QFA Investment key terms

A harmonised European fund structure that pools investors' money, may be sold across the EU, and must obey strict rules on eligible assets, diversification and disclosure to investors.

The value of a fund's assets minus its liabilities, divided by the number of units in issue, giving the price at which units are bought and sold.

A fund whose units trade on a stock exchange throughout the day, usually tracking an index, combining pooled diversification with share-like dealing and generally low ongoing costs.

A closed-ended listed company that holds a portfolio of investments; its shares trade on the market at a price that can be above or below the underlying portfolio value.

A packaged investment, usually a note or deposit, whose return follows a formula linked to an index, share price or other reference, often with capital protection that depends on the issuer staying solvent.

A listed company that owns and manages income-producing property and must distribute most of its rental profits to shareholders, giving investors liquid indirect exposure to property.

A retirement plan where contributions are invested and the final fund depends on amounts paid in and on investment performance, so the member carries the investment risk.

A retirement plan that promises a benefit calculated from salary and years of service, with the sponsoring employer bearing investment and longevity risk and covering any shortfall.

An Irish personal pension contract with flexible contributions, available to almost anyone, that builds a retirement fund exposed to investment risk and subject to access rules.

An Irish post-retirement investment vehicle into which a maturing pension fund may be transferred, where it stays invested and withdrawals are taxed as income.

A group of investments with similar features that tend to behave alike in markets, such as equities, bonds, property and cash, used as the building blocks of portfolio design.

A graph plotting yields on bonds of the same credit quality against their maturity dates, whose shape reflects market expectations for interest rates and economic growth.

A measure of a bond's sensitivity to interest-rate changes, roughly the weighted average time until its cash flows arrive; a duration of five implies about a five per cent price move for a one per cent rate change.

The extra yield a corporate or other non-government bond pays over a comparable government bond, reflecting the issuer's default risk and the bond's market liquidity.

The recurring pattern of expansion, peak, contraction and trough in an economy, which drives company earnings, interest rates and the relative performance of different asset classes.

A sustained rise in the general level of prices, which reduces the purchasing power of money and of fixed cash flows such as bond coupons and level pensions.

Central bank actions, mainly setting interest rates and managing the money supply, aimed at controlling inflation and supporting stable growth, which strongly influence asset prices.

The risk that exchange-rate movements reduce the value of an overseas investment when its proceeds are converted back into the investor's home currency.

Assets outside mainstream equities, bonds and cash, such as private equity, hedge funds, commodities and infrastructure, typically less liquid and less closely correlated with traditional markets.

The degree of investment loss an investor is willing and emotionally able to accept, as distinct from the financial ability to bear that loss.

An investor's financial ability to withstand losses without derailing their goals, determined by income, wealth, time horizon and future liabilities.

The long-term target mix of asset classes chosen to match an investor's objectives and risk profile, and the main influence on a portfolio's long-run return and volatility.

Spreading money across assets whose returns do not move in step, so losses on one holding are partly offset by others, lowering portfolio risk without necessarily reducing expected return.

A measure of how much a security or portfolio tends to move relative to the overall market; a figure above one means more volatile than the market, below one less volatile.

A statistical measure of how widely an investment's returns vary around their average, widely used as the headline measure of its volatility and therefore of its risk.

A portfolio's return above the risk-free rate divided by its standard deviation, showing how much excess return is earned for each unit of total risk taken.

Periodically buying and selling to bring a portfolio back to its target weights after market movements have shifted them, which controls risk and enforces a disciplined approach.

A measure between minus one and plus one of how closely two assets' returns move together; low or negative correlation is what allows diversification to reduce risk.

The extra expected return investors require for holding a risky asset rather than a risk-free one, compensating them for accepting uncertainty over future returns.

The process of gathering a client's objectives, knowledge, experience, financial position and risk tolerance, then recommending only products and advice that fit that profile.

A check on whether a client has the knowledge and experience to understand a product's risks, used where a full suitability assessment is not required, such as execution-only business.

Procedures by which a regulated firm identifies clients, verifies their identity, establishes beneficial ownership and monitors transactions to prevent money laundering and terrorist financing.

Behaviour such as insider dealing or price manipulation that misuses inside information or distorts the market, and which is prohibited and punishable by regulators.

A situation where a firm's or adviser's own interests, such as commission or in-house products, could compromise the advice given, requiring the conflict to be avoided, managed or disclosed.

European rules governing investment firms, covering conduct, disclosure, best execution, product governance and client categorisation, designed to protect investors and make markets more transparent.

A firm's duty to take all reasonable steps to obtain the best possible result for clients when executing orders, weighing price, cost, speed and likelihood of settlement.

A short standardised disclosure given to retail investors before they buy a packaged product, summarising its risk, likely performance and costs in a comparable format.

A tax on the profit made when an asset is sold or encashed, calculated as disposal proceeds less allowable cost, with losses often usable to offset gains.