All terms
Accumulation Phase
The period during which a super fund member's account balance is increasing with accumulated contributions and earnings. The opposite of the pension or drawdown phase.
AFSL
The Australian Financial Services License (AFSL) number issued to all financial planners and financial services industry corporations by the Australian Securities and Investment Commission.
All Ordinaries Price Index
A share price index that measures the market price of publicly listed companies in Australia.
Asset
Item of value, such as cash, investments or property.
Asset Allocation
The apportionment of an investment portfolio among different asset classes (shares, bonds, property, cash and overseas investments) from time to time in accordance with the investment outlook of the investor or investment manager.
Asset Class
A broadly defined category of financial assets (e.g. domestic shares, overseas bonds, cash, etc).
Asset Value
The value of the assets underpinning a security. These may not be fully reflected in the price of a security.
ASX
ASX Limited, which is the primary Australian exchange for equities, derivatives and fixed-interest securities.
Audit
An examination and verification of a company's financial and accounting records and supporting documents by a professional.
Australian Securities and Investments Commission (ASIC)
The Australian Government regulating body that enforces and regulates company and financial services laws to protect consumers, investors and creditors.
Australian Taxation Office (ATO)
The ATO is the Government’s principal revenue collection agency, and is part of the Treasurer’s portfolio. Our role is to manage and shape tax, excise and superannuation systems that fund services for Australians.
Bankruptcy
The legal process in which the assets and liabilities of a person deeply in debt are placed with a receiver. The receiver takes control of their finances and helps them clear their outstanding debts. The process may restrict the person’s financial dealings in the future.
Bare Trust
(sometimes referred to as a simple trust) is a trust in which the beneficiary has a right to both the income and capital of the trust and is entitled to take actual ownership of the assets.
Bear Market
A prolonged period in which investment prices fall, accompanied by widespread pessimism. Bear markets usually occur when the economy is in a recession and unemployment is high, or when inflation is rising quickly.
Benchmark
An index that serves as a reference against which the performance returns of a fund or portfolio is measured. For example, a fund may be compared with the Standard & Poor's 500 Index to assess how it performs over time.
Benchmark
An index or other market measurement that is used by a fund manager as a yardstick to assess the risk and performance of a portfolio. For example, the All Ordinaries Accumulation Index is a commonly used benchmark for Australian share portfolios.
Binding Death Nomination
A binding death nomination is a written direction to the Trustee that sets out the dependants and /or legal personal representatives that you want to receive your benefit in the event of your death.
Blue Chip
Referring to the shares of a leading company which is known for excellent management and a strong financial structure. The term has become a generic one for quality securities.
Bond
An investment instrument issued by governments and companies which pays a regular and fixed interest amount for the term of the investment. The invested funds (principal) are repaid at the end of the term (maturity).
Broker
An agent who handles investors' orders to buy and sell securities, commodities, insurance policies or other property. For this service, a commission is charged which, depending upon the broker and the amount of the transaction, may or may not be negotiated.
Brokerage
A fee charged by a broker for the execution of a transaction; or alternatively an amount per transaction or a percentage of the total value of the transaction. Sometimes also referred to as a commission or fee.
Budget
A plan for spending and saving money based on an individual’s goals over a certain period of time.
Bull Market
A prolonged period in which investment prices rise faster than their historical average. Bull markets can happen as a result of an economic recovery or economic boom.
Capital gain
The difference between the purchase price and the selling price of an investment.
Cash flow
A measure of the money a person receives and spends.
Cash Management Trust (CMT)
A pooled investment vehicle for investors who would not individually have access to the professional money market. By pooling funds from various sources, larger volumes of higher yielding short-dated securities can be purchased and the resulting higher returns can then be returned to the trust members. CMTs generally restrict themselves to negotiable instruments of a duration of no longer than six months. As these securities are highly liquid, a CMT can accommodate cash flows, both in and out, on a daily basis, thereby offering small investors a flexibility not present in a traditional fixed rate term deposit.
Commission
A fee, charge, reward or other remuneration, however characterised, whether monetary or otherwise paid to a professional Adviser by the producer of a product that the Adviser has recommended to an individual.
Compounding
Earning interest on interest previously earned.
Concessional Contribution
Certain contributions made to superannuation, generally before tax. Includes employer contributions and personal contributions on which a tax deduction is claimed.
