Glossary of terms used on this site
There are 44 entries in this glossary.All
Term  Definition 

Optimise, optimiser 
To optimise something means to make it as good as possible. In investment analysis, optimising often means an analysis to identify the best investments. In traditional asset allocation, software products that apply Modern Portfolio Theory to produce efficient frontier curves are often called optimisers. But for longterm investment plans and goals, this analysis only identifies a range of bestdiversified candidate portfolios. For comparison of these to reveal the best, further analysis is required to apply compounding and thus advance the comparison from singleyear return rates to prospects for longterm results. 
P$ 
A measure used in this report and the underlying analyses to present future investment results in terms of net balance (after payment of fees and taxes), expressed in today's familiar pound value after adjusting for inflation. For example: If a future result is shown as P$ 60,000, this means that with fees, taxes, and inflation all considered, the investor will have enough future pounds to purchase what could be bought with £60,000 today. 
Passive Management 
Passive managers utilise the theory that the markets are efficient and seek only to capture market return by creating a portfolio of investments which closely resemble the market or market sector to which they wish to have exposure. 
Portfolio 
A mix of investments. In asset allocation, a mix of investment asset classes, i.e. a mix of 60% stocks and 40% bonds. 
Positive Correlation 
See Correlation 
Probabilities 
Probability means likelihood, and more comprehensively it also represents a field of mathematics for analyzing events or processes that have various possible results with different likelihoods. In assessing future prospects for investments, return rates are commonly measured by two dimensions of probability based on history: a HistAve average return rate of past years; and historical return rate standard deviation, which is a technical measure of extent of variation above and below the expected rate in individual past years. Through use of Monte Carlo simulation, return rate probabilities can be used to produce samples of longterm future investment pound results for particular investment plans and goals, and to determine approximate probabilities for longterm pound results. From these probabilities, key measures of longterm poundresult prospects and risks can be calculated:

Qualified 
In investment, this term refers to investments with advantages as to when investments are taxed or whether they are ever taxed. 
Real Return/Return Rate 
These terms refer to gains on an investment, usually expressed as a percentage of the amount invested. Return rate is a more precise term. It refers to percent return per period of time, almost always per year. If an investment is said to have a return rate or “return” of 10%, this almost always means 10% per year. In this report, return rate always means peryear return rate. When the term return is used without the word rate, it is important to see what length of time is meant. In graphs within this report, when the length of time is one year, or per year, the measure is labelled return rate. Where a measure is labelled return without the term rate, it means total return for the length of time reflected in the graph or for a particular number of years indicated along the graph's horizontal axis. 
Standard Deviation 
Standard Deviation is a measure of how the price/value of an investment deviates from the mean (average) price over a period of time. This is a good way of measuring volatility because it will tell you how much the price fluctuates. 
Stockpicking 
The name given to the process of identifying undervalued securities which the market and other fund managers have overlooked. These securities are then purchased with the hope of achieving higher future gains. 
Style Drift 
A fund usually has a mandate for investment selection, i.e. a UK small companies fund will purchase shares in UK based companies that have a small market capitalisation. However, active managers usually reserve the right to invest some or all of their fund into shares that do not usually form part of the mandate. The same UK small companies fund could buy bonds, gilts, value or large company shares in both the UK and globally. In other words, they are ‘drifting’ away from the original ‘style’ of the fund in an attempt to capture greater returns. 
SubAsset Allocation 
See Asset Allocation 
SubAsset Class/Classes 
A smaller subsection of an asset class, again which are similar in type, but different to other members of the asset class; i.e. equities can be subdivided into UK companies or International companies; and these can be further divided into large, medium or small companies. Our subasset Classes can be found on page 311 and an explanation of why we chose these subasset classes can be found on page 36. 
Volatile; Volatility 
In investment analysis, volatility is a lesstechnical term often used as a substitute for return rate standard deviation, and it has the same meaning. It is a measure of the extent of likely variation of return rate in individual years. For example, the return rate for Gilts is said to have much less volatility than the return rate for stocks. What this means is that, relatively, the return rate of Gilts tends to be nearly the same year after year, while the return rate for stocks varies much more widely from year to year. 