Investment glossary

Your account is like a special wallet where you keep and manage all your investments. Picking your account is the first step to investing for your future.

At AJ Bell Dodl, we have four different kinds of accounts – an investment lifetime ISA, an investment ISA, pension, and general investment account.

Each one has its own cool features, rules, and tax benefits, so you'll want to pick the account(s) that work best for you and your money goals. 🎯

A fund offers two types of units of shares you can buy – accumulation, or income. The difference is in how they handle the income (like dividends or interest) the fund generates.

Accumulation units take any money your investment makes and reinvest it to give it the chance to grow even more, whereas income units pay out in cash. 💸

If you have accumulation units in a pension or ISA, you don't have to pay tax on the money they make. But if they're in a general investment account, you might owe some tax.

AER stands for ‘Annual Equivalent Rate’ and it shows you what the interest rate on cash would be over a full year, taking into account the effect of compounding (earning interest on your interest).

Dodl offers a competitive interest rate on uninvested cash in the investment ISA and Lifetime ISA and will be paid into your account(s) once a quarter.

The interest rate can change, but you will be notified whenever this happens.

These are our very own investment funds, managed by our awesome team of experts. Each fund has its own mission, like growing your money, making you some income, or even responsible growth. 🌳

The AJ Bell funds are designed to be held over the longer term. Each fund invests in different types of assets, in different proportions, depending on their level of risk and investment objective.

The amount you can stash away into all your pension pots each tax year without triggering a tax penalty. This includes what you personally put in, any government tax relief you and contributions from work.

The standard yearly allowance is currently set at £60,000, but there's a cool trick called ‘carrying forward’ that lets you use any leftover allowance from the past three tax years. If the total cash pumped into all your pensions in a single tax year exceeds your allowance, you might face a tax charge. 💲

Now, if you're bringing in a hefty income (think over £260,000 a year), you’ll find that your annual allowance might shrink a bit (taper). And if you've already dipped into a defined contribution pension, your annual allowance could take a hit here too, triggering the MPAA (Money Purchase Annual Allowance).

This is just a fancy way of saying how you divide up your investments (usually organised by percentage). The main asset types are cash, shares (equities) and bonds, but can also include property or alternatives.

When it comes to investing, everyone has their own comfort level with taking risks. Understanding where you fall on the risk scale can help you figure out what kinds of investments are the best fit for you and your money dreams. 💭

Bonds are like a friendly loan you give to a company or the government. They promise to pay you back the money you lend, along with some extra cash called interest, after a set period of time. It's kind of like planting a seed and watching it grow into a little money tree! 🌴

Bonds are generally seen as a safer bet than buying shares in a company. However, there are still some things to watch out for, like the risk of the borrower not being able to pay you back (that's the default risk), or if prices go up over time (that's the inflation risk). There's also a chance that interest rates might change, which can affect how much money you make.

A collective investment, such as a fund, is where lots of people pool their money together to buy shares or units. This pool is then used to invest in a bunch of different things, like stocks and bonds etc.

There's usually a manager who decides where to invest based on specific goals or themes, like tech or sustainability. You might hear them called different names like investment trusts, unit trusts, or OEICs, depending on how they're set up. ⚙

A corporate action, also known as a corporate event, is basically a fancy term for any change that happens to shares or debt that has been issued. These changes are usually planned by a company's big bosses (the board of directors) and then given the thumbs-up by the shareholders.

There are different types of corporate actions. Some are 'voluntary,' meaning the shareholder may have to decide on a course of action. A voluntary corporate action could be when a company takes over another one.

Then there are 'mandatory' ones, where things just happen without the shareholder needing to do anything, e.g. when two companies decide to join forces (a merger). ➡⬅

Dividends are like little bonuses companies give you for being a shareholder. They're a share of the company's profits that they dish out to their investors if it’s made a profit. 💸

Drawdown is a flexible way to tap into your pension savings.

Once you've taken your tax-free lump sum, the rest of your pension is ready for you to use as income whenever you need it. If you decide against buying an annuity (converting your savings into a pension), your remaining funds go into drawdown, where you're in control.

