Accumulation Fund

A superannuation fund that is receiving benefits in to an account that invests the funds on behalf of the investor as opposed to a defined benefit fund in which the benefit does not exist until the employee retires and the benefit is then calculated.

Active Management

Is referred to as a style of management for investment managers. An active manager is someone who makes investment decisions and aims to outperform the market as opposed to an index manager who simply tries to achieve market returns.

Age Pension

Is a social security (Centrelink) payment that is paid by the Federal Government to assist retirees to meet their living expenses. There are a number of tests to qualify for this payment including the assets and income test.

Aggressive Portfolio

An aggressive portfolio is referred to an investor’s collection of investments where they are invested predominantly in volatile investments that are expected to fluctuate in value on a frequent basis. It is considered to be high risk but also would normally expect above average returns. These types of investments may contain shares, property, currency risk, derivative investments and other growth assets.

Allocated Pension

Is a superannuation account that allows the individual to draw down a regular income from their superannuation account usually in retirement. The benefit amount of the account will change as the investment value changes and the withdrawals of the pension payments come are deducted. There is Government imposed minimums that need to be withdrawn each year. Also called an account based pension.

All Ordinaries (index)

The Australian Stock Exchange index (ASX) which is calculated continuously while markets are opened and is the index of nearly all ordinary shares on the market.

Amortization

The process of paying back a loan over a period of time using a method by which interest and principal is paid back through installments.

Annual Benefit Statement

The report that an investor receives from the fund manager or trustee of their superannuation fund.

Annuity

An investor can invest a lump sum of funds in an insurance based investment to receive periodic payments in return to provide a regular income in retirement.

Appreciation

The increase in the value of an investment

Asset Allocation

Is the term commonly used to describe the break up in the different asset classes of an investment or investment portfolio. (example: Cash, fixed interest, property and shares)

Asset backing

Is the value of investments that make up the concerning investment.

Asset Class

Is used for describing different categories of investments, namely cash, fixed interest, property and Australian shares and overseas shares.

Assets

Are resources that are owned that are of monetary value. (example: house, building, cash)

AWOTE

Acronym for Average Weekly Ordinary Time Earnings which is an index that tracks the income levels in Australia published by the Australian Taxation Office quarterly.

Balanced Fund

An investment fund that has a split of different types of investment classes typically including shares, property, fixed interest, and cash.

Balance Sheet

A financial statement which states an entities assets, liabilities and equity at a particular point in time.

Bankruptcy

Where the Federal Court places all of an entities assets and liabilities in the hands of an official receiver to liquidate and distribute to creditors, according to legislation.

Bear Market

Is an occurrence where investors are pessimistic and market values are in decline.

Beneficial Interest

An entitlement to receive benefits from assets held by another party, e.g. Trustee.

Beneficiary

Is the person who is entitled to receive the proceeds from an investment or insurance policy from a will or trust.

Binding death benefit nomination

Is a legally binding form that can be used to direct the proceeds of a superannuation fund of a member after they are deceased.

Blue Chip

Commonly refers to the top 50 Australian stock exchange companies by market capitalisation (value), or even more generically refers to a quality investment.

Bond

Is a debt security commonly issued by companies and governments to a bond holder to raise capital as opposed to issuing shares.

Broker

An agent for investors to buy and sell securities, loans, insurances or property.

Brokerage

A fee or commission charged by a broker for the execution or placement of a transaction.

Bull Market

A market that consists of investors being optimistic and increasing asset values.

Business Cycle

Refers to the different stages the economy is at, from bull market to bear market and back again.

Capital Gains Tax

A tax paid upon an increase in the capital value of an investment when realised.

Capital Guarantee

An investment product which includes some form of guaranteed return of initial capital by the issuer of the product.

Capital Protected

A type of investment product that manages the risk of negative returns and capital losses to protect the investor. This is often done through the use of derivatives.

Centrelink

Social security provided by the Australian Government that supports those in financial need.

CERTIFIED FINANCIAL PLANNER™

The highest credential recognized in the financial planning industry awarded to experienced advisers who achieve high levels of study, experience, ethics and standards.