Cooling-off period
A period during which purchasers of a good or service have the opportunity of deciding not to proceed with a transaction. If this occurs then any money paid out for the transaction should be refunded.
Credit
An amount of money lent from one person or entity (such as a financial institution) to another, based on the expectation and/or agreement that the money will be repaid with interest.
Credit rating
A measure of a person’s ability to repay debt or credit.
Dealer group
The distribution arm typically of funds management groups or banking institutions designed to offer investors financial planning services. Dealer groups often employ large numbers of financial planners, offering them training, licensing and support services. They also often provide financial planners with lists of recommended investment products from which to service their clients.
Debenture
An investment instrument issued by companies which pays a regular and fixed interest amount for the term of the investment. The invested funds (principal) are repaid at the end of the term (maturity).
Debt
The amount a person or entity (such as a business) owes to lenders. Diversification. Spreading invested amounts among several different savings or investments to reduce risk.
Diversification
The spreading of investment funds among classes of securities and localities in order to distribute and control risk. This is a fundamental law of investment, meaning simply: 'don't put all your eggs in one basket'.
Dividend
The payment to shareholders in a company of their portion of a company’s distributed profits. The portion is based on relative shareholdings.
Dividend Yield
A financial ratio that shows how much a company pays out in dividends each year relative to its share price.
Employee benefits
Additional benefits received by someone from their employer, such as bonuses and reimbursement for study.
Equity
a) a synonym for a share (as distinct from fixed interest) investment; b) The interest or value which an owner has in an asset over and above the debt against it.
Estate
All assets owned by an individual at death, to be distributed according to the individual's will. As superannuation is controlled by a trustee rather than an individual, it is not counted as an estate asset.
Estate Tax
This is a tax levied on the estate of a deceased before any distribution is made to heirs. In Australia, estates and the distribution of an inheritance do not attract tax. However, other countries, for example the United States and United Kingdom, have specific taxes on both estates and inheritance.
Excess
The amount of an insurance claim which you are required to pay before the insurer becomes liable to pay on the claim. This amount is specified in the insurance policy.
Exchange Traded Fund (ETF)
An ETF is an open-ended managed fund which is listed and traded on major stock exchanges around the world. An ETF seeks to generally correspond to the price and yield performance of a particular index before fees and expenses.
Final Year
Also known as the income year runs from 1st July through to 30 June.
Financial planning
The process a financial planner follows to understand each client’s different needs and financial objectives and to recommend an appropriate strategy. There is an established six step financial planning process which all professional advisers follow with every new client: 1. Gather financial information about the client 2. Identify financial and lifestyle goals 3. Identify any financial issues 4. Prepare a financial plan 5. Implement the plan 6. Review and revise the plan at regular intervals, or when circumstances change.
Financial Planning Association
FPA is the peak professional body for financial planning in Australia. The FPA has an office in each capital city and a network of 31 Chapters across the country, which provides a focus for business networking and professional development activities for more than 12,000 members. FPA practitioner members manage the financial affairs of more than 5 million Australians whose investments are valued at $630 billion.
Financial year
Also known as the income year runs from 1 July through to 30 June.
Fixed expenses
Expenses that remains the same, week after week, or month after month.
Fixed Interest (Investment)
Referring to income which remains constant and does not fluctuate, such as income derived from bonds, annuities and preference shares. Any debt security which has a fixed flow of income is known as a fixed interest security.
Fixed interest rate (loan)
Where interest is paid at a constant rate over the term of a loan.
Futures
Agreement to buy or sell a set number of shares of a specific stock in a designated future month at a price agreed upon today by the buyer and seller. The contracts themselves are traded on the futures market. A futures contract differs from an option because an option is the right to buy or sell, while a futures contract is the promise to actually make a transaction. A future is part of a class of securities called derivatives, so named because such securities derive their value from the worth of an underlying investment.
Geared Assets
Assets purchased with borrowed funds
Gearing
a) A measure of indebtedness, ie. the extent of borrowings as against the equity held by a person or company in an asset; b) The ability to increase exposure by investing in futures contracts without making the underlying cash available. B) The concept of borrowing money to fund business/personal operations. Often individuals will “gear” their investments. This means they are borrowing money to purchase assets that they believe will grow in value at a rate higher than the cost to borrow the money over time.
Gross Domestic Product (GDP)
GDP is commonly used as an indicator of the economic health of a country. It represents the monetary value of all the finished goods and services produced by a country.
