Boutique Advisers Financial Glossary

Account-based pension

A pension purchased with superannuation money on retirement. You can choose the amount of pension you receive each year within the minimum and maximum levels set by law. Your super money is progressively drawn down until it runs out. For most people aged 60 and over, these pension payments have been tax-free since July 2007. Account-based pensions were previously known as allocated pensions.

Accumulation fund

A superannuation fund where your retirement benefit depends on the money put in by you and your employers and the investment return generated by the fund. Different to a defined benefit fund

Accumulation index

An index that measures the movement of both the price and the returns of an index, for example, the movement in a share price and the dividends paid. An accumulation index assumes all returns are reinvested and compounded.

Active investment management

Where the fund manager buys and sells investments to try to get a better return for their investors than the market as a whole.

Actively managed

An investment management approach where a fund manager buys and sells investments regularly in an effort to outperform a specific market index, such as the ASX200.

Administrative financial platform

An online platform used to buy and sell units in a variety of managed funds. The benefits include being able to see a summary of your investments and consolidated information for tax reporting. A financial adviser charges a fee based on the amount invested through the platform.

Advice Map

Used by Boutique Advisers to clearly show a clients financial life on an A3 page and encompasses both the financial and personal aspect of a families financial life

AFS Licence

An Australian financial services (AFS) licence given by ASIC allows people or companies to legally carry on a financial services business, including selling, advising or dealing in financial products. You should only deal with licensed businesses as you are better protected if things go wrong and you will have access to free dispute resolution services. A licence does not mean that ASIC endorses the company, financial product or advice or that you cannot incur a loss from the investment. ASIC grants a licence if a business shows it can meet basic standards such as training, compliance, insurance and dispute resolution. The business is responsible for maintaining these standards. The ASIC Connect Professional Registers will tell you if the company or person holds an AFS licence.

After-tax super contribution to superannuation

Money deposited into a super fund after you have paid any tax on it. Different from pre-tax contributions (salary sacrificing), which are contributions made before income tax or where a tax deduction is claimed.

Age Pension

A regular, fortnightly payment from the government when you reach pension age. You must meet certain criteria to get the pension.

Allocated pension

A pension purchased with superannuation money on retirement. These have been replaced by account-based pensions.

Annuity

An investment, purchased with a lump sum that guarantees to pay a set income for either an agreed number of years, or for life. Generally, your money is locked away for a fixed period or for life, though some annuities allow early withdrawals or for a ‘residual capital value’. There is no capital left at the end of the specified period. The income payments may be indexed each year, often in line with inflation. Some annuities allow for reversionary beneficiaries.

ASFA Retirement Standard

The Association of Superannuation Funds of Australia’s (ASFA) estimate of how much money you’ll need in retirement, depending on your lifestyle.

Asset

Something you own. It may be a financial item like money, bonds, shares or a bank account or physical item like a house, land or a car.

Asset allocation

The way in which your investment is divided across different assets like shares, property, fixed interest or cash.

Asset class

A category of investments with similar characteristics and market behaviours. Examples include cash, fixed interest, property and shares.

Asset manager

A person or company that manages an investment on behalf of others.

ASX200

The ASX200 is a stock market index that measures the performance of 200 largest companies, by market capitalisation, listed on the Australian Securities Exchange.

Australian financial services (AFS) licence

A licence given by ASIC that allows people or companies to legally carry on a financial services business, including selling, advising or dealing in financial products. You should only deal with licensed businesses as you are better protected if things go wrong and you will have access to free dispute resolution services. A licence does not mean that ASIC endorses the company, financial product or advice or that you cannot incur a loss from the investment. ASIC grants a licence if a business shows it can meet basic standards such as training, compliance, insurance and dispute resolution. The business is responsible for maintaining these standards. The ASIC Connect Professional Registers will tell you if the company or person holds an AFS licence.

Australian Government guarantee on deposits

Refers to the Financial Claims Scheme (FCS) which provides protection to depositors of up to $250,000 per account-holder per authorised deposit-taking institution (ADI) (bank, building society or credit union) in the event of the ADI failing. For joint accounts, each account holder is entitled to the $250,000 guarantee.

Australian Prudential Regulation Authority (APRA)

The prudential regulator of the Australian financial services industry. It oversees banks, credit unions, building societies, general insurance and reinsurance companies, life insurance companies, friendly societies, and most of the superannuation industry. APRA is responsible for ensuring Australia has a stable, effiecient and competitive financial system. It also provides statistics on the Australian financial sector.

Australian Securities and Investments Commission (ASIC)

The Australian Federal Government agency that enforces laws relating to companies, securities, financial services and credit, in order to protect consumers, investors and creditors.

Australian Securities Exchange (ASX)

Australia’s biggest exchange, where shares in public companies, futures, options, warrants, bonds and other securities and derivatives are traded.

Authorised deposit-taking institution (ADI)

Corporation authorised under the Banking Act 1959. Includes banks, building societies and credit unions.

Bank bill swap rate (BBSW)

The central benchmark interest rate in Australian financial markets at which banks will lend to each other (via bank bills) for periods of 6 months or less.

Bankruptcy

A process for individuals to be legally declared as being unable to meet their debt obligations.