With drawdown, you decide how much income you want and when you want it. ⭐

As of now, Dodl doesn’t offer drawdown, however it is available on our parent platform, AJ Bell.

An ETF, or Exchange Traded Fund, is like a team of investments bundled together and traded just like individual company shares. Most ETFs follow an index, such as the FTSE 100, but some are more specialised, focusing on specific areas like technology, gold, or even currencies. 🚀

The FSCS is like your financial safety net. It's there to give you peace of mind, just in case anything unexpected happens with your bank or other financial firm.

If the bank or firm you're with ever stops trading, and they're covered by the FSCS, you might be eligible for compensation. That means if something goes wrong, you could get some of your money back, up to £85,000 per banking license.

With Dodl, your cash is protected by the FSCS. But to add an extra layer of security, we spread your money across a bunch of different banks that we've carefully chosen. 🏆

Are you diving into the world of homeownership for the very first time? Congrats! You qualify as a first-time buyer if you've never had the keys to a home, whether it's here in the UK or anywhere else around the globe. 🏡

An index of the largest 100 companies that have shares listed on the London Stock Exchange. 📈

A collection of investments, including shares and bonds, often managed by a professional fund manager. Funds are usually (but not always) less risky than shares, as the risk is spread across different companies and assets.

By investing in a fund, you're pooling your money with others, letting you access a wide range of investments. Funds usually concentrate on one sector or investment objective, or track a particular market or index. 💷

The person (or organisation) who manages the assets of a fund in line with its investment objective.

Growth funds are all about boosting their share or unit price over time. Unlike income funds, which focus on dishing out regular earnings, growth funds tend to invest in companies that are busy reinvesting profits to grow their value, rather than just handing out dividends to shareholders.

A general investment account is like the open road for your investments – there are no maximum limits or allowances holding you back! You can invest as much as you want, whenever you want. However, unlike ISAs or SIPPs, it doesn't come with those sweet tax incentives or relief perks. 💸

These funds are all about helping investors earn some extra cash by investing in assets that pay out regular income or dividends. 🤑

Income fund managers carefully select assets that are known for generating income. This could be from dividends paid by the companies the fund invests in. You might get a payout every month, depending on how well the companies in the fund are doing.

Think of an index like a big list of investments and their prices. Take the FTSE 100, for example. It's a collection of the 100 biggest companies whose shares you can buy or sell on the London Stock Exchange.

Throughout the day, the total value of these shares goes up or down. There are indices for all kinds of stuff, like different industries, regions, and stock markets around the world. 🌍

It's a fund that follows the ups and downs of a specific index by investing in all the companies listed on it. Instead of trying to outsmart the market, index funds simply aim to copy its performance.

So, when you invest in an index fund, you're essentially getting a little piece of every company on that index without having to buy each one individually.

Inflation is the rise in the prices of stuff we buy every day, which also affects how much it costs to live. It's like when your favourite snacks at the shop start to cost a bit more each time you go shopping (freddo bars are usually the go-to inflation indicator). 🍫

The speed at which prices rise is called the rate of inflation – here in the UK, we keep an eye on this with a measure called the Consumer Prices Index (CPI).

The interest is the earnings you receive on the uninvested cash in your accounts.

In Dodl’s case, this interest is offered on uninvested cash in the investment ISA and Lifetime ISA, and will be paid into your account(s) once a quarter.

The interest rate can change, but you will be notified whenever this happens.

Investing means putting your money into something with the goal of making some extra cash or growing your wealth over the long-term.

You might invest in things like stocks, funds, or bonds, with the hope of seeing your investment grow into something bigger. 🌳

ISA stands for 'Individual Savings Account,' and it's like a protective bubble for your savings and investments when it comes to taxes.

With an ISA, you won't have to worry about paying capital gains tax on any profits from your investments, and any income your investments generate won't be taxed by the UK government. You can sit back and relax because you don't even have to mention your ISAs on your tax return! 🏖

To get in on the ISA action, you need to be a UK resident or working abroad as a UK Crown employee.