Gross domestic product (GDP)
The market value of final goods and services produced over time including the income of foreign corporations
Gross income
The total amount of income earned (from wages or a salary) before any deductions including tax.
Growth Assets
A general term for assets such as shares and property, which provide investment returns, (comprising both capital growth and income), which outperform inflation. Growth assets compare to debt securities such as fixed interest and/or cash investments.
Growth Fund
An investment portfolio which aims to achieve an above average rate of after-tax income and capital growth over the medium to longer term, while adopting a medium risk profile. A growth fund typically comprises a balanced portfolio of equities, fixed interest, property and cash.
Growth Investor
One who seeks capital gain from expected further growth in company earnings. Typically, growth investors care less about price/earnings ratios and other valuation measures and more about earnings growth.
Hedge Funds
“An aggressively managed portfolio of investments that uses complicated investment strategies such as gearing, derivative positions, short/long sell positions ext, with the goal of generating high returns. They Endeavour to produce superior returns in a falling market.”
Imputation Credit
A shareholder receiving a dividend from a company is entitled to an “imputation credit”, which represents tax paid by the company, and is used to reduce the shareholders tax liability.
Income
Any money a person receives.
Index
A numerical measure of price movement in financial markets, e.g. the S&P/ASX 300 Index.
Index
A numerical measure of price movement in financial markets, e.g. the S&P/ASX 300 Index.
Inflation
The overall general upward price movement of goods and services in an economy, usually as measured by the Consumer Price Index. Over time, as the cost of goods and services increase, the value of a dollar is going to fall because it will not buy as much as it previously could.
Insurance
Financial protection against financial loss; an arrangement where an insurance company agrees to pay an amount of money to the insurance policy holder if a defined event occurs, in exchange for an insurance premium being paid.
Insurance premium
The payment made to an insurance company in exchange for protection or financial help if (agreed) circumstances or events occur.
Interest
Payment for the use of money; the return earned on invested funds; the amount a borrower pays to a lender for the use of the borrowed money.
Interest free period
The time allowed, usually 55 days, in which new credit card purchases can be paid off without being charged interest, provided there are no unpaid amounts on the card from previous payment periods.
Interest rate
The relationship between the amount of money borrowed or lent and the money paid in return for the use of that money. Usually expressed as a percentage per year.
Investment
An asset acquired for the purpose of producing or generating income or capital gains for its owner.
Investment Manager
An organisation that specialises in the investment of a portfolio of securities on behalf of individuals and/or organisations subject to the guidelines and directions of the investor. Investment managers offer both pooled investment products and individual portfolios to a range of clients including superannuation funds, institutions and individual investors.
Investment style
Investment style refers to the approach that investors, including professional money managers, take in selecting individual investments and assembling portfolios as they seek to achieve their investment goals.
Joint account
An account with a financial institution which is in the name of more than one person. A joint account is able to be operated independently by those persons.
Leasing
An agreement under which the owner of property allows use of that property for a specified period of time in return for set periodic payments.
Leverage
a) A synonym for gearing (e.g. using derivative investments to over-invest a portfolio); or b) The use of an asset as security for a borrowing.
Liabilities
Debts or financial obligations.
Lifestyle changes
Many people don’t realise what a difference a change in their personal circumstances can make to their financial situation. As you move through life each change brings a different set of needs which may impact your overall planning objectives, insurance needs, cash flow requirements and so on. Think of these for a start: getting married, having children, putting the kids through school, receiving an inheritance, having a debilitating illness, losing a partner, downsizing home when children move out. Each has its own effect on your financial outlook. A professional financial adviser will take your lifestyle now into account when making your plan and you should review your financial plan whenever a major lifestyle change occurs.
Limited Recourse
Limits the amount or type of asset that can be recalled to payout a loan, in the event of default.
Liquid Assets
Assets held as cash, or in the form of securities which can be converted into cash swiftly and with minimal capital loss (e.g. short-term bank bills).
Loan term
The length of time covered by a loan.
Macroeconomics
The study of an economy in its largest sense. That is, macroeconomics studies gross domestic product, unemployment, inflation, and similar matters. It does not look at the function of individual companies and only tangentially studies individual industries. It is useful in helping determine the aggregate effect of certain policies on an economy as a whole
Managed fund
An investment that pools money from several investors and uses it to buy a particular type of investment, such as shares. Margin Loan - a loan that uses existing assets (namely: shares) as collateral, and is usually used to buy more shares. Margin Call - When the value of the collateral in a margin loan falls below the minimum level. In this situation, the borrower needs to either supply more money or sell off some shares to bring the levels back to the minimum amount.
