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Active management: a style of investment management which aims to provide returns above a set benchmark, through asset allocation and stock selection. The opposite of passive management.
Aggressive: an investment approach designed to provide above-average returns by taking above-average risk. Annuity: a type of investment that guarantees payment of specific amounts at specific times, or a single lump sum payment, generally for the purposes of retirement income. Anunities are sponsored by insurance companies and other financial institutions and sold by agents, banks, stockbrokers and financial planners.Appreciation: an increase in the value of an asset.
Asset allocation: the apportionment of an investment portfolio among the relevant asset classes or sector.
Asset classes: the different categories of financial assets, such as shares, bonds (or fixed interest), property and cash.
Average annual return: a calculation that converts a cumulative total return into an annualised figure, expressed as a percentage.
Balanced fund: an investment fund that spreads its holdings over a range of asset classes, creating a balance between risk and return.
Bear market: a market that is declining over time (a bear is seen as clawing the market down). The opposite to a bull market.
Blue chip shares: shares in quality, stable companies that have paid regular dividends in both good and bad years.
Bonds: a type of security that pays a fixed amount of interest at a regular interval over a certain period of time.
Broker: an independent person who buys and sells a range of financial and/or insurance products on behalf of investors and receives a commission called brokerage.
Brokerage: a fee charged by a financial adviser or stockbroker for a transaction. Sometimes referred to as commission.
Bull market: a market in which prices are moving upward over time (a bull tosses the market up). The opposite to a bear market.
Capital gain/loss: the difference between an asset's purchase price and selling price.
Capital gains tax: a tax on the gains of an investment, payable only when the capital gain is realised after selling the investment.
Cash: one of the asset classes, it includes coin and note currency in circulation or in bank accounts, and money market securities.
Cash management account: a professionally managed fund in which the primary investment is cash securities. As a result of the pooling of funds, investors may earn an elevated interest rate on their cash, compared with an ordinary bank account.
Commission: a fee paid to a financial adviser or stockbroker for a financial transaction or advice. Sometimes referred to as brokerage.
Compound interest: interest earned on both the principal amount and any interest already earned. Because of the 'compounding' effect, money grows much faster when income from an investment is reinvested.
Consumer Price Index (CPI): an index that measures the change in the cost of a 'basket' of basic goods and services, showing how the cost of living changes over time. The most widely accepted indicator of inflation.
Contribution: an amount of money placed into a fund.
Depreciation: a decrease in the value of an asset.
Derivative: a financial contract that derives its value from another physical asset. Examples of derivatives include futures and options.
Distribution: in a managed fund, a distribution is the amount paid out to investors on a regular basis. Such payments comprise a share of any net income and realised capital gains earned by an investment over the period.
Diversification: the process by which investors hold a variety of different asset classes, in an effort to reduce the overall volatility of their portfolio.
Dividend: an amount paid to shareholders from a company’s after-tax earnings.
Dollar-cost averaging: An investment method in which the same amount of money is invested at regular intervals, such as every month. As the market price of the investment rises and falls, the investor may benefit by buying more units when prices are low, and fewer when prices are high. Click here for more information.
Equity: (a) a share investment or (b) the value of an asset owned by an individual over and above the debt against the investment.
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Estate planning: specific planning to ensure your assets pass in an orderly and efficient manner to designated individuals. Estate planning includes writing wills, setting up trusts, establishing Powers of Attorney, and planning ahead to avoid unnecessary taxes.Financial adviser: an individual who provides investment advice to others, for a fee. In New Zealand, there are no licensing requirements for financial advisers. However, Members of the Financial Planners and Investment Advisers (FPIA) must abide by the FPIA's Code of Ethics and Professional Conduct.
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Fixed interest securities: see bonds.
Fund: see managed investment.
Futures: a derivative investment. An obligation to buy or sell a specified quantity of an underlying asset at a particular time, at a price agreed when the contract is executed.
Gearing: (a) borrowing specifically to fund an investment, e.g. to buy shares or purchase a house using a mortgage, or (b) a measure of the debt ratio, which is the amount of borrowing compared with the equity in an asset.
Growth assets: assets, such as shares and property, that are expected to provide strong investment returns over time.
Growth fund: a managed fund that invests predominantly in growth assets.
Hedge fund: a type of investment fund in which the manager is authorised to use a number of higher risk investment techniques such as derivatives and borrowing to generate a higher return.
Hedging: the practice of undertaking one investment activity in order to protect against the possible loss in another. Options and futures are often used to hedge an investment. Imputation credit: taxation credits are passed on to shareholders who have received dividends from holding shares or managed share investments.
Index fund: a professionally managed fund where the investment mirrors a chosen index.Inflation: the effect on the economy of increases in prices without corresponding increases in productivity. Inflation is typically measured by reviewing the cost of a 'basket' of selected goods and services. Refer the Consumer Price Index. Interest: the return earned on money that has been invested or loaned.Investment: an asset purchased with the intention of producing a capital gain or income, or both, for the owner. Investment Statement: a document legally required by the New Zealand Securities Commission for all securities or funds on issue. The document outlines the nature of the product, and provides details on how to invest and what to expect from the investment. An investor must receive a copy of this document, and read it, before applying to invest.
