Understand the terms we use

Investment Advice Terms

Active Investment management

A style of investment management that seeks to attain returns above a set benchmark by constantly monitoring and, if necessary, changing asset allocation and security selection.

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Asset class

A category of financial assets. The major asset classes are shares, property, fixed interest and cash, which in turn can be broken down further to include domestic or international shares, domestic or international fixed interest, direct or indirect prope

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Bear market

A declining financial market. The opposite of a bull market.

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Blue Chip

Stock/shares of leading, quality companies (usually highly valued) that are well known for their strong financial position and ability to make profits.

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Bull Market

An advancing financial market. The opposite of a bear market.

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Compound Interest

Compound interest is what occurs when you earn interest, on your interest.

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Contingent Asset

A possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity.

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Derivative

A financial instrument or other contract within the scope of [AASB 139 (see paragraphs 2–7)] or [AASB 9 (see paragraph 2.1)] with all three of the following characteristics: ...

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Diversification

The process of distributing funds across a number of asset classes to reduce the impact that volatility in one asset class, sector or market will have on the performance of your overall portfolio of assets.

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Dividend imputation

In order that company earnings are not taxed twice, investors who receive dividend payments may also receive a tax or imputation credit for the tax already paid by the company.

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Dollar Cost Averaging

The practice of investing amounts of money at regular intervals, regardless of whether the securities markets are declining or rising.

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Eligible Termination Payment (ETP)

A lump sum payment made to an individual by an employer (or from a super fund/approved deposit fund) as a result of retrenchment, retirement, resignation, death or disablement. ETPs are subject to concessional tax rates.

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Equity

A term for shares. Also a general word used to describe a shareholding or ownership in a company. Can also refer to the value of your capital invested in an asse

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Exit Fee

A fee payable by investors when withdrawing money from or closing certain investment options.

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Float

In relation to companies, it refers to the decision to list on a stock exchange and offer shares to the public. For currencies, it is the decision to let market forces set the exchange rates.

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Franked dividends

Company/share dividends paid out of profits on which the company has already paid tax. The investor is then entitled to a reduction in income tax for that amount (imputation credit).

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Futures

A contract that obligates the owner to buy or sell a certain quantity and quality of an underlying asset at a predetermined price at a future date

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Gearing

Describes the practice of borrowing to invest. Gearing is usually expressed as a ratio of the borrowed amount divided by the total amount invested.

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Growth asset allocation

An asset alloation or fund that has a higher proportion of assets in investments such as shares and property that are expected to deliver most of their returns through capital appreciation

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Hire Purchase Contract

The definition of a lease includes contracts for the hire of an asset that contain a provision giving the hirer an option to acquire title to the asset upon the fulfillment of agreed conditions. These contracts are sometimes known as hire purchase contrac

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Historical Cost

A measurement basis according to which assets are recorded at the amount of cash or cash equivalents paid or the fair value of the consideration given to acquire them at the time of their acquisition.

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Independent Financial Adviser

A financial adviser who practices without incentive and conflicts due to a unique ownership structure.

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Insurance Bond

A single premium investment product, issued by life insurance companies or friendly societies, which operates in the same manner as a unit trust except that the return is provided to the investor net of tax.

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Insurance Contract

A contract under which one party (the insurer) accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder

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Listed company

A company whose shares can be bought and sold on a stock exchange.

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Market-linked fund

A pooled investment fund (also see 'pooled fund') that is valued according to movements in the market to which it is linked.

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Materiality

Information is material if its omission or misstatement could influence the economic decisions of users taken on the basis of the financial statements.

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Monetary Assets

Money held and assets to be received in fixed or determinable amounts of money.

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Ordinary Shares

Securities or fully paid shares that represent an ownership interest in a company. They carry voting rights (for the shareowner) and entitle the shareholder to receive dividends if the company makes a profit and decides to pay dividends.

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Overweight

Taking a greater exposure to one investment market or security compared with a benchmark or neutral position. The opposite of underweight.

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PAYG

An abbreviation for 'Pay As You Go' tax, where employees have income tax deducted from their wages or salary by their employer.

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Preserved Benefits

Benefits within a super fund that cannot be accessed until the fund member turns 55 and/or retires, or a special circumstance has been met (eg severe financial difficulties or permanent incapacity).

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Quartile

A statistical measure dividing a sample into four numerically equal groups. Thus top quartile in a funds management context means the top 25 per cent of the fund managers in a particular category or asset class.

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Trust Deed

A document that sets out the rules for the establishment and operation of a fund

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Trustee

The person or company that has the legal responsibility to ensure that the trust or super fund is operated in accordance with the trust deed.

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Underlying investments or securities

In relation to managed investments, this normally means the investments selected by the investment manager. In the case of master trusts, underlying investments are the investments offered through menu options for an investor to select. The menu may inclu

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Underweight

Taking on a smaller exposure to one investment market or security compared with a benchmark or neutral position. The opposite of overweight.

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Volatility

The extent to which total returns from an investment fluctuate over time.

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Yield

The income earned from an investment expressed as a percentage.

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