This is the maximum amount you can stash away in ISAs during a tax year, which for 2024/25 is set at £20,000. You have the freedom to divide this allowance among different types of ISAs, as long as you don't exceed the total limit.

But remember, if you have a lifetime ISA, there's a separate cap of £4,000 per tax year, and contributions you make to a Dodl LISA count towards the overall £20,000 ISA limit.

The ‘Key information document’, (a.k.a Key investor information document) is your handy guide before diving into investing in a fund. It's like getting a sneak peek at what the fund is all about!

It tells you important stuff like how much you might pay in charges, how risky the investment is, and what kind of investments the fund focuses on. 📃

The lifetime ISA (LISA) is type of ISA for folks aged 18–39 who dream of owning their first home or enjoying a comfy retirement someday. 🏡👴

It's an account where your savings grow tax-free, and the government adds a sweet 25% bonus to whatever you put in, up to £1000 a year. But here's the deal: if you take out money before you hit 60 (except for buying your first home), the government will hit you with a 25% withdrawal charge, on everything, so you may end up getting back less than you put in.

Net Asset Value (NAV) is like a financial snapshot of a fund's health. It's calculated by adding up all the assets a fund owns (like stocks, bonds, and cash), then subtracting any debts or expenses. After that, we divide this total by the number of units or shares in the fund.

Ongoing charges are like the maintenance fee for your investment funds. They cover the everyday expenses of managing the fund, as well as any one-off charges.

These charges are deducted directly by the fund manager, so you won't need to worry about paying them separately. They're simply taken off the value of your investment in the fund.

An account to help you save for your retirement. It's like a little nest egg that you and your employer can contribute to, and you get some nice tax breaks on the money you put in. Plus, whatever you invest in your pension gets to grow without being taxed. 📈

Typically, you can start dipping into your pension pot from the age of 55 (although this is set to rise to 57 in 2028). And when you do, you can take a chunk of it – up to 25% – completely tax-free. The rest can provide you with a nice little income, although that bit is taxable.

There are all sorts of pensions out there, like ones set up through your job, or fancy ones where you get to pick and choose your investments, like a Dodl pension.

A type of pension that you set up yourself. You're the boss here, deciding how much you want to save and when. Plus, you get to choose where your money goes and how it grows. The pension we offer at Dodl is an example of a non-workplace pension. 💼

The range of investments you hold across different accounts. 🚀

Investing a set amount regularly, rather a one-off lump sum.

You can easily set up a direct debit to automatically buy your chosen investments each month from cash in your account(s). This way, you let your investments tick along in the background, leaving you with more time for the more important things. ⏱

This is the seesaw of uncertainty of an investment. So, when you hear about high-risk investments, they’re like those thrill-seeking adventures – they promise the chance for big returns, but there’s also a greater chance of things not going as planned and possibly losing your investment. 😲

Different types of investment sit in different places on the risk scale. For example, shares are generally considered higher risk, while bonds are considered lower risk.

Remember though, just because something’s risky doesn’t always mean it guarantees big rewards. It’s all about finding the right balance for your own comfort level and financial goals. 🎯

A Dodl pension is a self-invested personal pension, which gives you more control over your pot, meaning you decide how much you want to contribute and where you want to invest it. Plus, because it’s a pension, you get some pretty sweet tax benefits – like tax relief on what you save (limits apply), and your investments grow tax-free!

When it’s time to access your SIPP, you can enjoy up to 25% of it tax-free, which is a nice bonus! And you also have the freedom to choose how and when you want to take income from the rest of your pot. 💰

Settlement dates are one of the important dates to keep track of when you’re investing, along with the day you actually make the purchase, known as the trading date. The settlement date is when everything’s finalised after you’ve placed your buy order.