Benchmark

In investing, an index that can be used to evaluate the performance of an investment.

Beneficiary

Someone who will receive a benefit or asset in the event of the owner’s death. Beneficiaries of a super fund are the members, and their dependants (if the member dies).

Bid-ask spread

The difference between the bid price and the ask price for shares or other assets is called the spread. You cross the spread when making an offer to buy at the ask price, which is higher than other buyers have bid. You can also cross the spread when selling at the bid price, which is lower than what other sellers have asked.

Binding death benefit nomination

Where the superannuation fund, in the event of your death, must pay your superannuation benefit to your nominated beneficiary, unless it would be unlawful to do so.

Blue chip share

A share in a well-established company with a record of stable earnings over a long period, typically a market leader or among the top companies in its sector.

Bond

A medium to long-term investment issued by governments and companies which pays a regular, fixed interest amount for the term of the investment. The invested funds (the principal) are repaid at the end of the term (maturity).

Call option

An option contract that gives you the right to buy (but does not lock you into buying) the underlying asset at a specified price, at or before a certain time in the future. You would use a call option when you expect the price of an asset to increase.

Capital

For individuals, the money or other assets owned for the purpose of investing. For a company, the funds received from owners or investors to further its business objectives.

Capital depreciation

A decrease in the value of a capital asset.

Capital gain

The difference between what you paid for an asset (including buying costs) and what you got when you sold it (less selling costs).

Capital gains tax

A tax on profits made from buying or selling certain assets.

Capital growth

The increase in value of an asset over time. Also known as capital gain.

Capital guarantee

A product where investors are protected against significant loss of the amount invested. Can contain clauses and performance hurdles that limit the protection. Also called capital protection.

Cash investments

Money invested in short-term, interest-paying investments. Having money in a bank account is an example of a cash investment.

Cash management account

A transaction account used to receive cash from investments such as dividends or proceeds of sales, and from which new investments are purchased.

Cash rate

The interest rate charged on overnight loans between banks. The Reserve Bank of Australia (RBA) sets a target cash rate in order to control monetary policy.

Caveat

In relation to property law, a caveat is a legal notice that shows who has an interest in your property. You can’t register a dealing (for example, to sell the property) until all caveats are removed or you get the consent of any people who hold a caveat. To put a caveat on your property or remove a caveat, contact your state’s Land Titles Office.

Co-contribution

A payment, up to a maximum of $500, made by the Government to the super fund of a low or middle income earner who makes after-tax contributions to their super. The co-contribution amount depends on an individual’s income and how much they contribute.
If you are eligible, the Government pays the co-contribution directly to your fund. See the ATO website for more information.
Collateralised debt obligations (CDO)
A bundle of individual loans such as car loans, credit card debt or corporate debt put together and sold as a single investment.

Collectables

Items that are rare or in demand and may increase in value over time. Examples include artwork, antiques, coins and wine.

Commutation

Process of converting part or all of a pension or annuity into a lump sum.

Compound interest

Interest paid on the initial principal and the accumulated interest on money borrowed or invested.

Concessional super contributions

Concessional super contributions are payments put into your super fund from your pre-tax income and are tax deductable for self-employed people. They include your employer’s super guarantee (SG) contributions. Concessional super contributions are taxed at 15% when they are received by your super fund.

Condition of release

A nominated event you must satisfy to be able to access superannuation savings. Examples include permanently retiring from the workforce after reaching preservation age, reaching age 65 or becoming totally and permanently disabled.

Consumer price index (CPI)

Records the change in purchasing power by measuring changes, over time, in the weighted average price of consumer goods and services such as food, transport and medical care. It represents consumption expenditure by households in Australian metropolitan areas.

Contracts for difference (CFD)

A high-risk, leveraged derivative contract between a client and a CFD provider. CFDs allow you to speculate on the short-term movements in foreign exchange rates, share prices, stock market index levels or other underlying assets.
Your gain or loss depends on the price of the underlying asset when the contract starts and ends. If the price moves in your favour, the CFD provider pays you. If the price moves against your CFD position, you pay the CFD provider.

Corporate bond

A debt security issued by a company to investors to raise money to finance its business activities. Sometime called fixed-income securities because the issuer promises to pay a specific amount of interest on a regular basis and repay the principle on a set date.

Corporate Collective Investment Vehicle (CCIV)

A type of investment fund that uses a company structure. A CCIV is set up using one or more sub funds and an investor can buy shares in one or more of those sub funds. A CCIV has a different legal structure to a managed investment scheme and must be registered as a company with the Australian Securities and Investments Commission (ASIC), using an Australian Company Number (ACN). Each sub fund has its own Australian Registered Fund Number (ARFN).

Coupon rate

The annual interest rate on a bond, paid by a bond issuer, relative to the face value of the bond.

Currency risk

The risk that the value of your investments will be affected by changes in foreign currency exchange rates.

Death benefit

A payment made from a super fund to a beneficiary when you die. For example, from a super fund or insurance policy.

Debenture

A medium-term investment issued by a company where investors lend them money in exchange for 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) and are usually secured by tangible property. They may be offered at call or for a set period.

Debt to equity ratio

Total debt divided by total equity. A company’s equity represents the amount of shareholder’s funds.

