Glossary of savings and investment terms

Simple definitions to help cut through the financial jargon


What is capital appreciation?

Capital appreciation is simply a rise in the value of your assets, compared to the purchase price. So, if you’ve invested £10,000 in a fund, and your fund units are now worth £12,000, your investment is showing capital appreciation of £2,000.

Capital appreciation can also be expressed in percentage terms. In this example, the capital appreciation would be 20%

What is diversification?

Having a diversified investment portfolio means investing in a wide range of different markets or asset types (like shares, bonds, gilts or property) to spread your risk.

Diversification is usually a good idea when you’re investing, as it limits your exposure to any single asset.

Diversification is one of the reasons many investors like to put their money into funds rather than buying individual shares. You can think of a fund as a ready-made basket of investments, often spanning multiple asset classes - allowing you to invest in a wide variety of assets in one single investment.

What is inflation?

Inflation is the rate at which prices for goods and services are increasing, therefore eating into the true value of your cash. What you could buy for £10 a decade ago, you couldn’t buy today – and that’s all down to inflation. The higher the rate of inflation, the more sharply prices are rising.

Understanding inflation can be important when it comes to deciding how to save or invest your money. If the interest you earn on cash savings doesn’t outstrip the rate of inflation, your money will ultimately be worth less in the real world as things get more expensive to buy.

You can see the potential impact of inflation in this inflation calculator.

Remember that while investing your money can give you a greater chance of beating inflation, the value of any investments can go down as well as up.

What is an MVR?

MVR stands for Market Value Reduction. You’ll see the term used in relation to our With Profits Fund.

An MVR is an adjustment that can be applied to the value of your investment if you choose to cash-in or withdraw from the fund at certain times, reducing how much you get back.

Only ever applied during periods of extreme stock market volatility, MVRs protect those still invested in the fund from a high volume of withdrawals being made.

Market Value Reductions are only applied when absolutely necessary. Wesleyan last applied a market reduction following the UK financial crash in 2009.

What is the OAS?

OAS stands for Ongoing Advice Service (OAS). It’s a service you can opt into when you take out some of our financial products.

Opting in for the OAS means your Specialist Financial Adviser from Wesleyan Financial Services will provide proactive advice and guidance on any relevant changes to taxation, regulations or your professional entitlement, to ensure the products you hold remain right for you.

If you choose to opt into the Ongoing Advice Service, either when you take out a product or at a later date, you’ll pay a fee called the Ongoing Advice Charge (OAC). This fee will be applied to all Wesleyan investment and pension products (excluding annuities) you hold with us, not just the one you’re applying for at the time.

You are free to opt out of the OAS at any time. If you’d like to know more, take a look at Wesleyan Financial Services' initial and ongoing advice charges.

What is pound cost averaging?

Pound cost averaging is a technical term for a fairly simple investment technique. It refers to drip feeding your money into an investment on a regular basis, rather than investing in a single lump sum.

Because your money buys shares or fund units at a variety of different prices across the term of your investment, you ultimately end up with an average purchase price - hence the term pound cost averaging.

As well as reducing your exposure to falling markets, pound cost averaging means more assets are purchased when prices are low, and fewer are purchased when prices are high.

What is smoothing?

Smoothing is a key feature of a With Profits Fund. It’s a mechanism to reduce the effect of short-term market fluctuations on your investment, so you get less severe rises and falls.

When the fund is performing well, smoothing means holding back some of the returns, rather than passing all the proceeds to investors straight away. When the fund isn’t performing so well, the returns that were held back can then be used to cushion any fall in value.

What is tax relief?

Tax relief helps you pay less tax on money you use for certain things, such as pension contributions. Often tax relief is automatic, but sometimes you have to claim it. The amount of tax relief you get depends on what income tax band you’re in.

In terms of pensions, tax relief usually works in one of two ways. If you’re employed and contributing to a workplace pension scheme, your pension contribution is taken from your pay before the tax calculation, to ensure you don’t pay tax on it.

If you’re paying into a personal pension, it works differently, as you’ll already have paid income tax on the earnings you’re paying in. Your personal pension provider can therefore claim this tax back every time you contribute.

For example, if you want to contribute £100 to your pension each month, and you’re a basic-rate (20%) tax payer, the government will effectively pay 20% of the contribution for you by giving you back basic rate tax paid. So, thanks to tax relief, contributing £100 to your pension pot actually only costs you £80.

You’ll often hear us talk about tax relief for pensions, but tax relief can also apply to things like charity donations and maintenance payments too.

Please note that tax treatment is based on your individual circumstances and is subject to change in the future.

What is a trust?

You might notice that some of our products can be ‘held in trust’. This refers to a legal arrangement you can create, whereby you give certain individuals (trustees) the power to deal with your assets for the benefits of others, known as 'beneficiaries' (often your children). 

Putting an investment into trust means the trustees become the legal owners of your asset, so it’s no longer part of your estate. This can help you make significant savings in terms of inheritance tax, while ensuring that your assets are ultimately passed on to the right people, at the right time, in accordance with your wishes.

To find out more about putting your investments into trust, talk to a Specialist Financial Adviser from Wesleyan Financial Services.

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