The Sunday Mail
A minefield of technical jargon in the field of investing leaves many people feeling inadequate, uneducated and incapable of understanding this field of financial planning. Many advisors use investment terms colloquially in their everyday lives, forgetting that their clients don’t necessarily have insight into what these terms mean.
Asset class
When it comes to investing, there are four main asset classes available to you: cash, bonds, property and equities. While cash is the safest asset class, it also generally provides the lowest returns over time. Bonds, on the other hand, involve government, local authorities or corporates borrowing money from investors and issuing them with a debt instrument called a “bond”, with the investor being entitled to annual cash fixed interest payments. Property is a very broad asset class as it covers all aspects of real estate including corporate, industrial, residential, farm and rural property. Equities, which are effectively shares in a company, are considered the highest-risk, highest-return asset class. While bonds and cash are considered safer investments, equities and property provide greater protection against the effects of inflation in the long term.
Equities
As mentioned above, equities are essentially shares in the ownership of a listed company. When a listed company offers equities, it is effectively offering investors the opportunity for partial ownership in that company. Equities are high risk because their price can be dramatically affected by short-term market volatility, although in the longer-term equities have proven their mettle and are able to generate favourable returns given an adequate time horizon. The amount of equity exposure you have in your investment portfolio effectively determines the risk profile of your portfolio. So, if you are young and investing for your retirement, you are able to incorporate more equity exposure into your portfolio. If your investment horizon is shorter, you may want to de-risk your portfolio by incorporating less risky asset classes into your strategy.
Offshore investing
Simply put, offshore investing means investing your money in a jurisdiction other than your own country of residence. Direct offshore investing involves opening up an offshore bank account in the foreign country and physically sending your money overseas.
Active investing
As opposed to tracking indices, active investing involves a more hands-on approach to investing. The portfolio or fund manager actively manages the fund in accordance with their investment process, philosophy or style, with the aim being to beat the stock market’s average returns. Active investing usually involves a portfolio manager who is supported by a team of investment analysts who make changes to the investment strategy as markets fluctuate. Active investing requires skill and confidence on the part of the portfolio manager and, because it requires more intense management of the portfolio, the fees are generally higher than passive investing.
Fund Manager
Actively managed investment portfolios require the expertise of fund managers who are effectively responsible for implementing the fund’s investment strategy. A fund can be headed up by one fund manager or by a team of fund managers who generally earn their fees as a percentage of the fund’s assets under management.
The fund manager actively manages the assets within the fund by making purchasing and selling decisions and portfolio construction decisions which they believe will best achieve the stated target of the fund.