Defensive asset

Cash or fixed interest investments that are generally low risk and less volatile than growth investments.

Defined benefit fund

A super fund where your retirement benefits are calculated by a predetermined formula. Retirement benefits are usually calculated using your average salary over the last few years before you retire and the number of years you worked in the company or public service. In general, market fluctuations have limited effect on the value of your benefit, although in periods of prolonged economic downturn, your defined benefits could be affected. If the fund performance is poor, the trustee will generally ask an employer to help pay member benefits as required.

Dependant

A person who relies on you for financial support e.g. children under 18 or your non-working spouse.

Depreciation

A decrease in the value of an asset.

Derivative

A financial instrument whose value is ‘derived’ from an underlying asset such as a share, commodity or index. Common types of derivatives include options and futures contracts.

Diversification

Spreading investments across a variety of different asset classes or within an asset class to reduce risk.

Dividend

A payment made by a company to its shareholders. The payment is a share of the profits of the company and is based on the number of shares a person holds. A franked dividend consists of profits the company has already paid tax on.

Dividend yield

A financial ratio that measures how much a company pays out in dividends each year relative to its share price.

Division 293 tax

An extra 15% tax on the super contributions of high-income earners. This tax is charged if your income plus your concessional super contributions are above $250,000. There are different tax rules for members of defined benefit super funds. More details are available on the Australian Tax Office website. Find out more about tax and super.

Earnings per share (EPS)

A financial ratio calculated by dividing the company’s earnings (profits) by the number of shares on issue. The higher the EPS, the more a share is potentially worth. See also price equity ratio

Effective interest rate

An annual interest rate that takes into account the effect of compound interest and fees. Also known as an effective yield or the annual percentage rate (APR).

Eligible rollover fund (ERF)

A holding account designed to receive the super benefits of lost members and those with low account balances that are no longer receiving contributions.

Emerging market

Low to middle income economy typically undergoing significant economic and political reform as it transitions from a developing to a developed nation. They tend to have relatively underdeveloped economies, legal systems and regulatory frameworks, and a high government presence in their market.

Employer share scheme

An employer scheme that gives employees shares, or the opportunity to purchase shares, in the company, sometimes at a discount to market rates. Shares may be offered as part of an employee’s remuneration or bonus, or through a loan or salary sacrifice arrangement.

Enduring power of attorney

Like an ordinary Power of Attorney (PoA), an enduring power of attorney authorises your nominated representative to make property and financial decisions for you. Unlike an ordinary PoA, an enduring PoA continues to have effect if you become mentally incapacitated at a later date.

EPS

A financial ratio calculated by dividing the company’s earnings (profits) by the number of shares on issue. The higher the EPS, the more a share is potentially worth. See also price equity ratio

Equities

An equity is part ownership of a company. Equities are also known as shares or stocks. Shareholders are entitled to dividends which represent their portion of the company’s profits.

Equity

The value of an asset such as your house or property, less any money owing on it.

Equity investment

An investment where you buy and hold shares in a company or property from which you expect to receive income and capital gains.

ERF

A holding account designed to receive the super benefits of lost members and those with low account balances that are no longer receiving contributions.

Estate

All of a person’s assets, whether real property or personal property, and their liabilities or debts.

Ethical investment

An investment strategy that promotes positive environmental, social or ethical issues. Avoids investment in industries and companies that produce goods harmful to health, society or the environment e.g. chemicals, tobacco, armaments. Each fund will have its own interpretation of the values it wants to protect or promote. You will find details in the company’s PDS. Also known as socially responsible, sustainable or socially conscious investing.

Exchange-traded fund

A managed fund or unit trust that is quoted and traded on a stock exchange such as the ASX. ETFs generally seek to mimic the performance of a specific index, such as the S&P/ASX 200 index, a currency, such as the USD, or a commodity, such as gold.

Exchange-traded treasury bond (eTB)

A type of Australian Government Bond quoted and traded on the Australian Securities Exchange that is a medium-to long-term debt security with a fixed face value ($100) and a fixed annual interest rate.

Exchange-traded treasury indexed bond (eTIB)

A type of Australian Government Bond quoted and traded on the Australian Securities Exchange. It is a medium to long-term debt security with a fixed interest rate but a face value that is adjusted for movements in the Consumer Price Index (CPI).

Executor

A person specified in a will , or appointed, to administer the will.

Face value

The value of a security set by the company issuing it that will be the amount payable on maturity. This may differ from the market value, that is, the amount it trades for.

Family Charter

A family charter provides a road map around family rules which assists with family decision making and governance. Typically, it would include.
• Family Mission and values
• Roles and Responsibilities
• Succession planning
• Decision Making guidance.
• Wealth Management and asset plan
• Communication and conflict resolution pathways
• Governance structures

Financial plan

A plan, usually created with help from a financial planner or adviser, that defines your financial goals and sets out investment strategies to reach your stated goals, with reference to your personal circumstances.

Financial Services Guide (FSG)

A guide that contains information about the entity providing you with financial advice. It should explain the financial service offered, the fees charged and how the person or company providing the service will deal with complaints.

