Investment Jargon Buster

Risk

The chance that returns could be lower than expected on an investment. The more a fund will go up and down, the higher the risk level. High risk funds are more likely to go up and down in the short run. You can reduce your overall risk by spreading your investments over a variety of funds in different industries and types e.g. stocks and bonds.This is called diversifying your investment portfolio.

Portfolio

A collection of investments owned by an individual or company.

Mutual Fund

A set of specifically selected stocks (and sometimes bonds) that aim to achieve a specific investment result, like matching a risk level or covering a specific theme. At Plum they are split into Basic Funds - which are built around risk - and Advanced Funds - which are built around specific themes. Mutual funds give smaller investors better access to professionally managed portfolios by pooling their money. They are also diversified, reducing overall risk. Any returns each investor gets are proportionate to the amount they invested.

Fund Provider

A financial company (e.g. Vanguard) which creates Funds, and manages them day to day.

ISA (Individual Savings Account)

A tax-beneficial investment or savings account. For investments we talk about Stocks and Shares ISAs. The returns you earn on your investments held in a Stocks and Shares ISA aren’t subject to capital gains tax.

There are some restrictions on your ISA. Currently you can place up to £20,000 into your ISAs and you can only pay into one of each type (Stocks and Shares, Cash, Innovative Finance, SIPP) each tax year. You can open a new ISA with a different platform each year if you want to, but you can still only pay into one of them each year.
As always, tax treatment is dependent on an individual’s circumstances and may be subject to change in the future.

GIA (General Investment Account)

These are a simple way to hold investments. They do not have any tax benefits and you pay income and capital gains tax in accordance with your financial situation. GIAs are useful if you have used up your ISA allowance because they have less restrictions and you can pay into them as many times as you like a year without an upper limit.

Stocks/Shares

These words are both used to describe a small part of ownership of a company. The value of stocks/shares is affected by the performance of the companies. Stocks can fluctuate in value, but historically have given higher returns than bonds.

Bonds

These are loans to companies or governments. By buying a bond, you are lending out your money to a company or government. The value of the bond is affected by the interest rate paid by the issuer (the one borrowing the money) which is contractually agreed. This is generally regarded as safer than a stock, as the interest rate (the return) is fixed, and you are not exposed to changes in value of the company. By adding more bonds to a fund, the manager reduces the overall risk, and in return gives up some potential return of riskier asset classes. Basic funds with Plum do this to build funds around different risk levels.

Return

Money made or lost during an investment which can be expressed as a percentage of the money invested (e.g. 6%) or as monetary value (£50). If you invest in stocks the money you make or lose are called returns.

Interest

Money paid regularly at a particular rate for the use of money lent, or for delaying the repayment of a debt. If you invest in bonds directly they earn you interest.

Compound returns

This is the result of reinvesting returns from an investment, rather than cashing them out, so that returns in the next period is earned on the originally invested sum plus any returns made. This is why compound investing over the long term yields higher results.

For example, an investment of £1,000 on our Tech fund 5 years ago would have grown to £2,862 today if all returns were reinvested. If you had cashed out those returns, the fund would have only grown to £2,410. Be aware, that past performance is not necessarily a guide to future performance

Active vs. passive investing

Active investing means continuously buying and selling based on current affairs or new insights. The method here is that you believe that you can outsmart the market with short term decisions to grow your returns at a faster rate than the market naturally grows.
Passive investing means leaving your money invested in your selected funds for a few years and/or contributing to the same fund regularly for a long time. Overall markets tend to go up, so by leaving your money where it is you should grow your money with the markets. If you practice passive investing and the markets go down you leave your money in the fund and wait for the market to recover and continue to grow. Plum Investments is well suited to passive investing.

Plum Fee

A monthly charge of £1 which Plum will charge for using the investment feature. This will be charged from your bank account monthly. Read more about fees here.

Fund Provider Fee

The underlying fee the fund charges. This will be charged daily in the fund price, so you won't notice an explicit charge, but this eats into the earnings on that fund.

Fund Management Fee

Monthly charge for the management of the funds of 0.15% charge monthly by our partner. This fee will be charged on the value of your portfolio monthly, and will be automatically deducted from your funds. The fees charged will be shown on your quarterly statements.