Investment Glossary- June 2018
Don’t worry, we know. Sometimes the language used by the financial industry seems completely nonsensical- a different language almost. So, if you’re one of many sat staring blankly at their computer screen, just wishing that the complicated (and downright unnecessary) gibberish would fade away, don’t go anywhere just yet. We’re here to demystify the jargon with our monthly Investment Glossary and provide you with what you need to know, plain and simple. Let’s jump right in.
A big word for a simple concept, the term annualized return in this context simply refers to the
amount of money earned by an investment over the course of a year. The way in which it is calculated is by looking at the Geometric average, which is just fancy talk for a typical value. It is important, however, to bear in mind that an annualized return is completely different to an average return.
Calculations that are made for simple averages will only ever work when the numbers used are completely independent to one another. The calculations of annualized return are different because the amount of investment gained and lost over a year-long period are interdependent of one another. Because of this, different variables need to be considered. Not only this but the amount of money from the previous year also needs to be considered. This is due to the compounding of capital interest across an investment. Easy!
An asset class may be understood as a group of securities that have similar characteristics. There are a number of different asset classes: equities/stocks, cash equivalents and properties. Whilst not limited to these classes, these are understood to be the main types. There are two further subdivisions to bear in mind when thinking about assets- liquid and illiquid. For example, property is understood as an illiquid asset because its value is comparatively stable when compared to the likes of stocks and shares, which are quite frankly all over the place! When something is referred to as liquid, it generally means that the asset is more fluid, and subject to change.
Property is made up of bricks and mortar-something real. Other types of investments are far less tangible and subject to far more change. It is also an asset class that allows you to use leverage which can multiply your profits, can provide steady income and historically has increased in value on average at around 7% a year. You could quite easily take your eye off the market for months without any fear that your assets have plummeted in value. What’s not to like?
Some people choose to mix their assets classes. Some people prefer to stick to what they know. It’s completely subjective!
Financial Conduct Authority
The FCA make sure that everything is run transparently and honestly. Those who do not comply with the rule of the FCA are subject to penalties, fines and even potential termination. Aiming to protect consumers and keep the industry stable as a whole, the FCA look to promote healthy competition between financial service providers.
The Financial Conduct Authority objectives were determined under the Financial Services and Markets Act 2000 and were dutifully updated in 2012 to help the financial sector manage and contain risks after the wake of 2008-09’s financial crash.
The House Crowd are regulated and authorised by the FCA. As a company that holds transparency in high regard, we make sure that everything we do is honest, clear and fair.
We have been operating since 2012. The House Crowd was the first property crowdfunding platform in the world. Of course, once a good idea proves itself seeds are planted in other entrepreneurial people’s minds. As a result, online platforms multiplied rapidly, and in a short space of time, a plethora of peer to peer lending companies sprung into life, each providing their own variation of the crowdfunding theme.