Managed Investments Scheme
Funds are pooled together to invest in a particular asset that is managed by a third party. When an investor invests in a Managed Investment Scheme they are allocated a number of units. The term “Managed Investment Scheme” is commonly referred to when discussing agricultural investments.
Management Expense Ratio (MER)
A ratio expressing the management, trustee and certain other expenses of a pooled investment fund as a proportion of the net asset value of the fund.
Marginal Tax Rates (MTR)
Australia ’s sliding tax rates, ranging from 0% to 47% of your salary depending on the salary amount.
Master fund
An investment vehicle that enables individual investors or small superannuation funds to channel money into one or more underlying investments, most commonly wholesale or retail pooled funds operated by professional investment managers. They can take the form of: (a) discretionary funds where the individual investors selects the underlying investment products; (b) fund of funds where the investor selects a general risk profile e.g. growth, capital stable etc (c) feeder funds which operate similarly to fund of funds arrangements but with the master fund manager also being responsible for managing the underlying investments.
Mortgage
A legal agreement under which you take out a loan and use the property being purchased as security for that loan.
Net income
The amount of someone’s income that they can use or spend; the amount remaining once tax and payroll deductions are made.
Non-Concessional Contribution
Contributions made to superannuation after tax. This includes Personal contributions, Spouse contributions and Government Co-Contributions.
Optimal Portfolio
The portfolio which best meets the investor's needs and risk/return expectations among the range of all feasible portfolios.
Option
An agreement which conveys the right to the holder to buy (receive) or sell (deliver) a specific security at a stipulated price and within a stated period of time. If the option is not exercised during that time, the money paid for it (but no more than that amount) is forfeited.
P/E Ratio
The number of year based on current earnings that it will take for a share to pay for itself. It also sometimes referred to as the earnings multiple.
Pay As You Go (PAYG)
The system where employers automatically deduct tax from each employee’s gross pay each pay period.
PAYG Summary
The summary sent to employees by their employer(s) at the end of each financial year; outlines the total paid to the employee and the amount of tax that was taken out.
Payroll deductions
Amounts subtracted from gross income for items like employee benefits.
Portfolio
The collection of investment holdings of a particular investor usually with reference to its composition i.e. the mix of different classes of securities, such as bonds, property, shares and cash, or if in a single asset class, the mix of different sectors and stocks.
Portfolio Manager
A person or organisation engaged to manage investment portfolios and make investment decisions on behalf of others.
Premium
The price charged by an insurance company for providing insurance cover.
Quantitative Easing (QE)
Quantitative Easing is a form of unconventional monetary policy used by some central banks. QE increases the supply of money by creating money which is then used for increasing the excess reserves of the banking system, generally through buying of the central government's own bonds to stabilize or raise their prices and thereby lower their yield. This policy is usually invoked when the normal methods to control the money supply have failed, e.g. the bank interest rate, discount rate and/or interbank interest rate are either at, or close to, zero.
Quantitative Management
An approach to investment management which seeks to use statistical or numerical methods to create efficient portfolios, with the optimum risk/return trade-off. Quantitative managers generally attempt to add value by exploiting pricing anomalies, or by providing particular levels of risk control, rather than by subjective forecasting of market behaviour.
Rate of return
How quickly money in a savings or investment account grows.
Retirement planning
As Australia ’s population ages, there will be less money in public coffers to provide pensions in the future. Retirement planning takes into consideration the amount of money you will need to live the life you have in mind. It’s not just a plan to create the wealth you will require, but also ways to manage your funds into retirement, with the right pensions or other strategies to make sure that your income is properly managed. Retirement planning can happen at any age. Starting planning for retirement early allows you to take advantage of the miracle of compound interest, where you savings earn interest on the interest!
Return
The amount received or earned on money which has been invested. Risk. The chance that you may not receive the returns you are expecting or that an unfortunate event will occur.
Risk
In its simplest sense, risk is the variability of returns. Investments with greater inherent risk must promise higher expected yields if investors are to be attracted to them. Risk can take many forms, but a major one is Valuation Risk paying too much for an asset.