First Home Owners Grant

A grant provided by state governments to first home buyers, to offset the effect of the GST on buying or building a home. For more information see the Government’s First Home Owner’s Grant website.

Fixed interest investment

A type of investment that offers a set rate of interest for a specified amount of time, with the principal repaid at maturity. Covers a broad range of investments, with varying degrees of risk, such as term deposits, government bonds, corporate bonds, capital notes, debentures and income securities.

Fixed interest rate

Interest is paid at a fixed rate over the term of a loan or investment. Opposite of variable interest rate.

Fixed rate home loan

Allows you to lock in an interest rate on your loan, typically for 1 to 5 years. Protects against interest rate rises but also means you won’t benefit from falling interest rates. Opposite of variable rate home loan.

Five Pillars Journey

A unique model used by Boutique that explores the financial advice journey that they take all clients through. An understanding of Realisation, Purpose, Clarity and Collaboration gives Boutiques clients the Confidence that they are on the right track.

Franking credit

Your share of the tax a company has already paid on the profits you received as a dividend or distribution.

FSG

A guide that contains information about the entity providing you with financial advice. It should explain the financial service offered, the fees charged and how the person or company providing the service will deal with complaints.

Fully franked dividend

A share dividend on which the company has already paid tax. This means shareholders are entitled to a credit for the amount of tax the company has already paid. This credit is known as an imputation credit or franking credit.

Fund choice

Allows employees to choose the super fund their employer pays their super contributions into.

Fund manager

Individual or organisation responsible for investing funds on behalf of a financial institution. See also investment manager.

Funeral bond

A capital guaranteed managed fund to accumulate benefits to help meet the future cost of funeral expenses. Funeral bonds have tax and Centrelink advantages.

Futures

Legally binding contracts to buy or sell a particular asset, currency or other index, for a specified price on a specified future date.

Gearing

Borrowing to invest, such as when you buy a house using a mortgage or buy shares using a margin loan.

Goals, Purpose Legacy (GPL)

This is part of the Boutique Five pillars process that explores a clients Goals Purpose and Legacy needs. Goals is all about What people want, when they want it and how much it costs, Purpose is about the “Why”, and understanding this allows your Financial Adviser to help you prioritise your Goals. And finally, Legacy is around the “Who”. Who do you want to help, leave money to, or want to be remembered for.

Goods and services tax (GST)

GST is a broad-based tax of 10% on most goods, services and other items sold or consumed in Australia. To work out the cost of an item including GST, multiply the amount exclusive of GST by 1.1. To work out the GST component, divide the GST inclusive cost by 11.

Government bond

A medium to long term fixed interest investment issued by domestic or foreign governments which pays fixed interest rate (coupon rate) for the term of the investment. The original invested amount (face value) is repaid at the end of the term (maturity).

Government co-contribution

A contribution made by the Australian Government to a person’s superannuation account based on that person’s income, source of income and personal super contribution. It is designed to help lower income earners build up their super before retirement.

Green bonds

Green bonds are bonds issued to fund projects that offer climate change and environmental benefits.

Greenwashing

Greenwashing is when an investment fund promotes a product or investment strategy as being more sustainable or ethical than it is. It’s marketing spin.

Growth asset

Assets such as shares and property that not only produce an income but have the potential to grow in value over time.

Growth fund

A fund that invests in growth assets. A growth fund is more likely to produce higher returns over the long term but is usually more volatile in the short term.

Hedge fund

A fund that pools capital from a number of investors and invests in shares and other securities. It aims to achieve positive returns in both rising and falling markets, while using strategies to reduce the chance of loss. Often uses complex strategies including short selling, derivative contracts, leverage and arbitrage.

Hedged

Where a fund manager has used strategies to offset some or all of the impact of currency fluctuations on overseas investment returns.

Holder identification number (HIN)

A HIN is a unique number that is issued by the Australian Securities Exchange (ASX) when you become a client of a broker. All shares that you buy through that broker will be connected to your HIN.

Hybrid security

A financial product that combines features of debt and equity securities and generally pays a fixed or floating rate of return until a specified date. In some cases they can be converted into shares in the issuing company. Includes convertible notes, preference shares and capital notes.

Imputation credit

Tax credit passed on to shareholders who receive partially or fully franked dividends. The tax credit is in consideration of the tax the company has paid on its profits before passing those profits on to shareholders.

Income producing asset

Any asset that generates an income. For example, dividends are paid on shares, investment properties generate rental income, bonds and bank accounts produce interest.

Income protection insurance

Pays part of your lost income if you can’t work because of illness or injury. Most policies offer cover based on your annual earnings in the 12 months prior to your illness or injury. Most income protection policies offer two or five years, or up to a specific age (such as 65).

Index

A statistical measure of change in the value of a market, asset class or industry sector. The value of an index increases or decreases with changes in the value of the underlying security or sector it’s measuring. For example, the ASX All Ordinaries Index measures the change in the overall value of 500 largest companies by market capitalisation listed on the Australian Securities Exchange.

Index fund

A managed fund with a portfolio constructed to match or track the return before fees of a particular market index, such as the ASX 200 or the ASX Small Ordinaries Index.

