Jargon Buster

Are you puzzled by investment language?

Our jargon buster gives clear and concise definitions and explanations of investment terminology.

To view the definitions please select the relevant letter below. Or alternatively search to find the definition and explanation you are looking for.

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Rack rent

The rent that would be received on a property if it were leased on the open market. The current rent may be greater or less than the rack rent depending on the terms of the lease and how the market has moved since the last rent review

Real assets

Assets which should have a natural link to the performance of the economy and the general level of prices (e.g. equities or real estate)

Real estate

Buildings or land

Real estate investment trust (REIT)

A company that owns and usually operates income-generating real estate. REITs are normally quoted on a stock exchange

Real interest rate (or yield or return)

The interest rate (or yield or return) less the rate of inflation

Real return

The return less the rate of inflation

Real value

The value after allowing for inflation. If the value of an asset and the level of consumer prices both double, the asset"s real value is unchanged

Rebalance

To change a fund"s constituents so that they more closely match those of its benchmark

Redemption

When a bond is cancelled by repayment to the bondholders of the capital originally lent to the bond issuer

Redemption yield

Calculation of the return that investors will earn on an bond if they hold it to redemption, taking into account income and any capital gain or loss that will be made at the maturity date. See also yield to maturity

Reporting

This involves providing members with annual or quarterly updates on the performance of their chosen investment funds as well as an obligatory annual forecast on the value in today"s terms of their accumulated benefits today and at retirement

Repurchase agreement (REPO)

An agreement to sell securities, usually bonds, to another party and to buy them, usually after a few days, back at a specified date and price.

Responsible Investing

The incorporation of client-specified non-financial corporate or societal behaviours into the investment decision process. These tend to be grouped under environmental, social and corporate governance ('ESG') issues. See also corporate governance

Retail prices index (RPI)

This is an index published by the government that is used to measure the rate of inflation on standard goods and services. Index-linked bonds and pension payments are linked to the RPI. The other main index is the consumer prices index

Retained earnings

Company earnings that are not paid out as dividends

Return

The income on an asset together with its capital appreciation, expressed as a proportion of the asset"s initial price

Return on equity (ROE)

The last fiscal year earnings per share (EPS) divided by the last fiscal year net equity per share of common stock. ROE tells shareholders how effectually their money is being employed

Rights issue

A form of company fund raising where existing shareholders are given rights to purchase newly issued shares in proportion to their existing holding.

Risk

In its simplest sense, risk is the variability of returns. Investments with greater inherent risk must promise higher expected returns if investors are to invest in them. Risk is usually measured by the standard deviation of returns. Risk management is an important aspect of portfolio management and may involve the use of complex statistical models

Risk premium

The extra expected return over the risk-free rate demanded by investors to compensate them for the volatility of returns or the possibility of default of risky assets

Risk/Return trade off

The amount of expected return that must be sacrificed in order to reduce risk

Risk-free asset/Rate

An investment with no chance of default, and a known and certain rate of return. (Typically the yield on a government bond or cash.)

Running yield (or current yield)

The current income from an asset divided by its price.

Jargon Buster is intended to assist in the understanding of some of the many technical terms that frequently appear in the pensions world. The definitions are intended as a guide only.

Jargon Buster is provided by Blackrock for visitors to www.napf.co.uk