4 Important Financial Terms Worth Learning

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4 Important Financial Terms Worth LearningEvery day we’re bombarded with financial jargon at work, at home, on the radio and on the Web. And when complex financial terms are used, it’s often hard to grasp the real meaning of what’s being said.

 

Here are four useful financial terms you’re likely to encounter:

 

Annuity – Annuities can take different forms. At its core, the meaning is that a consumer pays an upfront fixed amount to a business, and in turn, monthly payments are paid back over time, usually until the person dies. The importance here is that annuities are meant to provide a steady and predictable return to purchasers to avoid the unpredictability of stocks and other investments.

 

Capital Gains Tax – When you sell a stock or other investment, if the selling price is more than the purchase price, there was a gain. Well, the Capital Gains Tax is a tax levied by the government solely on the “gain” piece (not on the initial purchase price). In most cases, this tax doesn’t kick in until the gain exceeds £10,600 (for 2013).

 

Index – An index is usually a highly visible, established and legitimate valuation of a basket of information. This basket might provide inflation data, pricing data, stock return data or any other number of financial trackers. Some examples include the FTSE-100 for a stock index or the consumer price index for consumer inflation. The importance from an investing standpoint is that many investors and funds try to meet or beat the return of a particular index like the FTSE-100. If you’re paying high investment fees for a fund that doesn’t even match the return of the FTSE-100 you have to question why you’re paying those high fees and not just investing in an index-based fund. Index-based funds usually have lower fees anyway, since they’re not actively managed. Similarly, inflation indices are important, because they tell you whether you’re gaining or losing money to inflation in various investments or through pension payments.

 

Remortgage – If you’re not a homeowner now, you may be in the future, so it’s worth familiarizing yourself with this term. Since we’re all now familiar with the headlines about interest rates moving up and down over the years, a remortgage is an opportunity for a homeowner to re-adjust their mortgage payment with a new interest rate in the midst of an existing loan. So, instead of having to sell and re-buy their house at today’s current rates, they can perform a simple re-mortgage with various lenders. Obviously, people primarily seek to remortgage when rates are lower than their current rate so that their monthly payments will drop. It’s important to weigh the fees involved with the transaction against the gains to be had in the future. When people are thinking of moving, it’s sometimes not worth remortgaging because the fees won’t be recouped. But for people who know they’re staying put, it’s usually worth it when interest rates are lower by at least 1 percent.

 

The information in this article is provided for education and informational purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness or fitness for any particular purpose. The information in this article is not intended to be and does not constitute financial or any other advice. The information in this article is general in nature and is not specific to you the user or anyone else.

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Darwin is an engineer and MBA who takes an "evolutionary" approach to finance, writing about adapting to evolving financial management, tax, investing and savings opportunities. Making more money and saving more money is an adaptive process — join the evolution! He blogs at Darwin's Money www.darwinsmoney.com and ETF Base www.etfbase.com

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