Commodity

A good that is transferrable that can generally be processed and sold; including industrial metals and agricultural products.

Complying Fund

A superannuation fund that complies with the standards set under SIS Act and is thereby eligible to receive superannuation contributions for Australian taxpayers.

Concessional Contribution

Taxable contributions to super whereby a tax deduction is made by either the individual, the employer or a family member. These types of contributions are tax deductible and are limited to a cap each year under current legislation.

Contributions Tax

The tax imposed on concessional contributions to superannuation funds.

Death benefit

Is the amount that is actually paid to your beneficiaries upon being deceased.

Defined Benefit Scheme

Is a superannuation policy that is calculated based on a number of factors which may include the length of service, age of employee and annual salary. As opposed to an accumulation superannuation policy that has funds invested in the fund and invested on the owner’s behalf.

Diversification

Otherwise known as ‘not putting all your eggs in the one basket’. Diversification usually includes a spread of one’s investment between a range of defensive and growth investments to spread risk.

Defensive Assets

Include conservative assets that typically do not fluctuate as much in value but offer income to the investor. These assets may include cash, fixed interest and bonds.

Depreciation

The write-down of the initial cost of an asset over time.

Employment termination payment (ETP)

A payment made by an employer to an employee upon termination of their employment which is made to either the individual’s bank account or their superannuation fund.

Equity

The value of an asset after the debt is paid for.

Fixed Interest

Constant level income generated from an asset, such as income derived from bonds, term deposits, annuities and hybrid shares.

Fund Manager

An investment expert that invests pools of client’s funds on their behalf.

Gearing

Borrowing funds to invest

Growth Assets

Investments such as Shares and property which fluctuate in value and often have both a growth and income component to the investment. These assets are also considered to contain higher risk than defensive assets.

Hedge Fund

An investment portfolio which invests through higher risk investment techniques including the use of derivatives, short selling and gearing to produce their returns.

Imputation Credit

Taxation credits that are passed on to shareholders of franked dividends which are distributed to shareholders.

Inflation

An increase in the price of products and services over time. The government’s main measure of inflation is the Consumer Price Index.

Interest Rate

The cost of borrowing money as a percentage of the amount borrowed.

Intestate

When an individual is deceased and the estate is left without a valid will. State law then determines how the assets are divided.

Leverage

Borrowing funds to invest

Marginal Tax Bracket

The range of taxable income that is taxable at a certain rate. Currently, there are six marginal tax brackets-10 percent, 15 percent, 25 percent, 28 percent, 33 percent and 35 percent.

Negative Gearing

Holding an asset with borrowed funds, where the interest on the borrowing exceeds the income from the asset. Hence there is a negative cash flow from the asset.

Preservation age

The minimum age required to gain access to your superannuation savings. This age is set by legislation and depends on your date of birth.

Product Disclosure Statement:

An important document that superannuation funds, investment products and life companies issue that includes information such as the level of risk, fees, investment details and responsible entity.

Risk

The possibility that your investments decline in value or under perform your expectations

Rollover

Is the moving of an individual’s superannuation balance from one super fund to another without accessing the funds.

Salary Sacrifice

The portion of an employee’s pre-tax salary that is exchanged for additional contributions by the employer to the employee’s superannuation fund on top of the superannuation guarantee contribution.

Self Managed Superannuation Fund

A fund that is regulated by the ATO that members control and manage as the trustees of their fund for their own retirement savings.

Superannuation

An investment that offers individuals the opportunity to save for retirement in a concessionally taxed investment structure.

Super Choice

Is the choice employees are given under legislation in Australia that offers them the opportunity and right to choice their nominated superannuation fund to receive their super guarantee contributions from their employer. This is not given to all employees in Australia.

Tax File Number

A number given to each taxpayer in Australia which is distinctive and recognizing of the individual or business, issued by the Australian Taxation Office.

Will

A legal document that instructs the individual’s intentions for the distribution of assets upon being deceased. This may also include guardianship of their children, directions for funeral and the administration of the estate after their death.

Yield

In general, the yield is the amount of current income provided by an investment as a percentage of the initial investment. Yield is distinguished from total return, as that would include appreciation or depreciation.