Resources

TERMINOLOGY

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  • A

    Account Based Pension

    An Account based Pension can also be known as an allocated Pension and is a regular income stream purchased with money that has been accumulated through Super, after you have reached preservation age you can start an account-based Pension with a regular income derived from the assets held in that account. Generally, the investment earnings are tax free and the Pension payments are also tax free.

    Alpha

    Alpha is considered to be the active return on an investment measured against a market index or benchmark which would represent the markets movement as an entirety. The difference between the investments return and the markets benchmark index is the investments Alpha. It may be positive, negative or zero and is usually a result of active management. An Alpha of zero would indicate the investment is tracing in line with the benchmark or index.

    Asset Class

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

    B

    Beneficiary

    Beneficiary – Someone who receives a benefit or asset in the event of the owner passing away.

    Beta

    Beta is the measure of risk or volatility of a stock or a portfolio compared to a benchmark or index fund that represents the entire market. In a nut shell beta will indicate if the investment is more or less volatile than the entire market. Beta would indicate the risk of investments that can’t be reduced by diversification, it doesn’t measure the risk on a standalone basis of that investment rather the risk it adds to an already diversified portfolio.

    Generally, a market portfolio would be represented with an exact beta of 1. A Beta below (-1) would mean that the investment has lower volatility than the market or that the investment is not highly correlated with the market movements. A Beta greater than 1 would usually indicate that the investment moves up and down with the market and can even magnify those trends.

    C

    Concessional Super Contribution

    Concessional Super Contributions are payments made into your Superannuation fund from pre-tax income. This includes employer super guarantee (SG) contributions. Concessional contributions are generally taxed at 15% once received by your super fund. Anyone earning $250,000 or more will have their concessional contributions taxed at 30%.

    Consumer Price Index (CPI)

    It is a measure of the periodic change in the price of a constant basket of basic goods and services. The goods and services are representative of the consumption by residents in a household of a specific area. The basket can’t include all the items households consume but it does include the important one’s under the following segments: housing, transportation, medical, food, clothing, education, insurance, financial Services to name a few.

    As prices in the basket vary so will that measure indicating a positive or negative change in CPI. It is a very important Economic indicator and provides a general measure of price inflation changes so that the Reserve bank of Australia can evaluate future monetary policy.

    Corporate Bond

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

    D

    Defined benefit schemes:

    Defined benefit schemes are traditionally associated with large corporate and public-sector superannuation funds. Essentially, the final benefit amount is calculated by several variables, including but not limited to age, time as a member or duration of employment and salary. Because the benefit is not subject to the market performance, it provides members with a degree of certainty. Usually, the benefit is corelated to a person’s final salary, for example 70% of the average of the last four years’ salary. The benefits may be made in the form of a pension or lump sum. These types of benefits a being phased out and are more of a legacy product used in the past.

    Diversification

    Diversification – Diversification is an investment strategy that involves mixing the amount, values and types of assets held within a portfolio to spread risk and minimise losses. Diversification doesn’t guarantee gains or protect against losses, it manages the risk/reward trade off by selecting a mix of investments to help you achieve more consistent returns over time.

     

     

     

    E

    Employment Termination Payment (ETP)

    An ETP is generally a lump sum payment made as a result of the termination of a person’s employment. It can be constituted by:

    • Payments for unused sick leave or unused rostered days off.
    • Compensation for loss of job or wrongful dismissal.
    • An agreed golden handshake deal.
    • Certain payments made after death

    The ETP is taxed in the year in which it is received. It can’t be rolled over into your Super

    F

    Financial Planning:

    Is the process in which a Financial Planner assist individuals, families, professionals and Business owners to prepare and organize their financial affairs so they can accomplish their sort term, medium and long term financial and personal goals. The planning often covers cashflow management, retirement planning, investment planning, financial risk management, tax strategies, insurance planning, estate planning and Business succession planning.

    G

    Gross Income

    Also known as gross pay, is a person’s total pay before taxes or any other deductions have been applied. Once the taxes and deductions have been worked out you will receive a net income. The gross income can be used as the base to calculate your Superannuation entitlements.

