Glossary Investment terms The following are explanations of some of the terms you would have come across in this guide. Asset governments as they are often considered more risky. Diversification Anything having commercial or exchange value that Coupon The practice of investing in a variety of assets. Ais owned by a business, institution or individual. The interest paid by the government or company This is a risk management technique where, in a that has raised a loan by selling bonds. well-diversified portfolio, any loss from an individual Asset class holding should be offset by gains in other holdings, Category of assets, such as cash, company shares, Credit rating thereby lessening the impact on the overall portfolio. fixed income securities and their sub-categories, as An independent assessment of a borrower’s ability well as tangible assets such as property. to repay its debts. A high rating indicates that the Defaulted/Default Bond credit rating agency considers the issuer to be at low When a borrower does not maintain interest A loan in the form of a security, usually issued by risk of default; likewise, a low rating indicates high payments or repay the amount borrowed when due. a government or company, which normally pays a risk of default. Standard & Poor’s, Fitch and Moody’s Distribution fixed rate of interest over a given time period, at the are the three most prominent credit rating agencies. Refers to the periodical paying-out of interest or end of which the initial amount borrowed is repaid. Default means that a company or government is dividends received by funds to their shareholders. unable to meet interest payments or repay the initial Capital investment amount at the end of a security’s life. Dividends represent a share in the profits of a Refers to the financial assets, or resources, that a company and are paid out to the owners of company company has to fund its business operations. Credit rating agency shares at certain times during the year. A company that analyses the financial strength of Capital growth issuers of fixed income securities and attaches a Dividend Occurs when the current value of an investment is rating to their debt. Examples include Standard & Dividends represent a share in the profits of greater than the initial amount invested. Poor’s and Moody’s. the company and are paid out to a company’s shareholders at set times of the year. Corporate bonds Credit risk Fixed income securities issued by a company. They can Risk that a financial obligation will not be paid and a Equities offer higher interest payments than bonds issued by loss will result for the lender. Shares of ownership in a company. continued on next page 13