Industry sector

A classification used to group companies that are related in terms of their primary business activities. Major industry sectors include consumer discretionary, consumer staples, energy, financials, healthcare, industrials, information technology, metals and mining, telecommunications and utilities.

Inflation

The increase in the cost of goods and services over time.

Initial coin offering (ICO)

An ICO is a way a project can raise money over the internet. You invest in an ICO by sending money or crypto assets to a blockchain project. In return, you receive digital tokens related to that project.

Initial public offering (IPO)

When a company lists on a stock exchange and offers shares to the public for purchase. Also known as a float.

Instalment warrant

A financial product issued by banks and other financial institutions that lets investors buy shares (or other securities) over a period of time, making an initial payment and paying the balance later. A form of leverage as it involves borrowing to invest, and investors are charged interest and fees on the outstanding amount but get the benefits of owning the whole investment, such as receiving dividends.

Insurance bond

An insurance bond is a long term investment offered by insurance companies and friendly societies where investors’ money is pooled and invested according to the investment option chosen. There are tax advantages for higher income earners if the investment is held for at least 10 years and certain conditions are met.

Interest

Payment for the use of money over time. You earn interest by lending your money. If you borrow money, interest is the amount you pay to borrow the money. The rate of interest can be fixed or variable. It is usually calculated as a percentage of the amount lent or borrowed. For example on a $10,000 car loan that has an interest rate of 10%, you would pay $1000 interest in the first year.

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.

Intestate

Dying without leaving a will. Your assets will be distributed according to intestacy laws in the relevant state or territory.

Investment

An asset bought with the aim of producing an income and/or an increase in value over time.

Investment Bias

This refers to deviations from rational decision making that can influence an investors decision making process when it come to making investment decisions. These can commonly be due to psychological or emotional responses to different market conditions.

Investment bond

A long-term investment offered by insurance companies and friendly societies where investors’ money is pooled and invested according to the investment option chosen. There are tax advantages for higher income earners if the investment is held for at least 10 years and certain conditions are met.

Investment manager

Individual or organisation responsible for investing and managing the assets of others. See also fund manager or responsible entity.

Investment platform

An administrative system for your investments. Platforms offer a range of investments and services, all in the one place. Reporting for all investments is usually in the one report.

Issuer

A legal entity that creates, registers and sells securities in order to raise money to finance its operations. Issuers include domestic or foreign governments, companies and investment trusts.

 

Joint tenants

When property is held by two or more people together in equal shares. On the death of one joint tenant the property automatically passes to the other joint tenant(s), regardless of what may be set out in the deceased person’s will.

Leverage

The use of financial instruments or borrowed capital to increase potential gains or losses. For example, borrowing money to invest in property or other assets, buying a share in a ‘geared’ managed fund or investing in derivatives.

Life cover

An insurance policy that pays a set amount of money to an insured person’s beneficiaries when the insured person dies. Also known as term life insurance or death cover.

Life insurance policy

A life insurance policy pays a set amount of money to you or your family after an unexpected event, like an illness, injury or death.

LifePlan Modelling

Uniquely used by Boutique to help model out a client’s financial life. The modelling shows over a lifetime based on after tax income earned, expenses and financial goals they want to achieve

Limited recourse loan

A loan used to purchase a single asset or group of assets where the lender’s claim on assets is limited to the asset(s) purchased with the loan, if the borrower defaults on the loan.

Liquidity

How easily an investment or financial product can be converted to cash. Shares in large publicly listed companies that are regularly traded on the ASX (Australian Securities Exchange) are considered liquid assets, while direct property investments are less liquid, due to difficulties and time delays that may be experienced when buying and selling. Liquid markets have enough trading activity to allow both buyers and sellers to easily transact as they wish.

Listed property trust

Trust funds listed on a securities exchange and managed by an investment manager (also known as real estate investment trusts (REITs). May invest in a specific type of property such as residential, industrial, office buildings, shopping centres or hotels, or in a diversified portfolio of real estate assets either in Australia or overseas.

Loan to value ratio (LVR)

The amount of a loan as a percentage of the value of the asset it was used to buy. It is calculated by dividing the loan amount by the value of the asset.

Managed discretionary account (MDA)

A personal investment account where you own investment assets, such as company shares or units in a managed fund. You give someone else (the MDA provider) the authority to buy and sell investments on your behalf. Financial advisers often use MDAs to manage portfolios for their clients.

Managed fund

An investment fund where your money and that of other investors is pooled and used to buy assets such as cash, shares, bonds and listed property trusts. The fund is managed by a fund manager.

Margin call

Occurs when the value of an asset falls below the agreed loan to valuation ratio. The lender will ask the borrower to deposit enough money to bring the loan back to the agreed lending ratio.

Margin loan

A loan that is taken out to invest in shares or managed funds. The investment is used as security

for the loan. Margin calls are possible if the value of the investment falls below a set amount.

Marginal tax rate

The highest rate of tax a taxpayer will pay on their income. Find out your marginal tax rate.

Market index

A statistical measure of change in the value of a market, asset class or industry sector. The value of an index increases or decreases with changes in the value of the underlying security or sector it’s measuring. For example, the ASX All Ordinaries Index measures the change in the overall value of 500 largest companies by market capitalisation listed on the Australian Securities Exchange.

