Naz Financial

A Personal Financial Blog from Naz Miller

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An investment approach that aims to mirror or track the performance of a financial index. Also known as Tracker Funds. This is normally done by either investing in the exact constituents of an index or by taking a representative sample of that index. The managers of the fund have lower expenses than active fund managers, and the charges to investors are therefore lower.

An employer collects income tax and national insurance. These are collected from employees’ pay and the employer pays it to HMRC. This system is called Pay As You Earn (PAYE).

The person that money is being paid to.

This insurance covers people’s finance agreement repayments if they cannot work because of long−term illness or redundancy. Fell into disrepute owing to significant mis-selling.

This is a type of annuity usually bought with the proceeds of an HMRC registered pension scheme. Provides a fixed annual income for the rest of your life.

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A type of authorised investment fund, regulated by the Financial Conduct Authority (FCA). Investors in a QIS will be institutional investors, such as life and pension funds. 

Quantitative easing (QE) is a form of monetary policy in which a central bank purchases longer-term securities from the open market to increase the money supply. This encourages lending and investment. Buying these securities adds new money to the economy and serves to lower interest rates by bidding up fixed-income securities. It also expands the central bank’s balance sheet.
Formerly a little-known term outside central baker circles, it’s become a standard form of policy since the financial crash of 2008-9.

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The interest rate after the effects of inflation have been removed – e.g., interest rates that are high may be relatively low in “real” terms if inflation is also high.

The Return from an investment adjusted to consider the effect of inflation.

In general terms, a recession is significant economic decline, when the GDP (Gross Domestic Product – the value of all the goods and services a country produces in a year) goes down.

To be precise, for an economy to be in recession, it must have experienced 2 successive quarters of falling GDP.

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A tax-efficient method of increasing the money paid into a pension scheme by giving up existing salary or proposed salary increases, so that the sum forgone can be used as an additional company contribution into a pension scheme.

An employee savings scheme that stands for Save As You Earn. You can save up to £500 of your salary each month for a set period. At the end of that period, you can use the savings to buy shares, usually in the company you work for.

A loan that is secured on your home or other asset. So that if you fail to keep up with repayment, the asset could be taken by the lender to cover the loan. A mortgage is a type of secured loan.

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Reducing tax bills by using legal means is called tax avoidance.

A state benefit paid to employees through the tax system, which has the effect of increasing net income.

Breaking the law to reduce tax bills (such as by concealing income) is called tax evasion.

Glossary of Personal Financial Terms

AAA Rating

In short, AAA ratings (‘triple-A‘ ratings) are the highest credit rating available for an investment, such as a bond or company.

AAA ratings are issued to investment-grade debt that has a high level of creditworthiness with the strongest capacity to repay investors.

Similarly, the AA+ rating is issued by S&P (Standard and Poor) and is similar to the Aa1 rating issued by Moody’s. It comes with very low credit risk and indicates the issuer has a strong capacity to repay.