Tools & Information

Financial Glossary

Plain-English explanations of common financial, investment and superannuation terms.

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Accumulation Fund: A superannuation fund that accepts employer and personal contributions invested across asset classes to generate earnings.
Active: Investment management seeking benchmark-beating returns through continuous asset allocation and stock selection adjustments.
Allocated Pension: A retirement income arrangement where individuals invest a lump sum and draw regular annual payments between a minimum and maximum percentage.
All Ordinaries Index: A share price index measuring major stocks listed on the Australian Stock Exchange.
Annuity: Periodic payments made to a person in return for a lump sum investment, typically used for retirement income.
APRA: Australian Prudential Regulation Authority.
AFSA: Association of Superannuation Funds of Australia.
ASIC: Australian Securities and Investment Commission.
ASX: Australian Stock Market.
ATO: Australian Taxation Office.
AWOTE: Average Weekly Ordinary Time Earnings.

Bear Market: A falling market where pessimistic investors anticipate losses and sell.
Bottom Up: Analysis beginning with individual company returns, progressing to industries and the broader economy.
Bull Market: A rising market where optimistic investors buy expecting price increases and resale profits.
Business Cycle: Investment decisions based on identifying economic trends and their impact on investment values.

Complying Funds: Superannuation funds meeting SIS Legislation standards, eligible for concessional taxation treatment.
Concessional Component: Applies to certain disablement, redundancy, and approved early retirement benefits with tax advantages.
Concessional Contribution: Contributions receiving favourable tax treatment, previously called taxable or deductible contributions.
Contrarian: A style where managers add value by adopting views different from market consensus.
Contribution Tax: A 15% tax levied on certain superannuation contributions.

Defined Benefit Fund: A superannuation fund calculating retirement benefits using a formula based on average salary and years of service.
Diversification: Spreading investment funds across securities, locations, styles, and managers to distribute and control risk.

Enhanced Index: Management adding value through portfolio tilting while minimising index underperformance risk via derivatives.
Equity: An owner's interest or value in an asset exceeding the debt against it.
Equities: Another term for shares.
ESP (Eligible Service Period): Employment or superannuation fund membership time used to calculate Eligible Termination Payments.
ETP (Eligible Termination Payment): Payments made upon retirement, resignation, retrenchment, or disablement, capable of being rolled over.

Fundamental: Share analysis based on company financial statements and economic, political, and industrial factors affecting performance.

Growth Portfolio: An investment portfolio seeking above-average after-tax income and capital growth with medium risk.

Income Portfolio: A portfolio of securities valued primarily for steady income provision.
Index: Structuring portfolios to closely replicate nominated market indices such as the All Ordinaries Index.

Non-Concessional Contribution: Personal superannuation contributions without claimed tax deductions, formerly called Undeducted Contributions.

Passive: Management maintaining portfolio composition without ongoing asset allocation and stock selection judgments.
Post June 1983 Component (Untaxed): Benefit portions from employment after 30 June 1983, not subject to contribution tax.
Pre July 1983 Component: Benefit portions from employment before 1 July 1983, with a portion included as assessable income taxed at marginal rates.
Preservation: Maintenance of superannuation benefits in approved funds until a condition of release is met.

Reasonable Benefit Limits: Previously determined maximum concessionally taxed benefits individuals could receive; abolished 1 July 2007.
Return: Annual investment earnings, usually expressed as a percentage.
Risk: The variability of investment returns; higher-risk investments must promise greater expected yields.
Rollover: Transfer of eligible termination payments into approved funds before retirement to defer or avoid lump sum tax.

Salary Sacrifice: Pre-tax salary given up in exchange for additional employer superannuation contributions.
SGC (Superannuation Guarantee Charge): Government charges on employers failing to meet required superannuation contribution obligations.
SG (Superannuation Guarantee): Compulsory minimum contributions for employees, funding retirement with taxation incentives.
Spouse Contribution: Contributions made for a spouse, treated as non-concessional and part of preserved benefits.
Stock Picker: Portfolios constructed primarily on individual company analysis by managers rather than broader economic issues.

Thematic: Managers using macro-economic research to develop themes that influence asset allocation decisions.
Top Down: Analysis beginning with broad economic trends, assessing industry impacts, then individual companies.
Transition to Retirement Income Stream: A condition allowing members reaching preservation age to access superannuation without permanently retiring from the workforce.

Value: An investment style using measures like price/earnings ratios to determine fair stock values for appropriate buying and selling.