Money aliases

Aquick search on the Internet led to the discovery that there are over 100 different slangs/ terms for money. You would think that the one word would be sufficient! However, notwithstanding the many pet names used for the word money. Let us examine the different aliases used for money in investing. The names are very specific and usually give the investor a clear idea of the asset class being described.

ALIAS NUMBER ONE AND TWO

Companies have choices when they make money. They can keep the money and plough it back into the business, in which case that money is called “retained earnings” or fortunately for investors, they can pay out some of the profits to the shareholders. The money distributed is then referred to as “dividends”. The same term is used for income received from common shares and preference shares.

ALIAS NUMBER THREE

When an investor decides to invest in a bond, which means they are lending money to a country or to a company, the interest payment that they receive is called a “coupon”, so this is another name for money. Investors are happy to get their coupons from their investments. Coupons are normally predetermined, ie you know when and how much in advance you will get if it is a fixed rate bond. Naturally, if it is a variable rate bond, you will know when you are to receive the money, but you will not know the quantum.

ALIAS NUMBER FOUR

If you own a bond which has matured or which has been “called”, you are now entitled to get back your “principal”. This means that you will be getting back the money that you invested. However, the caveat here, is that you may have paid a premium (more than the value of the bond) or a discount (less than the value of the bond), regardless, at maturity, you will get back the face/par value of the bond.

ALIAS NUMBER FIVE

Everybody is familiar with getting loans. The dreaded payments due to the bank or interest on their loans are referred to as interest payments. For investors, it is easier to think of bond income as coupons and loan payments as interest, even though many people use the same term for both, that is they describe income and payments as interest payments.

ALIAS NUMBER SIX

This is yet another term that everyone is familiar with. If you do not own a house, you are likely to be paying rent — likewise, if you own a house and you do not live there, you are charging rent to the tenants.

ALIAS NUMBER SEVEN, EIGHT AND NINE

There are no words sweeter than the money that you make on an investment. There are several terms to describe this. The most common term used is “profit” which is universally acceptable. However, investors use the terms capital gains to refer to their profit on stocks and bonds. When you delve into the more complex world of structured products and derivatives, you are more likely to hear about the “payoff” when looking at your gains. No matter what it is called, it is nice to be on the receiving end of money!

Yanique Leiba-ebanks is the AVP, Pensions & Portfolio Investments at Sterling Asset Management. Sterling provides financial advice and instruments in U.S. dollars and other hard currencies to the corporate, individual, and institutional investor. Visit our website at www.sterling. com.jm Feedback: If you wish to have Sterling address your investment questions in upcoming articles, e-mail us at: info@sterlingasset.net.jm