Glossary
Financial jargon can be confusing. Here's a plain-language guide to the terms we use in Save Our Savings — and some you may come across in proposals and reports from fund managers.
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Terms we use
Return
Usually refers to the amount of money you earn from your savings over a given period. Sometimes shown as a percentage return or as an interest rate — e.g. "X% Return per annum (P/A)" or "X% interest per annum (P/A)" or "X% return since inception" i.e. total return since your savings started.
Can also be expressed as money or a value: "Your Return for the year ending 31st March 24 is $500 / £500."
Gross
Usually refers to the return on your savings, or sometimes the total value of your savings, before any deductions are made, such as fees. Usually shown as "Gross return" or "Gross value."
Net
Usually refers to the return of your savings, or the value, after money has been deducted from "Gross." Sometimes shown as "Net after Tax," "Net after expenses," "Net after fees and Tax," etc.
Value
The value of funds in your savings — i.e. how much it's worth at the date specified. E.g. "Your Valuation is £X at the 31st March 2024."
"Value" will generally include the market value of your shares and bonds and any cash in your account at the date specified.
Fees
The fees your fund manager(s) may charge for managing your savings. Could also be fees and charges from a wealth manager, consultant, external fund managers, stockbrokers, fund administrator, commissions for buying and selling stocks, etc.
Fund manager fees will usually be charged as a percentage of the total value of your savings — anywhere between 0.5% and 4% or more, depending on the services they provide and the value of your savings. The larger the value of your portfolio, usually the lower the percentage fees.
Fees are calculated on a daily or weekly basis, which means you actually pay more — perhaps a lot more — than the 0.5% to 4% of the value of your savings might imply. We have calculated fees at 20%–40% or more of gross return.
You will generally pay fees even if the value of your portfolio goes down. Fees may or may not be shown as a total but as a collection of various fees and deductions. Generally term deposits will include fees and charges within the rate of interest they offer.
Inflation
Prices continue to rise year on year. The value of today's money will decrease at the rate of inflation.
Example: Today's money will buy you $10 worth of goods. The price of those goods goes up by $2 in a year. This means you will need $12 to buy the same goods in a year's time. In this case, inflation can be said to be running at 20%.
There are a number of official ways of measuring inflation. The Consumers Price Index (CPI) measures price changes for households, covering 11 main groups such as food, housing, and transport. There are other indices which measure costs associated with goods bought from abroad.
Central banks will try and control inflation as a means of managing the economy.
Return on Capital Employed
A measure of how hard your invested money is working for you. It's usually expressed as a ratio between the value of your portfolio and the cash you invest.
Example: You invest $100 and get back $200. Your return on capital employed is 2.0 or 200%. However, in reality it's more complicated — you have to take inflation into account together with any withdrawals you make and any additional investments you may make along the way.
Using our previous example with 20% inflation: your $200 return has lost 20% of its value and becomes $160. So the real return on capital employed is 1.60 (or 160%) when corrected for inflation. Some may still present the higher return (200% in this example) without allowing for inflation — this could be very misleading.
Terms you may encounter
We don't use these terms, but you may find them in the proposals and reports you receive.
Unrealised Loss / Gain
You / your fund manager / your broker have bought shares at $10 say, and they sit in your savings portfolio. If the value of those shares goes up and are valued in the market at $15, you have made an unrealised gain of $5. If it's valued at $7, you have made an unrealised loss of $3.
An unrealised loss may be recoverable if the share price goes up. The value of shares will go up and down all the time and this will affect the unrealised (the theoretical) value of your savings.
Realised Loss / Gain
If you sell your $10 shares for $15, you have made a realised gain of $5 per share. Similarly, if you sell at $7, you have made a realised loss of $3.
A realised loss will not be recoverable as you have sold the share.
Volatility
Share prices can go up and down — driven by the market. Volatility is the rate at which the value of shares are likely to change. High volatility means the value of the shares change rapidly.
Risk
Everyone will have a certain "appetite" for risk — i.e. your capacity to absorb the impact of a loss when the value of your savings go down.
Most wealth managers / fund managers will ask you to complete a questionnaire which will seek to evaluate your appetite for risk. They then use this to pick shares to invest on your behalf.
If you have a high appetite for risk, they might pick shares with high returns but these will also have a higher probability of making a loss. If you have a low appetite for risk, they are more likely to pick "safe" shares — a lower probability of making a loss but with lower rates of return.
If you are somewhere between high and low risk, your portfolio may be classed as "balanced" and your fund manager will pick a mix of shares — some high risk giving a good return and some low risk to cushion you from losses.
Asset Classes
A way of grouping certain investments together under one banner — e.g. property, global equity, US equity, bonds, fixed income, derivatives, crypto.
A portfolio may contain shares from a range of asset classes in order to get the right balance between growth and income.
Benchmarks
A way of comparing the growth of your savings with others. Sometimes fund managers will be part of a benchmarking association where they contribute data so that they can compare their investment performance against others.
Sometimes people use a more general benchmark with indices such as the FTSE 500, Dow Jones, or S&P 500. These are based on the collective price of shares in the market and will give a generalised view of how the market as a whole is performing.