When we receive letters, emails or other documents from financial companies we often come across terms that are unfamiliar to us or they might have a specific meaning that’s unfamiliar to us. We’ve brought together a list of commonly used terms associated with investing and given a short explanation which we hope will help you make sense of the jargon.
A
Assets and asset mix: You might come across references to ‘your assets’. Essentially this term is used to suggest that something has a monetary value that an individual owns or controls and that in the future could provide benefits like growth in value. Examples include cash, property, stock market investments, company bonds and government bonds.
B
Bonus: If you’re invested in our With-Profits fund, bonuses are our way of sharing the returns of the underlying assets with you. You might receive regular bonuses normally added throughout the year, and when it's time to cash out, there might even be a final bonus waiting for you. Find out more in our With-Profits Fund guide.
C
Charges: Charges refer to fees associated with financial transactions or services. These can include management fees, transaction fees, and other costs. These costs can impact what you get back from your investment.
D
Diversification: Diversification is a way of planning how you invest your money which involves spreading your money across a wide variety of investments with the aim of reducing the impact of risk and market volatility on your investment return.
F
Funds: A fund is a collection of investments pooled together to allow money from savers and investors to invest in a range of assets, normally across different types, to make sure it’s diversified.
G
Guarantee: ISA investments in our With-Profits fund benefit from a guarantee that you’ll get back at least what you have paid in, plus any potential regular bonus additions, on the 10-year anniversary of your first investment provided you have been in the with-profits fund over the whole period. If you choose the option to continue your investment, the guarantee then applies every 5 years after the 10-year anniversary of when you started investing. Find out more in our With-Profits Fund guide.
I
Intergenerational wealth transfer: The process of passing money or possessions from generation to generation. Wealth can be transferred through inheritance, gifting, trusts and investing.
ISA Allowance: This is the total you can save and invest across ISAs throughout the tax year (which starts on 6th April each year). Your ISA allowance for the current tax year is £20,000.
ISA Transfer: An ISA transfer is the process of moving your investment from one ISA provider to another without losing the tax benefits associated with investing in an ISA.
L
Long-term savings: Money set aside for future financial goals that are typically several years or even decades away. Long-term savings are often aimed at significant life events or goals, such as funding education, buying a home, saving for a significant purchase, or creating a financial safety net. These savings are intended to be untouched for a long period, usually five years or more. This extended time frame could allow the savings to grow through potential investment returns.
M
Market Value Reduction: A Market Value Reduction (MVR) may be applied to certain withdrawals or switches from our With-Profits fund. MVRs are like a safety net protecting everyone who invests in our With-Profits fund. They make sure that every investor gets a fair amount back based on how well the fund has been doing since they started investing. A market value reduction (MVR) is a reduction applied to the value of an investment when it is cashed in early, reflecting market conditions. This is often used in with-profits funds to ensure fairness among investors. Find out more in our Market Value Reduction guide.
Mutual: Friendly societies and Mutual investment companies have no shareholders. They are owned by the customers. As a mutual Scottish Friendly serves in the interests of our customers. This means that our focus is on supporting the community and helping people manage their money and putting them in charge of their future. Read our Mutual guide.
P
Personal Allowance: This is the amount of money you’re allowed to earn each tax year before you start paying Income Tax.
R
Risk: Risk in investing refers to the potential for loss or the fluctuation of any potential returns associated with an investment. Funds will offer different levels of risk which allows you to create your own investment plan which fits with your goals and how much risk you’re comfortable taking.
T
Tax Year: In the UK, a tax year is simply the 12-month period that runs from 6th April to 5th April the following year. Your annual tax allowances, such as your personal allowance and ISA allowance is reset at the beginning of the tax year. Allowances are set by the government and can change annually.
Tax-free: This means the investment grows free from tax, with the exception of any tax we’ve already paid on your behalf (for example on dividends from UK shares). Tax treatment depends on individual circumstances and tax rules could change in the future.
V
Valuation: Valuation is the process of calculating the current worth of an asset or investment at a point in time.
Volatility: Fund volatility is a way of describing how much a fund value fluctuates over time. Investing in funds with high volatility can come with a higher risk, as the asset’s price can change dramatically in a short period, both upwards as well as down.
W
With-Profits: Our With-Profits fund pools and invests money from all our plan holders into a wide range of investment assets which leads to potential diversification benefits. The aim of the fund is to grow this pot as much as possible over time while keeping risks manageable and looking out for its investors. Find out more in our With-Profits Fund guide.
Keep in mind that stock market investments can go down as well as up, so you could get back less than you've paid in.
Scottish Friendly doesn’t provide advice. If you’re seeking advice, you should contact a financial adviser. Advisers may charge for providing such advice and should confirm any cost beforehand.