The time between when you make the trade and when it settles can vary depending on what you’re investing in. For instance, buying shares typically settles faster than purchasing funds. So, it’s good to be aware of these timelines when you’re making investment decisions. 🤓

A share is a small part of a company. So, when you buy shares, you’re basically becoming a part-owner of that company.

And just like any investment, the value of your shares will go up and down based on how well the company is doing. If things go swimmingly and the company makes a profit, you might even get a little treat called dividends – it’s like a thank you from the company for investing in it. 🍬

Stamp duty is a tax that pops up when you buy most UK-listed shares online. It’s officially called the Stamp Duty Reserve Tax (SDRT), and it’s just 0.5% of the total transaction.

It applies to all UK-listed shares listed on the London Stock Exchange’s Alternative Investment Market (AIM).

Now, don’t get it mixed up with Stamp Duty Land Tax (SDLT), which is a whole different ball game. That one’s for when you’re buying a house or a flat, but if you’re a first-time buyer, you can breathe easy – it’s not something you’ll need to worry about. 🏠

A stock market is like a big marketplace where you can buy and sell shares in companies and other investments. It’s also where companies can put up shares for sale. 💼

‘Stocks’ and ‘shares’ are basically the same thing. ‘Stock’ is a more general term describing the ownership of companies, while ‘shares’ is used to describe owning part of a specific company.

‘Taking benefits’ is a fancy term for getting your hands on the money you’ve been diligently saving up in your pension. Once you hit your 55th birthday (or 57 from 2028 onwards), you can start enjoying the fruits of your labour.

There are different ways to do it, like getting regular payments (called drawdown), taking out smaller chunks of cash over time, or setting up an annuity (where you receive regular, set payments from your pension.

And here's the cherry on top – typically, you can dip into your pension pot and take out the first 25% completely tax-free! 🍒

Tax relief is like a little bonus from the government to encourage you to save for your future with a pension. Here's how it works: if you have a SIPP (self-invested personal pension), for every £100 you put into your pension pot, the government adds an extra £25 as a 'thank you' for saving. ❤

If you're someone who pays a higher rate of income tax, you can get even more tax relief by filling out a self-assessment tax return. However, the amount of tax relief you get can't be more than what you've earned in that tax year. So, if you want to put in, say, £60,000 into your pension (including tax relief), you need to have earned at least £60,000 that year.

Oh, and if your employer is pitching in for your pension, there's no limit to how much they can contribute without affecting your tax relief. Pretty sweet deal, right? Just remember, tax relief is different from the annual allowance, which sets a limit on how much you can save into your pension each year without incurring extra tax. But hey, that's a whole other story!

The tax year, also known as the fiscal year, kicks off on 6 April and wraps up on 5 April of the following year. It's like our financial calendar, setting the stage for all things tax-related.

Think of it as the time when tax rules come into play, and lots of cool stuff like allowances and reliefs get a fresh start. 🌱

A trust is a special legal arrangement where someone, called the settlor or donor, puts their assets into the care of another party, known as the trustee. These trustees manage the assets for the benefit of someone else or a group of people, known as the beneficiaries.

It's like having a trusted friend look after something valuable for you, making sure it's used or managed in the best way possible for your benefit.

When you put your money into an investment fund, you're basically buying yourself some 'units' of ownership in that pot.

But not all funds work exactly the same way. Some, like OEICs (pronounced 'oiks'), are divided into what we call 'shares' instead of units. But hey, no matter what they're called, the idea's still the same – you're part of something bigger, growing your money alongside others! 📈

It sounds like a character from Star Wars, but it’s just a form you need to complete to hold US shares in any account (except a SIPP).

Signing this form also entitles you to a nicely slashed tax rate in the US on your investments. ✂

What it says on the tin, really – it’s a type of pension set up by your employer! All employers must offer a workplace pension, and automatically add employees to it if they’re eligible workers. 👷‍♂️

Yield is like the return you get from your investment over a certain time. It's basically the earnings you make from an investment shown as a percentage of what you paid for it, or what it's worth now.

For example, if you have a bond, you can figure out its yield by dividing the interest you get by how much the bond costs right now. 💰