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All Ordinaries Index
Refers to the measure of share price movements of 300 listed companies on
the ASX.
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Allocated Pension
Income is paid to you from a super fund. You can vary the pension amount
between maximum and minimum levels based on your age. You have access to
your capital, and you will receive an income stream as long as you have
the money in your super account.
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Annuity
You buy an annuity from a life insurance company with a lump sum. The insurer
pays a portion of your capital each year plus any earnings as a regular
income. How much you receive is based on the insurers view of your life
expectancy and the prevailing interest rates.
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Bank Bill
Is issued by a borrower of funds and accepted by a bank, who incurs the
liabilty to pay the face value of the bill at maturity.
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Bear Market
The opposite of a Bull market. In a bear market share prices and price expectations
are declining.
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Bull Market
Occurs when the investment markets are rising in price, value and price
expectations.
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Capital Gains Tax
Is a tax on the growth in the value of assets or investments that were acquired
after Sep 1985 and subsequently sold. The capital gain of that asset is
included in assessable income.
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Compound Interest
Describes the multiplying effect of earning interest on interest, and the
initial principle.
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Consumer Price Index (CPI)
The CPI is the most common method of measuring the rate of price and inflation.
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Contributions Surcharge
An adiitional maximum 15% of tax levied on superannuation contributions
in addition to the 15% already levied on contributions. Paid by high income
earners earning from $75,856 upwards.
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Diversification
Used to minimise risk and maximise returns, and describes the process of
funds being distributed amongst a number of different asset classes.
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Dividend
A dividend is a distribution from the company’s profit in
which you have a share. Dividends that have paid the full rate of company
tax are known as fully franked.
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Dividend Imputation
If you receive a franked dividend, a tax credit known as an imputation
credit is available to you, which will reduce the tax payable on the
dividend income. The dividend imputation system will thereby reduce
the amount of personal income tax you have to pay.
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Dollar Cost Averaging
A process where you invest regularly (such as monthly) regardless of what
the investment markets are doing. This means you buy fewer shares, for example,
when prices are high and more when prices are low.
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Eligible Termination Payment (ETP)
A payment made to employees on retirement, or when they leave their employer.
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Equity
Another word used to represent shares.
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Fiscal Policy
The governments policy relating to its’ recipients and expenditure,
such as taxation and Social Security.
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Fixed Interest
The term is used to describe securities which have a fixed flow if income,
such as bonds and annuities.
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Float
Relates to the decision by a company to list on a stock exchange and offer
shares to the public.
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Fund Managers
Commercial organisations that manage investors’ money for a fee. They
include banks, investment banks, life offices and other organisations.
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Futures
Contacts where you agree to buy or sell something at a specified price at
a specified time in the future. Futures are traded on the Sydney Futures
Exchange. Contracts to sell are called puts; contracts to buy are calls.
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Gearing
Borrowing to invest. If the costs of your investment (including the interest
cost) exceed the income you receive from it, you are “negatively geared”
and can usually use your losses to offset tax on other income.
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Grant of Probate
An official verification by the Supreme Court that a will is genuine and
the most current will in existence.
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Gross Domestic Product
The value of all goods and services produced by an economy over one year.
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Lifetime Annuity
The annuities pay a pension of a guranateed amount as long as you live.
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Liquidity
Refers to the ease with which an investment can be converted into cash or
disposed of at market value.
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Managed Funds
In a managed fund your money is pooled with that of many other investors,
so that the fund can buy a wide range of assets. This includes investments
that may not ordinarily be available to you through direct investment, such
as overseas investments or large commercial properties.
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Margin Lending
A specialised form of lending for people who want to borrow to buy shares.
You generally borrow up to about 70 per cent of the value of the shares
from a margin lender. If the value of the shares falls, and the loan exceeds
the lender’s maximum limit (determined as a percentage of the value
of the shares), you will get a “margin call” which is a request
to top up your contribution to bring the loan back below the maximum limit.
If you don’t meet the margin call, your shares can be sold.
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Marginal Tax Rate (MTR)
The rate of tax applied to each additional dollar of income you receive.
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Monetary Policy
The government’s policy in relation to interest rates and exchange
rates.
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Mortgage
When property is used as security for a loan.
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Negative Gearing
When you claim as a tax deduction, the losses incurred in financing an investment.
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Net
An amount that is arrived at after all relevant costs have been deducted
from the gross amount (eg after taxes, commissions etc).
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Nikkei Dow Index
An index showing the price of movements of the top 225 stocks listed on
the Tokyo Stock Exchange.
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PAYE Tax
The Pay-As-You-Earn method of income tax collection. Superannuation funds
and Life Offices deduct PAYE tax from ETP’s and pensions/annuities.
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Portfolio
Refers to the collection of investments of a particular fund or investment
manager.
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Privatisation
The sale of government owned companies, which permits the public to gain
owbership via an allocation of shares.
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Public sector
Refers to the part of the economy made up of government owned operations
and activites.
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Reasonable Benefits Limit (RBL)
The maximum concessionally taxed amount payable on retirement.
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Recession
When the economy slows down significantly and the Gross Domestic Product
(GDP) declines over consecutive quarters.
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Rollover
When you move superannuation money from one fund to another.
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Salary sacrifice (salary packaging)
When you give up part of your salary before tax and your employer directs
your funds elsewhere (eg superannuation, private health cover, motor vehicle,
mortgage repayments).
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Term certain Annuity
This type of annuity is fixed for periods up to 25 years.
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Trust Deed
A legal document which sets out the rules relating to the establishments,
administration, and management of superannuation funds and unit trusts.
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Undeducted Contributions
A component of an ETP comprising superannuation contributions after 30 June
1983 for which no tax deduction was claimed.
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Volatility
Used synonymously with risk by many in the investment business. It is the
tendency for investments to fluctuate in value.
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Yield
Income return on an investment as a percentage of the investment’s
cost or value. A $10 share paying a $1 dividend has a 10 per cent yield,
for example. Yields can be gross (before expenses) or net (after expenses).
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