A Glossary of Common Financial Terms

It is our job to know this, not yours. We believe nobody should be faced with complicated terminology that can be intimidating and confusing.

A Glossary of Common Financial Terms

It is our job to know this, not yours. We believe nobody should be faced with complicated terminology that can be intimidating and confusing.

At Patterson Mills we aim to present everything we do in a clear, understandable and not misleading manner that works best for our Clients. We have created this glossary for anyone wishing to gain more understanding of common financial terms that could be confusing at first glance.

Book a jargon-free, cost-free and obligation-free initial meeting with us today.

If you have a suggestion for a term not on our list, let us know!

Accrued Interest

Accrued interest is how much interest has been incurred up to a specific point, on a loan or other debt but has not yet been paid out. As the next coupon payment date approaches, the accrued interest increases each day until the payment of the coupon. This would be accrued interest revenue for the lender, or accrued interest expense for the borrower.

Active Management

Active management means that a professional manager, or an individual investor, is tracking the performance of an investment portfolio and making decisions about the assets within it. The goal being to outperform a designated benchmark whilst still respecting risk tolerance, ESG standards and other criteria.


Alpha (α) is used as a measure of performance. This indicates when a strategy has managed to beat the market return over a given period. This excess return over its benchmark is known as its alpha and often relates to active management.


An annuity is an insurance contract issued by a financial institution that pays out a guaranteed income for a specified period or the rest of the annuitant’s life. Annuities are often paid by way of monthly premiums or lump-sum payments and used to provide an income in retirement.

Asset Allocation

Asset allocation is an investment strategy that is aimed at balancing risk vs. reward by allocating the assets within a portfolio according to the individual’s objectives, risk level, time horizon, and other criteria.

Bear Market

A bear market is when closing prices have dropped at least 20% from their most recent highs. It often correlates with investor confidence in the market being pessimistic. This could be related to an overall index, or also individual securities.


Beta (β) is a measure of the volatility and systematic risk of a portfolio compared to the market. For beta to be useful, the portfolio should be related to the benchmark that is used in the calculation.

Black Swan

A black swan is an unpredictable event that is beyond what is normally expected. It could have severe consequences. Black swan events can be characterized by their extreme rarity, severe impact, and the general insistence they were obvious in hindsight.


A bond is a fixed income security that is a loan made by an investor to another entity, often corporates or governments. Bond prices are inversely related to interest rates. So, when rates go up, bond prices fall and the reverse is true.

Bull Market

A bull market is when prices are rising, or expected to rise. It often correlates with investor confidence in the market being optimistic. This could be related to an overall index, or also individual securities.

Clean Price

The clean price is the price of a bond that does not include accrued interest between scheduled payments. The clean price is usually the quoted price in the news, and is the opposite of the Dirty Price.

Collectives/Collective Investments

Collectives or Collective Investments are pooled investments that aggregate the investments of many individual investors to invest as one collective entity. They are often professionally managed and can be accessible from amounts as low as CHF 50 per month.

Compound Interest

Compound interest is the interest on a loan or deposit calculated based on both the initial sum and the accumulated interest. It is viewed as “interest on interest” and can makes a sum of money grow faster than simple interest.


Derivative relates to a financial contract. The value of which is dependent on an underlying asset, group of assets, or benchmark. These contracts can be used to trade any number of assets and carry their own risks. Prices for derivatives derive from fluctuations in the underlying asset. Common derivatives include options, futures contracts, swaps, and forwards.

Discretionary Fund Manager (DFM)

A discretionary fund (or investment) manager is an investment or portfolio manager that makes the buy and sell decisions for the Client’s account. “Discretionary” refers to the fact that investment decisions are made at the portfolio manager’s discretion, on behalf of the Client.

Dirty Price

The dirty price is the price of a bond that includes accrued interest. Prices between payment dates reflect the accrued interest up to the day of the quote. The dirty price is the opposite of the Clean Price.


Diversification is a risk management strategy. It mixes various assets in an attempt to balance the downside risk of one asset class or sector to the upside risk of another. Portfolio holdings can be diversified across asset classes and also within asset classes. The aim is that, on average, a diversified portfolio will gain higher long-term returns with the lowest possible risk.

Downside Risk

Downside risk measures the risk of a loss in an investment. It can detail a worst-case scenario for an investment and indicates how much the investor stands to lose. Downside risk measures are considered one-sided as profit potential is not taken into account.