Market sector

A group of companies that produce or buy and sell such similar goods that they are in competition with each other. Examples include the mining, retail and technology sectors.

Market-linked investment

A pooled investment scheme where the value of the investment depends on the movements of a particular market.

Master trust

Allows individual investors to pool their funds so that they can invest in a wide choice of investments, usually at wholesale prices. Typically used by financial planners for reporting convenience. Also known as an investment platform or wrap account.

Maturity

The date on which a debt or investment and all outstanding interest payments must be paid in full.

Mining tenement

A license, permit or lease providing rights to explore for and/or extract minerals under the surface of an area of land.

Mortgage

A form of security (usually over real estate) that is used to secure repayment of a debt (usually a home loan).

Mortgage fund

A type of investment fund where investors’ money is on lent (as mortgage loans) to a range of borrowers who use the money to buy or develop properties. It might also be used for other investments (for example, investing in other mortgage funds). In return the fund manager promises to pay investors a regular income.

Mortgage-backed security

An investment in a collection of loans for which the lender holds a mortgage over the property the loan was used to purchase. The loans are written by a financial institution, then sold to an intermediary, who packages (or securitises) the loans into different groups, based on their level of risk. The packaged group of loans is then offered to investors.

Negative gearing

Borrowing money to invest where the return from the investment is less than the borrowing costs. For example, the rental income from your investment property is less than the interest payments on the loan used to purchase the property.

Net asset value (NAV)

The value of assets less liabilities, often expressed as a per unit or per share value. For example, the net asset value of a managed fund or exchange-traded fund per unit would be calculated by subtracting the fund’s liabilities from the fund’s assets and dividing the result by the number of units on offer.

Net worth

The difference between the total value of everything you own (assets), and the total value of all of your debts (liabilities).

No-Interest Loans Scheme (NILS)

A community program that provides interest-free loans for individuals or families on low incomes.

Non-binding nomination

Guides your super fund trustee on who will get your super if you die. The trustee is not bound to follow these instructions.

Non-commutable income stream

An income stream that cannot be converted into a lump sum payment.

Non-concessional super contributions

Non-concessional super contributions are payments you put into your super from your savings or from income you have already paid tax on. They are not taxed when they are received by your super fund.

Non-recourse loan

A type of loan secured by collateral such as property or shares, where if the borrower defaults the lender can only seize the assets put up as collateral for the loan. The lender cannot seek further compensation from the borrower even if the assets used as collateral do not cover the full amount of the loan.

Offset account

A transaction account that is linked to a mortgage account. It reduces your interest payable as interest is only charged on the net balance, i.e. your mortgage balance less your offset account balance.

Option

A contract between two parties that gives the buyer/seller the right, but not the obligation, to buy/sell an asset, at a set price, on or before a specific future date.

Overdraft facility

An arrangement that allows you to withdraw more funds than you have in your account.

Over-the-counter (OTC) market

The over-the-counter (OTC) market is where financial products, such as corporate bonds or derivatives, are traded directly between two parties and not on a centralised exchange (such as the Australian Securities Exchange).

Passively managed

A ‘buy and hold’ investment management approach where a fund manager holds a portfolio of assets aimed at generating a return before fees similar to the index it is tracking, such as the ASX All Ordinaries Index or the ASX200 Index. (Also known as an index fund.)

Pension

An income stream that makes regular income payments. Examples include the government age pension or an account-based pension from your super fund.

Power of Attorney

A document that appoints someone to act on your behalf in a legal or business matter. A Power of Attorney (PoA) may be general or specific and may be unlimited or limited to a specific act. It is different to an enduring power of attorney.

Preservation age

The age at which you can access your super. This is between 55 and 60, depending on when you were born. You must also meet a condition of release.

Preserved benefit

A super benefit that remains in a super fund until the member reaches preservation age and, in most instances, retires from the workforce.

Price earnings ratio (P/E ratio)

A financial ratio that can be used to work out whether the price of a share is over or undervalued compared to its competitors. To work out a P/E ratio, the current price of the share is divided by the earnings per share (EPS).

Probate

A document issued by a court certifying the validity of a will and authorising the executor to administer the estate in accordance with the provisions of the will.

Product disclosure statement (PDS)

A document that financial service providers must provide to you when they recommend or offer a financial product. It must include information about the product’s key features, fees, commissions, benefits, risks and the complaints handling procedure.

Property development

The business of buying land or property and developing or improving the asset for the purpose of selling at a profit.

Property trust

A trust fund, managed by an investment manager who invests in a range of properties, including residential, industrial, office buildings, shopping centres, hotels and other specialist properties. If the trust is listed, units can be bought and sold on a stock exchange. Income is generated by the assets of the trust and unit values will reflect the value of the trust assets.

Prospectus

A document issued by a company that wants to raise money from the public by offering equity (shares) or debt (bonds) securities in the company or a trust. It must contain all the information needed to make an informed decision about investing in the company.

Public trustee

Government agency or business that provides professional and independent services such as making wills, acting as an executor in deceased estates, managing trusts and Powers of Attorney.

Put option

An option contract that gives you the right to sell (but does not lock you into selling) the underlying asset at a specified price, at or before a certain time in the future. You would use a put option when you expect the price of an asset to decrease.

