Jargon, the biggest conversation killer in financial history. Here at WiseAlpha we want to open up the corporate bond market to the everyday investor so you can make your money work as hard for you as you did for it. To do this it’s important to get your head around the financial terminology used, so here it is, our jargon busting investment glossary…
Interest that has accumulated but has not yet been paid. Interest accrues from the date the last interest payment was made until it is paid at the next interest payment date.
A bond is a loan issued by a government, company or other institution. Instead of taking a loan out through a bank, the borrower approaches investors for money (capital). The issuer promises to pay a fixed rate of interest (a coupon) for a fixed period at regular intervals until maturity, upon which they will repay the original loan or capital back to the investors (bondholders).
A capital gain is the profit made on the face value of an investment purchased. Any income that may have also been earned is not included.
Compound interest simply means earning interest on the interest you’ve already earned by reinvesting it.
The interest rate agreed by the borrower and paid at a predetermined frequency. Most bonds pay coupons semi-annually, while some pay quarterly, and others annually.
This means owning a wide range of different investments to avoid single investment risk. In other words, not having all of your eggs in one basket.
Floating Rate bonds pay interest that is a specified margin above the LIBOR rate (the basic rate of interest used in lending between banks). This means the interest on the bond changes in line with the interest rate.
The Financial Times Stock Exchange (FTSE) is a list of companies you can invest in on the London Stock Exchange. FTSE 100 is the top performing 100 companies.
An Innovative Financial ISA (IF ISA) is something we offer here at WiseAlpha that allows you to hold up to £20,000 of bonds this tax year as a tax free investment.
An investment strategy is the actions taken and investments made to help reach a predetermined goal.
An Individual Savings Account (ISA) is a government scheme allowing you to hold funds/investments free of tax on dividends, capital gains and interest. They come in many forms including cash, stocks and shares, lifetime ISA and innovative finance.
How quick and easy it is to access your money from your investment should you need to sell.
The final payment day at which the financial instrument (e.g. a loan or bond) will cease to exist and the principal is repaid with interest.
Peer to Peer (P2P) lending is lending money to individuals or small businesses who want to borrow money. This is often done through platforms that match lenders to borrowers.
This is the collection of investments an individual or company hold as whole. It can include, stocks & shares, bonds, property and more.
When we talk about investments we talk about risks vs rewards. A risk profile is how much risk you are willing to take in losing/eroding your initial investment in order to reap a high return. The higher the risk of the investment the more you are likely to earn in returns.
Senior Secured means that the bond has security over the assets of the company and has first priority should a company go bust and the assets liquidated. It therefore gives bondholders greater comfort.
A Self Invested Personal Pension is a HM Revenue and Customs approved personal pension scheme design for investors who want flexibility and control over their investment strategy including the asset classes in which their pension fund is invested.
Stocks & Shares
Stocks & shares are investing in companies by buying a share in the business. The investment performance is directly influenced by the business performance and can be very volatile.
Bonds which do not have charges or security granted over the assets of a company or individual.
Yield to Maturity
Yield to maturity is the total return anticipated if you hold the bond to maturity.
You can find out more about bond investing in general by downloading our Guide to Wealth Building.
As with all investments your capital is at risk. WiseAlpha members purchase Notes which are fractions of individual corporate bonds.