Risk management
The various ways or strategies used to manage potential personal or financial loss. The monitoring and controlling of various risk factors in an investment portfolio with the aim of minimizing volatility of investment returns.
Risk Profile
Investors are put into broad categories based on their willingness to take risk to achieve higher returns. This information is then used to select the appropriate investments for their profile.
Rollover
a) In relation to superannuation, the transfer of an eligible termination payment into an approved deposit fund, deferred annuity or superannuation fund prior to retirement in order to defer or (if the rollover remains in place until at least minimum retirement age) avoid the requirement to pay lump sum tax; b) In relation to banking, the renewal of a loan or extension of a deposit at defined intervals, normally including a revision of the interest rate charged or paid.
Salary sacrifice
Part of your before-tax salary can sometimes be ‘salary sacrificed’ straight into superannuation – which means it is taxed at a beneficial rate (15%), and paid before income tax (lowering your taxable income). Many people find this a valuable way to save for retirement so ask your employer if it is available to you.
Self-managed superannuation fund (SMSF)
A superannuation fund managed by one person or a small team of individuals. They are regulated by the Australian Taxation Office (ATO) and have to meet numerous regulatory criteria.
Separately Managed Accounts (SMA)
An individual portfolio investing in a broad range of assets and asset classes that takes in to consideration the individual’s goals and objectives and risks. Unlike a managed fund, an investor in an SMA owns the investments in the portfolio.
Share
An investment that represents ownership in a company or corporation.
Share
Part-ownership in a company. Shares include certain rights (eg. to participate in the appointment of directors, to receive dividends, to receive a share of the surplus assets in a company's dissolution). Different types of shares include ordinary shares, convertible notes and preference shares
Short selling
Short selling is trading shares you don’t actually own with the expectation the share price will fall.
Sovereign Debt
Money (or credit) owed by any level of government; either central government, federal government, municipal government or local government.
Super splitting
Legislation now allows the tax-effective savings of superannuation from one partner to be used to bolster their spouse’s super fund account. This is particularly effective for those who are approaching their Reasonable Benefit Limit (RBL) – it allows for two RBL’s in a partnership, no matter who is earning most money. Ask your financial adviser if this course of action is appropriate for you.
Superannuation
A long-term savings arrangement which operates primarily to provide income for retirement. Superannuation savings are usually made through trust funds, and if these funds meet prescribed Government standards, they are eligible for tax concessions.
Superannuation guarantee
An Australian Government requirement that employers pay a minimum amount, equivalent to a certain percentage of your earnings, into your superannuation fund or retirement savings account.
Tax Deductible
Referring to an expense which can be offset against taxation liabilities.
Tax file number (TFN)
The personal tax identification number supplied to you by the ATO when you begin working and paying tax.
Taxes
Fees placed on income, property or goods which are collected by the government to support costs and programs.
Term Deposit
A deposit with a financial institution for a fixed period and a rate of interest which applies for the duration of the deposit.
Trust Fund
A fund whose assets are managed by a trustee or a board of trustees for the benefit of another party or parties. Restrictions as to the type of investments in which the trustee may invest the assets of the trust fund are usually found in the trust deed and in applicable legislation.
Underwriter
A broker or bank which arranges the sale of an issue of securities on behalf of a client and, if it does not sell all stock to other institutions or investors, itself undertakes to purchase the unsold securities. By using an underwriter, the client is therefore assured of raising the full amount of money it is seeking.
Unlisted Securities
Securities which are not listed on an organised stock exchange.
Variable expenses
Expenses that are not fixed, and can change.
Variable interest rate
Where interest is paid (received) at a variable rate over the term of a loan (investment).
Volatility
Volatility is the pace at which share prices move up and down. If a share is more volatile, it is generally more risky. Volatility - the possibility of a short term change in the value of an investment, positive or negative, due to market fluctuations. Volatility does not mean a loss or gain of capital.
Wealth creation
An umbrella term used to mean the strategies you put in place to create a better financial situation for yourself in the future – these can include superannuation, investment, property ownership and a raft of other ways to achieve your end goals, including making sure you have an appropriate level of insurance. For example salary sacrifice into super (see above) is a very tax-efficient way to save. In some cases borrowing to invest can allow your interest to be tax-deductible, and there may be other efficiencies like paying interest in advance. Your financial planner will be able to let you know of the most tax-efficient ways to save and invest.