The financial world is full of jargon which can be extremely off-putting to those who aren’t in the know. There are some terms that it is common for people to not understand what they mean, yet they often feel they can’t ask for fear of coming across as ignorant. This can prevent people from investing in products that might otherwise be right for them. We are coming to the rescue, however, with our list of the top 5 investment terms that you need to understand.
One question that many are too scared to ask is what is an annuity? An annuity is a pension product that can provide an income in retirement once purchased. It is one of those products that doesn’t allow for you to change your mind, once purchased you have to wait for retirement before you can see a return on your investment. There are two types of annuity, a lifetime annuity offers an income for life and if you choose can also offer an income for life for a nominated beneficiary whereas a fixed-term annuity offers an income for a set period, which is usually 5 or 10 years.
According to This is Money gilts are investment products that is essentially an IOU from the treasury. Basically, an investor gives money to the government which is used to help run the country and the government in return pays interest over the lifetime of the bond. Once the term of the gilt is up, the initial investment is returned.
Equities are all about investing directly in a particular company. The investor buys shares in a company in the hope that when they sell them the price will have gone up so that they can make money. Equity investors also enjoy profits in the form of dividends, a payment made once a year to shareholders by the company in which they invest, although it is worth noting that companies are under no obligation to make this payment. For some advice on deciding whether a particular company might offer a sound investment opportunity take a look at Your Money.
4. Investment fund
An investment fund is a collective investment scheme, which can offer investors safety in numbers. When you buy into a fund, you basically pool your money with other investors to buy into a portfolio of investments, which is usually decided on by a professional fund manager. Head to Which? to find out, even more, to help you decide if this type of investment is right for you.
ISAs or Individual Savings Accounts allow you to enjoy tax-free interest payments on your savings. According to Gov.UK the maximum you can save in an ISA for the 2018/19 tax year is £20,000. The ISA can work just like a regular savings account or you could invest in stocks and shares ISA where any money you pay in is invested on your behalf with any profits being paid back into your account.