Record of Advice (ROA)

A simple document that confirms the advice received from a licensed financial planner or adviser. Similar to a Statement of Advic (SOA) but shorter and less formal. Often given to existing clients to confirm changes to, or implementation of, advice provided in a previous SOA.

Regulatory risk

The risk that changes in government policy or regulation may affect your benefits e.g. changes in superannuation policy. Changes typically happen after elections or around the time of the Federal Budget. See also taxation risk.

Responsible entity

A licensed entity or body that operates a managed investment scheme.

Retirement savings account

An account offered by financial institutions that is used to save money for retirement. These are simple, low cost, low return accounts.

Reverse mortgage

A type of loan often used in retirement as a way for people to access the equity in their home. The loan amount depends on your age, the value of the home and how it is taken (lump sum, regular payments or draw down as needed). Interest is added to the loan and compounds. The loan does not have to be repaid until the borrower moves out or the house is sold, usually as part of a deceased estate.

Reversionary beneficiary

The person who will receive the balance of your superannuation income stream after you die. This could be your spouse, child or other dependant.

Risk

The possibility that your investment may fall in value or earn less than expected.

Risk tolerance

The degree of uncertainty you are prepared to accept in relation to investment returns, in particular the extent to which you are prepared to experience a negative investment return while trying to achieve positive investment returns.

S&P500

The S&P500 is a stock market index that measures the performance of 500 largest companies, by market capitalisation, listed on exchanges in the United States.

Salary sacrificing

When you and your employer agree to pay a portion of your pre-tax salary as an additional contribution to your superannuation. This can be a tax-effective strategy and usually suits middle to higher income earners.

Savings account

A deposit account held at a bank or other financial institution that offers a higher interest rate than most basic transaction accounts. Account holders can usually access their account at any time.

Secured note

A type of fixed interest investment that has a first ranking security interest over other property, for example a debt. Issued by companies as a way of raising capital whereby they promise to pay a fixed rate of interest and repay capital at a date in the future.

Security

In relation to financial assets, a security is an investment such as shares or bonds which can be traded in financial markets.

Security for a loan

An asset that is put up to guarantee a loan. If the loan is not repaid, the lender may sell the asset to get its money back. See also mortgage.

Self-managed super fund (SMSF)

A private super fund you can manage yourself. SMSFs are regulated by the Australian Taxation Office and can have up to six members. All members must be trustees to ensure they are fully involved in the decision-making of the fund.

Senior debt holder

A holder of a debt security such as a corporate bond or secured note, in which the debt holder has priority over unsecured (subordinated) debt holders in the event that the company is wound up.

Settlement

When the title or legal ownership of a financial product, such as shares or ETFs, is exchanged for money. A broker, or an agent of the broker, handles settlement.

Share

A share is part ownership of a company. Shares are also known as equities or stocks. Shareholders are entitled to dividends which represent their portion of the company’s profits.

Share fund

A managed fund in which the investment manager invests in range of shares to satisfy a specific investment goal, such as maximising capital growth, dividend income or franking credits. May focus on a specific geographic region or industry sector.

Short selling

The practice of selling a security or commodity that you do not own. You borrow the commodity or security from a third party (usually a broker) and immediately sell it to a buyer. You then buy identical securities back at a later date, to return to the lender. This is a speculative investment, made when you believe the price of the security is going to fall and therefore you will make a profit. Find out more about short selling on our hedge funds webpage.

Sophisticated investor

A person with a certificate from a qualified accountant certifying they have a prescribed net asset or gross income level. This gives them an exemption under the Corporations Act 2001. That means they can buy financial products without a regulated disclosure document such as a prospectus or product disclosure statement.

A person holding a certificate is a:

‘sophisticated investor’ for the purposes of Chapter 6D (if offered debt or shares), or

‘wholesale client’ for the purposes of Chapter 7 (if offered a financial product, other than insurance, superannuation or a retirement savings account product or service) and the financial product is not used in connection with a business

To be eligible for a certificate, you must have:

a gross income of $250,000 or more per year in each of the previous two years, or

net assets of at least $2.5 million (reg 6D.2.03 and reg 7.1.28)

Sovereign debt

Sovereign debt is the amount of money a country’s government has borrowed. Governments raise funds by issuing/selling debt securities, such as Australian Government Bonds (AGBs).

Speculative investment

An investment that has the possibility of making an extraordinary profit but also a high possibility of losing most or all of an investor’s initial investment.

Stamp duty

A state tax imposed on certain transactions, such as car registrations, mortgages and property transfers.

Standard deviation

Measures the dispersion of a set of data from its average. The higher the standard deviation the wider the spread of data. For investment returns, a higher standard deviation indicates a wider range of returns which indicates more volatility in a particular market.

Stapled securities

When two or more securities are contractually bound together so that they cannot be bought or sold separately.

Stapled super fund

From 1 November 2021, when you start a new job, your employer will pay your super into your existing super fund if you do not choose a different fund. That existing fund is known as a ‘stapled super fund’ because it’s connected to you and follows you as you change jobs. This helps you avoid having multiple super funds and paying additional insurance premiums and fees.

