Financial Terms That Everyone Should Knowhttps://austenmorris.com/wp-content/uploads/2021/09/finance-EYHKDAH-scaled.jpeg25601707AMA TeamAMA Teamhttps://secure.gravatar.com/avatar/4ad9c580ca7195a1d4f6c40c38a18a15?s=96&d=mm&r=g
Financial Terms That Everyone Should Know
Even though finance is a crucial part of every adult’s life, most of us are economically clueless as we leave the education system – which is meant to prepare us for life in the real world.
Therefore, the responsibility falls to us as adults to become financially savvy and educate ourselves with articles, books and explanatory videos to aid our quest to achieve financial literacy.
With this in mind, we’ve compiled a list of financial terms that everyone should know and understand to navigate the finance world successfully.
Inflation measures the rate that the overall price of products and services increases (or decreases), with banks forecasting a general predicted growth of around 1-3% per year in most countries, including the UK, US and China.
A type of interest that’s earned on both a deposited – or borrowed – sum of money and the interest that may accumulate on the sum over time.
So, when a person saves money, their compound interest is the interest they earn on both the original sum and any interest that this sum propagates.
However, after taking out a loan and incurring debt, the compound interest is the interest earned on both the original loan amount and the interest accumulated over time, which the borrower must payback.
A term most commonly used when banking, the interest rate, is the percentage interest a bank pays an individual for keeping a sum of money there.
A mortgage that carries a fixed interest rate for the entire life of the loan. You don’t have to worry about your payments going up if interest rates rise with a fixed-rate mortgage. The downside is that you could be locked into a more expensive mortgage if interest rates go down.
This term refers to the schedule of repayments a person adheres to pay off their debt over a certain period of time, like the monthly repayments of a mortgage.
Most often used in real estate, ‘Escrow’ refers to an account – managed by an unbiased third-party organization – which holds capital/investments of two parties to facilitate a fair transaction.
Net worth is the most common metric that we judge an individual’s wealth.
Simply put, net worth is calculated by subtracting any debts a person has from their ‘investments’, including the physical investments they own and any capital they have.
Capital gains/Capital loss.
When selling an asset, you may acquire capital gains or capital loss, depending on whether you sold the asset from more than it was purchased or less respectively; the capital gains or loss represents the difference between these two figures.
Moreover, when selling, you’ll pay taxes on the capital gains earned on an asset, whereas a capital loss could reduce the tax you pay when selling.
Refers to the process of choosing where to make your investments – which may include equities, bonds and cash/cash equivalents – usually striking a compromise between the measure of time in which individual hopes to reap returns, the size of returns desired and the amount of risk they can tolerate.
When undergoing asset allocation, an individual will typically have percentages of their total investment sum in mind that they want to store in each type of investment, such as stocks, bonds, funds and cash (these are called target allocations).
If one of these investment allocations performs remarkably well, however, the percentages – in terms of the value of the investment – may differ from your original target allocation. So, you can sell or invest sections of your portfolio in returning these percentages to the initial target allocation known as rebalancing.
Also called equities or shares, stocks give you ownership in a company. When you buy stocks, you become a company shareholder, giving you a claim on part of that company’s assets and earnings.
Securities are tradable financial assets with accompanying monetary value that may appreciate or depreciate over time, including stocks, bonds, mutual funds, index funds and ETFs.
Diversification is the act of spreading out your investments over multiple tradable investments, industries and sectors, and asset classes – which could include various stocks, bonds or funds – to reduce your overall investment risk.
Diversification means that if one company – or one sector or type of asset class – undergoes a hit, it doesn’t deplete your entire investment portfolio.
Defined contribution scheme
Defined contribution schemes are occupational pension schemes where your contributions and your employer’s contributions are invested, and proceeds are used to buy a pension and/or other benefits at retirement. … Contributions are invested on behalf of each scheme member.
Term Life Insurance
A type of policy that provides coverage over a set period, generally anywhere from 10 to 30 years. If you die within the set term, your beneficiaries receive a payout. If you don’t, the policy expires with no value.
These are payments you make to an insurance company to maintain your coverage. You can pay premiums monthly, quarterly, semiannually or annually.
“Warwick Hamilton has, since 2014, been the financial advisor dealing with the proceeds of my UK pension, invested via QROPS in an STM Pension Transfer Plan. I am sure that I am not his biggest client but you would not think so, given the excellent support and service that he gives me. I have been continuously impressed by the way he ensures that these investments are managed to perform well, align with my risk profile; and with his ethical, informative, honest and straightforward way of handling those affairs. I have kept these investments with Warwick despite approaches to change financial advisors because he ensures that I am kept well informed and I trust him.”
Dr Leslie Alan Carlo
“Chad is a pleasure work with, throughout my dealings with him he has always maintained care for our relationship over and above my portfolio. He has ensured our communication and working timelines are met to the highest standard. I’ve found Chad to be very thorough and more than happy to take the time always to keep me updated and continue to answer all questions in a timely and professional manner. He is also very personable and courteous, with a keen attitude to deliver the best service. Chad keeps updated on current market developments and regulations, and his attention to detail and analysis of my portfolio has been most informative and insightful. In my opinion, Chad is a knowledgeable and professional advisor, and I feel comfortable entrusting my international arrangements and overall portfolio management to him. I would happily recommend Chad to others who require assistance regarding their financial planning.”
Warren Drue - Partner- WEBBER WENTZEL
“I’ve been always targeted by many financial advisors and International investment groups over the years. I have had one fund with an offshore investment group before which I canceled in 2008 and since then I was uncertain if I should do something again. I met Kirk in 2014 and he kept contact with me over the next few years. In 2017 I thought of investing and starting some fund and I have immediately contacted Kirk since he has left a very strong impression as a competent, pleasant, and very well informed advisor. Now I have a few funds with AMA and I am very happy with the service level, professionalism, and guidance from Kirk. I am very confident that I will reach my future goals.”