All Ordinaries Index - a measure of the aggregate prices of the top 500 or so shares traded on the Australian Stock Exchange. This is the figure quoted on the news every day.
All Ordinaries Accumulation Index - similar to the All Ordinaries Index, the Accumulation Index also captures the value of the dividends paid by the shares which make up the All Ords. It reflects more accurately the experience of owning shares, as it captures both dividend income and price changes.
Asset Allocation - how you divide your investments among shares, property, and cash.
ASX 200 or S&P ASX 200 - These are the names for the index which measures the performance of the 200 largest companies from the All Ordinaries Index. This is the most commonly used performance benchmark for managed funds focused on Australian shares.
Australian Tax Office - the Australian tax authority.
Balanced Managed Fund - a managed fund which invests in all asset classes (shares, property, and cash).
Boom - a time when share prices increase suddenly.
Business Expenses Insurance - insurance which covers some of the expenses of operating your business if you’re disabled or ill.
Bust - a sudden drop in share prices.
Crash - also a sudden drop in share prices.
Capital - money you can invest.
Capitalisation - the value the market places on a company, equal to the share price multiplied by the number of shares on issue.
Cash Flow - the amount of cash you receive or spend after accounting for all of the effects of a particular investment.
CHESS - stands for Clearing House Electronic Subregister System. CHESS is the only sensible way to hold shares.
Commissions - fees paid to investment advisors in respect of share trading or the placement of client money in managed funds or other investment products.
Convertible Notes - these pay interest (as opposed to dividends) and are usually convertible to ordinary shares under specific conditions.
Convertible Preference Shares - shares which may have special rights to dividends and which are eventually converted to ordinary shares, either automatically or at the election of the shareholder.
Correction - a drop in share prices which follows a quick rise, or a rise following a quick drop.
Defensive Assets - mainly cash, which retains its value (obviously) when the prices of other assets are declining.
Discount Brokers - brokers who specialise in cheap trades and provide little or no service.
Distributions - payments made from unit trusts to unit holders, analogous to dividends paid by companies.
Diversification - holding assets in various classes so as to minimise your exposure to any single bad event.
Dividend - the income paid to the shareholders (owners) of a company.
Earnings - the money a company makes after paying all expenses and tax. Part or all of the earnings can be paid as dividends to shareholders.
Earnings Quality - the extent to which a company’s earnings are perceived to be steady, reliable, and likely to continue through difficult economic times.
Endowment Policy - an insurance product which combines both insurance and an investment component.
Entry Fee - the up-front fee charged by managed funds at the time you invest.
Equity - the ownership you have in an asset. The “equity” in your house is the value of the house minus your mortgage balance. “Equities” is also used to mean shares.
Fee-for-Service - an arrangement under which you pay fees to your advisor on an hourly basis. Usually this means your advisor will forgo all other fees and commissions.
Franked Dividend - a dividend paid by a company which has already paid company tax. It comes with an attached franking credit.
Franking Credit - a tax credit which comes with a franked dividend. It reduces or eliminates the tax you pay on your dividend and other income.
Geared Portfolio - a portfolio which is partly purchased with borrowed money.
Growth Assets - assets whose value can grow over time, mainly shares and property, as opposed to cash.
Imputation Credit - same as a franking credit.
Income Protection Insurance - insurance which replaces part of your income while you are ill or disabled.
Index Funds - managed funds which buy shares in proportion to an index such as the All Ordinaries Index and seek to duplicate the performance of the underlying index.
Inflation - the gradual increase in the prices of goods and services.
Issuer Sponsorship - the inferior alternative to holding shares on CHESS.
Life Insurance - insurance which pays a benefit in the event of your death.
Liquidity - the ability to convert an asset to cash quickly. Shares are liquid; property is not.
Listed Investments - investments such as shares which trade on the stock exchange.
Management Expense Ratio - the full cost of operating a managed fund, expressed as a percentage of the fund’s assets. These costs reduce the total return to investors.
Management Fees - fees paid to an advisor who manages your portfolio. Also, fees paid by a managed fund to the person or company who manages the fund’s investments. In this case, management fees become part of the MER.
Margin Lending - lending using listed shares and/or managed funds as security.
MER - please see Management Expense Ratio above.
Mutual Fund - the American name for a managed fund.
Negative Gearing - borrowing for investment in such proportions that the ongoing cost exceeds your ongoing income.
Non-Resident Taxpayers - people who do not pay Australian income tax because they reside off shore.
Ordinary Shares - the units of ownership in a company. The ordinary shareholders own a company in proportion to their share holdings.
Preference Shares - shares which have certain rights different from those attached to ordinary shares.
Profit - the money that’s left after any company or business pays all its bills and taxes.
Property - houses, units, commercial premises, or land.
Purchasing Power - the extent to which money can buy real goods and services. inflation causes prices to rise. When this happens, we say that the purchasing power of a dollar decreases.
Rental Guarantee - an arrangement under which a property developer promises you a certain amount of rent for a limited period as an inducement to buy an investment property.
Settlement - payment for share purchases, or delivery of shares sold.
Shares - see ordinary shares above.
Specialist Managed Fund - a managed fund investing in a single asset class, such as US shares, European shares, or Australian property.
Superannuation - Australia’s retirement investment scheme, which has both compulsory and voluntary components. Everyone who is employed participates.
Total & Permanent Disability (TPD) Insurance - insurance which pays you a benefit, either as a lump sum or as a monthly payment, in the event that you suffer illness or injury which leaves you permanently incapable of working.
Trail Commissions - annual commissions paid by managed funds to the advisors who introduced clients to the funds.
Trauma Insurance - insurance which pays a lump sum, similar to life insurance, if you suffer any of a long list of serious illnesses or injuries.
Undeducted Contributions - contributions made to a superannuation fund for which you seek no tax deduction at the time of contribution and which have various subsequent tax benefits.
Unit - owning a unit in a unit trust is analogous to owning a share in a company. It establishes your proportional ownership in the assets held by the trust.
Unit Trust - please see managed fund above. Most managed funds are structured as unit trusts.