Statement of Advice (SOA)

A document that sets out the advice given to a consumer by their licensed financial planner or adviser. It must include the basis on which the advice is given, details of the providing entity, and information on any payments or benefits the adviser or licensee will receive.

Stocks

A stock is part ownership of a company. Stocks are also known as equities or shares. Shareholders are entitled to dividends which represent their portion of the company’s profits.

Subordinated note

A type of debt security in which the note holder’s claim to the company’s assets ranks behind those of secured note and senior debt holders if the company is wound up.

Superannuation (super)

Money that you and your employers put into a special fund during your working life to provide you with money to live on when you retire.

Superannuation guarantee (SG)

The minimum amount that your employer must pay into your superannuation fund. It is currently 10.5% of your gross salary.

Sustainable investing

Sustainable, or sustainability-related, investing is when an investment product or strategy considers factors relating to sustainability, such as environmental, social or governance (ESG) matters.

For more information, see Environmental Social Governance (ESG) investing.

Swaps

In a swap agreement, a counterparty agrees to pay the difference between the value of the ETF’s assets and the value of the assets or index it is designed to track. When a synthetic ETF enters a swap agreement, this creates counterparty risk.

Tax file number

A unique number assigned to taxpayers by the Australian Taxation Office for tax administration. You need to quote the number to employers, benefit and allowance providers, banks and her investment bodies.

Taxation risk

The risk that changes to the tax system could affect the outcome of your investments. With regard to your superannuation, it is the risk that changes to the way superannuation is taxed could affect the amount of super earnings. See also regulatory risk

.

Tax-free threshold

The level of annual income, as set by the Australian Taxation Office (ATO), on which you do not have to pay income tax. See ATO: Individual income tax rates.

Tenants in common

Where two or more people hold shares in a property. Each owner has the right to deal with their share of the property separately to the others. Tenants in common may pass on their share to a nominated beneficiary in their will.

Term deposit

An account with a financial institution where money is deposited for a set period of time. The interest rate is usually fixed for the term of the deposit and is generally higher than a transaction account but not always higher than some other at-call high interest savings accounts. Also known as a fixed deposit.

Today’s dollars

When an amount is expressed in today’s dollars, it means the result has been adjusted for inflation (the rising cost of living) and for the cost of rising community living standards.

This term is often applied to results in financial calculators. This is done to allow calculator users to make a meaningful comparison with current wage levels. If results were shown in future dollars instead, they would be larger.

Total and permanent disability (TPD) insurance

A type of life insurance that helps cover the cost of rehabilitation, debt repayments and the future cost of living if you are totally and permanently disabled. Each insurer has different definitions of what is and isn’t considered to be permanently disabled, so always read the fine print so you know how the policy defines the cover.

Transfer balance cap

A lifetime cap on the amount of super that you can transfer into ‘retirement phase accounts’ to pay a tax-free income stream.

Transition to retirement scheme

A scheme that allows you to reduce working hours in the lead-up to retirement without reducing take-home pay, or to continue working full-time and make significant tax savings by salary sacrificing heavily into super and supplementing take-home pay with a super pension.

Trauma insurance

A type of life insurance that provides cover if you are diagnosed with a certain illness that will make a significant impact on your life, such as cancer or a stroke. Trauma insurance pays a set amount that can be used for things like medical costs, repaying debt, or adjustments to housing or lifestyle changes.

Trustee

A person or company that holds or administers assets for the benefit of someone else.

Trustee (super fund)

People or a company appointed to manage a super fund on your behalf.

Unhedged

An investment fund where no steps have been taken to limit the effect of currency fluctuations on overseas investment returns.

Unit price

The value of a company or investment expressed as a single unit. A unit is similar to a company share.

Unit trust

A legal structure that holds assets for the benefit of unit holders. A trustee administers the trust, makes decisions about trust assets and is responsible for distributing income and capital according to the number of units each investor holds. Any profits made by the trust must be distributed to unit holders at the end of the financial year.

Unlisted property trust

A property trust that is not listed on a public market, such as the Australian Securities Exchange.

Unsecured loan

A loan for which no asset has been used as security. The interest rate is usually higher than for a secured loan as there is a higher risk to the lender of not getting their money back.

Unsecured note

A type of fixed interest investment issued by a company whereby it promises to pay regular interest payments and return the capital at the end of the investment term. There is no security offered for the investment.

Variable interest rate

Where consumers receive interest on an investment or pay interest on a loan at a rate that may go up or down during the term. Opposite of fixed interest rate.

Variable rate home loan

A home loan where payments increase or decrease in line with rises or falls in official cash rates. Opposite of fixed rate home loan.

Volatility

The extent to which the return on an asset fluctuates over time. It is measured by the rate at which the price of a security moves up and down. The higher the frequency of movement in the price of a security, the higher the volatility and the greater the risk.

Warrant

A financial product issued by a bank or other financial institution which gives you the right to buy shares (or currency, an index or a commodity) at a set price within a specified time and traded on the Australian Securities Exchange.

Will

A legal document that sets out how you want your assets and other belongings to be distributed when you die.

Wrap account

Allows managed investments to be combined or ‘wrapped’ into a single account. Generally used by financial planners for convenience.

Yield

The rate of return on an investment