

Earlier this week, we posted the first part of our A – Z guide to investments. We continue to wade through the industry jargon, explaining common phrases to help you gain a better understanding of investment terminology. Our guide continues below, beginning with the letter M…


M is for Market Crash

A Market Crash happens when there is a substantial drop in the total value of a market. This leads to a situation where many investors are trying to escape the market all at the same time, which results in huge losses. At this point, investors may be tempted to fall into panic selling, trying to sell falling stocks to other investors. However, panic selling only adds to this situation, therefore, the market crashes and everyone is affected. Crashes in the stock market tend to be followed by a period of market depression.


N is for Nominations (Death benefits)

Nominations are where you nominate someone to receive money or benefits in the event of your death. Also known as an Expression of Wishes, these are kept by the company that arranges your group life insurance policy (such as a death in service scheme through your employment). They are also used for many types of pension plan where there is a choice of beneficiaries your money could go to. Often forgotten, or not updated after events like a divorce, it’s important to check these nominations are correct from time to time, to make sure your money is passed to the right person, because these sums will not usually fall under the instructions in your will.


O is for Offshore vs Onshore

Offshore simply means any item, company or process based outside of your country or national border. This term is regularly used to describe investments, deposits, corporations and foreign banks. Companies move offshore to avoid tax and complex regulations. Investments are often offshore for tax reasons and are a valuable planning tool for wealthy investors. In comparison, Onshore is where a company is incorporated within the UK with the intent of complying with all tax filing and legal requirements here.


P is for Pensions

Often called a Pension Plan or Pension Scheme, these are a pool of funds set up to provide an income once you retire. The pooled funds are invested and grow over time, ready to pay out an income to you when you retire. An employer may have a work-based pension plan (this could be a ‘final salary’ pension, also known as a Defined Benefit scheme) where their employees make contributions. Recent ‘pension freedoms’ have led to the ability for people to access their pension plan from the age of 55. If you need to review your pension, always talk to a professional.


Q is for Quality of Life

This is a term used in various scenarios – however, in financial services, it measures someone’s happiness when it comes to making important financial decisions. As everyone is different, this is subjective and is usually a combination of family life, job satisfaction, health, and financial security. At Balance: Wealth Planning we strongly believe that professional financial planning can help improve your quality of life. We help by tailoring a plan to suit you. This planning is based not just on your finances but also your goals in life, and the things that are important to you.


R is for Return on Investment

If you’re in business, you will be very familiar with this term - Return on Investment (ROI). Simply put, this is a way of measuring performance. In financial terms, you would use this measure to evaluate the amount of return on an investment in relation to the cost of the investment.


S is for Stocks and Shares

The difference between a Stock and a Share can seem blurred at times. At a basic level, a Stock is a type of security signifying ownership in a company (claiming a part of the company’s earnings and assets). A Share is a unit of ownership in one specific company (or a financial asset) where profits are divided equally from the earnings in the form of dividends.


T is for Trusts

There are many types of Trust with different rules. In simple terms, a Trust is used to decide how property and assets are passed onto beneficiaries at an appointed time, e.g. when someone dies or when a child reaches adulthood. Until such time, the property and assets are looked after by ‘trustees’. It is also a type of investment fund created as a public limited company. Many people use Trusts to secure their wealth and to offset tax in relation to inheritance. If you are interested in finding out more about Trusts, please speak to one of our financial planners.


U is for Unused Personal Allowance

Your Personal Allowance is an amount set by the government whereby any earnings over this level is liable for income tax. For example, for this tax year 2017 – 2018, the Personal Allowance is £11,500. However, for low earners, it is possible to transfer part of the Personal Allowance to a spouse or civil partner, which can affect the rate at which they pay income tax. This Unused Personal Allowance can be a useful tax break for couples.


V is for Volatility

When people describe ‘volatility in the market’ they are describing a measure of when there is a wide range of returns from that market, or investment. In other words, how much it goes up and down in value. Quite simply, the more volatile something is, the greater the risk and the more unpleasant (or thrilling, depending on your view) the experience.


W is for Wills

An important part of estate planning, a Will (or Last Will and Testament) is observed by law as a declaration, recording the wishes of an individual once they have passed away. Without a Will in place, a person’s estate may not be passed to the people they had expected, i.e. complex family situations (where people have remarried and have children with another partner) can result in disinheritance. A Will must be updated regularly and kept in a safe storage location.


We hope you have found the above guide to investments useful. Investing can seem like a minefield, especially if you have a variety of different investments. Overall, investing relies on your attitude to risk; we always advise spreading your risk and diversifying your investment strategy as much as possible.


Do you have a sound investment strategy? Whether you’re new to investing or you would like to explore more options, please get in touch and speak to one of our financial planners.




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