Earnings per Share (EPS)

Earnings per share (EPS) is a company’s net profit divided by the number of common shares it has outstanding. The resulting number indicates a company’s profitability by way of how much money a company makes for each share of its stock. The higher a company’s EPS, the more profitable it is considered to be.

Effective Tax Rate

The effective tax rate is the total percent of income that an individual or a corporation pays in taxes. For individuals, the effective tax rate is the average rate at which earned income, such as wages, and unearned income, such as dividends, are taxed. Often used alongside marginal tax rates.

Exchange-Traded Funds (ETFs)

An exchange-traded fund (ETF) is a type of pooled investment. Usually, ETFs will track a specified index, sector, or other asset, but can be purchased or sold on a stock exchange the same way that a regular stock can. An ETF can be made to track anything from the price of an individual commodity to a large collection of securities. 

Fettered/Unfettered Funds

Relating to a Fund of Funds (FoF), fettered funds mean the manager can only select funds from within the FoF’s managing company. Unfettered funds mean the manager can select funds they believe to be the best from any organisation.

Financial Advisor

A financial advisor is a professional who provides financial advice or guidance for Clients to make fully informed decisions, or have their Advisor make these decisions on their behalf. They offer expertise in areas such as investment management, tax planning, and retirement planning.

Fixed-Income Security

A fixed-income security is an investment that offers a fixed periodic interest payment and the eventual return of initial capital at maturity. Bonds are the most common type of fixed-income security.

Foreign Exchange/FOREX/FX

Foreign Exchange (or FOREX, FX) is simply the trading of one currency for another (e.g. swapping a Swiss Franc for a British Pound). It is a global market for exchanging national currencies with one another. Outside trading and investment, it is often used for converting currencies for when one goes on holiday.

Fund of Funds (FoF)

A fund of funds (FoF) is a pooled investment fund that invests in other types of funds. Its portfolio contains different underlying portfolios of other funds. The fund of funds strategy aims to achieve wide diversification and minimal risk.

Lump-Sum Payment

A lump-sum payment is a sum of money that is paid in one single payment, all at once, instead of many instalments.

Marginal Tax Rate

The marginal tax rate is the tax rate you pay on an additional Franc of income. Often used within a progressive taxation system, this aims to tax individuals based upon their earnings, with low-income earners being taxed at a lower rate than higher-income earners.


A mortgage is a loan used to purchase a home, land, or other type of real estate. The borrower agrees to pay the lender over time, typically in a series of regular payments. The property serves as collateral to secure the loan.

Offshore Banking

Offshore banking is a service provided by a bank located outside your country of residence. The services offered by these banks are similar to domestic banks, but popular offshore banks are located in more flexible and low taxation jurisdictions, which often means more flexible regulations.

Passive Management

Passive management means that a fund’s portfolio will aim to mirror (and not outperform) a specified market index. It is usually associated with index funds and exchange-traded funds (ETFs).

Personal Pension Scheme

A Personal Pension Scheme is a retirement saving scheme set up by an individual, rather than by the individual’s employer. Examples of these are the Pillar 3a in Switzerland or a SIPP in the UK.

Price to Earnings (P/E) Ratio

The P/E ratio relates a company’s share price to its earnings per share. A high P/E ratio might mean that a company’s stock is overvalued, or investors anticipate high growth rates in the future. It is most valuable when compared against similar companies in the same industry.

Risk Profile

A risk profile is an evaluation of an individual’s tolerance and capacity for taking risks. It is often used to determine the asset allocation for a portfolio.


Security refers to a financial instrument that holds some type of monetary value. It represents an ownership position in a publicly-traded corporation through stock. Securities are fungible and tradable and are used to raise capital in public and private markets.

Stock(s) and Shares

A stock is a security that represents the ownership of a fraction of a company. The owner of the stock is proportionately entitled to the company’s assets and profits, subject to how much stock they own. A share is a unit of ownership, so you can own 10 shares, whereas stock is a measurement of equity, so you would own 10% of the company.

Simple Interest

Simple interest is a method of calculating the interest charge on a loan. It is determined by multiplying the daily interest rate by the principal by the number of days between payments. This type of interest is usually used for car loans or short-term personal loans.

Systematic & Non-Systematic Risk

Systematic risk refers to the risk inherent to the entire market. It cannot be diversified away. Non-systematic risk is the risk that is unique to a specific company or industry. This type of risk could be reduced through diversification.

Upside Risk

Upside risk measures by how much the value of an investment might go up beyond expected levels. It is usually where you could get a better outcome than the relevant benchmark. Upside risk is the opposite of downside risk.