    H

    Hybrid Securities:

    Is a term used to describe a security that combines certain elements and characteristics of a debt security and an Equity Security. These types of securities typically promise to pay a rate of return (Fixed or floating) for a certain period. However, they also have equity like features, meaning they can provide a higher rate of return than just a normal debt security. This inherit higher risk is due to features that may include reduced certainty to the timing and amount of income generated, this could even include converting the security into equity of the company offering the Hybrid or an early termination date of the Hybrid. The holder could be second in line to other creditors.

    I

    Industry Funds

    Industry Superannuation funds were originally created to provide retirement benefits for workers of specific sectors. Generally, they are cheap options but don’t offer a wide range of investment options and are less flexible when it comes to reporting and distributions. Industry funds are usually non-for profit and returns profits to members.

    J

    Joint Tenants

    Joint tenants is where a property is owned by two or more people with each person owning an equal share. If one of the owners passes away the property automatically is passed to the other joint tenant (s), regardless of what is set out in the deceased will.

    L

    Life Cover

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

    Liquidity

    How easy it can be to convert any investment into cash or access in a short time frame.

    M

    Marginal Tax Rate

    Marginal Tax Rate – Is the highest rate of tax a taxpayer pays on their income. Please see below table for 2018/19 marginal tax rates.

             Taxable Income

    Tax on this income
    $0 – $18,200 Nil
    $18,201 – $37,000 19c for every dollar over $18,200
    $37,001 – $90,000 $3,572 + 32.5c for every dollar over $37,000
    $90,001 – $180,000 $20,797 + 37c for every dollar over $90,000
    $180,001 and over $54,097 + 45c for every dollar over $180,000

     

     

    N

    Non-concessional Contribution

    A contribution to a complying Superannuation fund that are made from after tax income. For the 2018/2019 year, the annual non-concessional contributions cap is $100,000.

    O

    Option

    It is a type of divertive. It is a contract that gives the holder the right but not the obligation to purchase or sell an asset at a specified price during certain give timeframes.

    P

    Preserved benefit

    Amount that is required to be preserved and kept within the fund until the member meets a condition of release. (Condition of release: Retirement, Total and permanent disability, Death, Reaching age 65 etc…)

    R

    Retirement Planning

    Changes in Government legislation and the Economic environment and changes in client circumstances make it necessary to regularly review the retirement plan, and where appropriate, update the plan so it continues to be effective and relevant to the client’s needs and objectives. When it comes to retirement planning everyone’s circumstances are different reason it is important to obtain personalized financial planning advice, the advice needs to get to know you and your circumstances before providing the right advice.
    Retirees are more concerned about wealth protection and spending with a focus on ensuring a steady income stream throughout retirement rather than growing wealth. Decisions need to be made on how to invest in the most tax effective manner, but always considering a client’s appetite for risk. In addition to financial needs, consideration needs to be given to how retirement will be lived from a non-financial goals perspective, such as hobbies or what they would like to achieve in retirement.

    S

    Sophisticated Investor

    An investor who has had a gross annual income of $250,000 or more in each of the previous two years or has net assets of at least $2.5 million, as prescribed by the Corporations Regulations Act 2001 (reg 6D.2.03 and reg 7.1.28)

    Statement of Advice (SOA)

    Statement of Advice (SOA) – A SOA is a document that outlines the advice given to a client by a financial adviser. It will include the basis on which the advice is given, details of the client & information regarding any benefits or payments the adviser or licensee will receive as a result of the advice given in the SOA.

    T

    Trust Deed

    A formal and legal document that outlines the rules under which the trustees must act and operate.

    U

    Unit Price

    It is the price that reflects the value of the investments held within a fund at a point in time. Prices can represent a group of different investments and this will be reflected in the unit price based on the proportion of each investment, which is called the weighted average.

    V

    Volatility

    It is the measure of variation in price of different types of investments over a certain time.

    W

    Will

    A Will is a legal document that sets out how your assets and other belongings are to be distributed when you die.

    Y

    Yield

    The measure of return on an investment displayed as a percentage. (Calculated by dividing the income generated by the asset in the current capital value of the asset)