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Acronyms and abbreviations are very much part of our everyday language. As much as we may try not to use BRB or LOL in real life, chances are you’ve RSVP’d to a party invitation recently or written PS on an email without batting an eyelash…
It’s easy to see how they have become a huge part of our language – over many hundreds of years, not just in recent times. But when it comes to financial jargon, which is confusing enough, acronyms can seem overwhelming.
At times it may appear as though they’re used to intentionally confuse DIY investors (sorry!), but don’t let them discourage you from taking control of your personal finances. Here are the most common acronyms used in the investment world, along with their all-important meanings.
‘The word abbreviation sure is long for what it means.’ – Zach Galifianakis, actor
Annual management charge – the annual fee the fund provider charges to manage the fund. It is shown as a percentage e.g. 0.75%. So if you have £1,000 invested in the fund you will pay £7.50.
Annual percentage rate – often used for personal loans, credit cards, and even mortgages, it’s the annual rate charged or earned through an investment. For example, if your credit card APR is 19%, you will pay 19% interest over the year if you don’t pay it off. That’s £190 if you owe £1,000.
Early repayment charge – typically buried in mortgage fine print, it refers to penalty charge for switching deals or paying off your mortgage early. You may or not have one of these so it’s worth checking before you make any changes.
The Financial Times Stock Exchange – the FTSE Group is home to a number of market indexes. The most well-known is the FTSE 100, which refers to the UK’s 100 largest listed companies by value. You’ll often see or hear about this on the news, when the stock market rises or falls. There is also the FTSE 250, which refers to the UK’s 250 mid-sized companies and the FTSE All-Share which refers to all 350 companies.
Ongoing charges figure – is a figure published annually by an investment company. The OCF includes the annual management charge (see above) and other costs such as registration, regulatory, audit and legal fees. Importantly, it does not include transaction costs or performance fees.
Return on investment – normally shown as a percentage, it is a simple gauge of an investment’s profitability. If it is positive, it is probably a worthwhile investment, if it is negative – implying a loss – maybe think again. As an example, Miss Millennial invests £1,000 into company A. Three years later, she sells the investment for £1,200. The return on her investment is calculated by dividing her profits by the cost: (£1,200 – £1,000)/£1,000 = 20%.
Listen as Lesley Duncan of Standard Life Investments UK Ethical and Bryn Jones of Rathbone Ethical Bond explain what exactly SRI and ESG means in the world of ethical investing. And find out which market indicators (and their acronyms) fund managers think you should be keeping an eye on.