IPAC: IPAC Securities Limited is an independent group that specialises in providing research and financial planning support to financial industry professionals.Life insurance: a policy agreement between an individual and an insurance company, where the investor agrees to pay a specified amount (premium) to the company for a specified amount of coverage.Liquidate: to sell an investment or to convert an investment into cash. Listed security: a security that is bought and sold via an exchange, such as shares on the stock exchange. Lump sum: (a) a single, often large, sum of money used to initiate an investment; or b) a superannuation benefit taken in cash rather than as a pension or annuity. Managed investments/funds: funds that allow investors to pool their money with that of other investors so the fund can buy a wide range of investments. These investments are managed by a professional fund manager who makes all the investment decisions. Management Expense Ratio (MER): a ratio expressing the management, trustee and certain other expenses of a managed fund as a proportion of the net asset value of the fund. Master fund: a type of investment fund that enables investors to channel money into one or more underlying investments managed by a number of different fund managers. Also referred to as a master trust.Money Market: a trading market for short-term securities, such as bills of exchange and promissory notes. Securities in the money market all have terms of 1 year or less. Morningstar: one of the leading managed fund rating services. A five star rating is Morningstar's top rating for any fund or funds management company.Net Asset Value (NAV): the total assets of a company, or managed fund, less total libilities. A more pure measure is Net Tangible Assets (NTA), which do not include intangible items, such as goodwill. NZSE-40: an index or measurement of the average movement in share price of a selection of major New Zealand companies listed on the New Zealand Stock Exchange. Options: a derivative investment, giving the holder an option to buy or sell a specified quantity of an underlying asset at a particular date, at a price that is agreed when the contract is executed. Passive management: a style of investment management that aims to achieve performance equal to the market or index returns. The opposite of active management.Pension: a regular payment to a person, either by the Government in the form of superannuation, or from a superannuation benefit. Portfolio: a range of investments held by an investor, or a managed fund’s investment holdings. Principal: the amount of money initially put into an investment.Property securities: an investment term for property trusts listed on the stock exchange.
Property trust: a managed fund that invests in a portfolio of 'real' property (i.e. buildings).Prospectus: an official document lodged with the New Zealand Securities Commission that fully oulines a publicly available investment, summarising the Trust Deed. Rally: A rapid rise, usually following a decline, in the general price level of a market or asset class.
Realise: to sell an investment. Realised gain: when an investment that has increased in value is sold and a capital gain is realised. An investment that has increased in value, but has not yet been sold, has an 'unrealised' gain.Real return: return net of inflation, or net of tax and inflation.Redemption/redeem: to withdraw, or sell, an investment. Redemption price: the price at which an investor can withdraw their units from a fund or trust. Reinvest: where income earned from an investment is added to the original investment, increasing the potential for higher capital growth and distributions in the future. Return: the profit earned on an investment, usually expressed a percentage. Risk: the variability of returns, referring to the possiblity that an asset may not achieve its expected rate of return. Generally, the higher the return, the higher the potential risk. Salary sacrifice: an portion of pre-tax salary that an employee chooses to contribute to a superannuation fund, rather than taking it as cash salary. Sector: a group of securities that share common characteristics, such as the telecommunications sector, financial sector, or technology sector. Security: (a) a general term covering shares and other investments, or (b) an asset pledged to ensure the repayment of a loan. Shares: representing the ownership of part of a company. Also known as equities. Standard & Poor's: a major US credit rating agency.Stockbroker: a person who buys and sells securities on behalf of others in return for brokerage or commission. Stock exchange: a market with a trading floor where securities are bought and sold. Superannuation: a means of putting aside money during your working life for use in retirement. Superannuation fund: an investment where a number of people invest their money with a professional manager who manages the entire fund on their behalf. Often, balances may not be withdrawn until retirement or a certain age is reached. Switching: transferring units between two funds within a unit trust or superannuation fund product.Term life insurance: generally the least expensive form of life insurance, term life insurance covers an individual for a nominated period of time (term). If the person insured dies while covered, the designated beneficiaries will collect a death benefit. There are no other associated benefits.Trade-weighted index (TWI): an index measuring the value of New Zealand's currency in relation to those of its major trading partners.Trust Deed: a document setting out the methods of application, investment and withdrawal of funds in a managed investment, unit trust or superannuation fund. Unit price: the price for each unit in a unit trust. This is calculated by dividing the value of the total assets by the number of units held by investors. Units: a share of a unit trust or managed fund, reflecting an investor's entitlement to the assets of the fund. Unit trust: an investment where a number of individuals place their money with a professional manager who manages the fund on their behalf. Also known as a managed investment. Unrealised capital gain: occurs when an investment increases in value, but is not yet sold or realised. Vesting: relates to superannuation. An employee’s entitlement to receive benefits from a current or former employer. Some companies grant full benefits after an employee has worked for them for a predefined number of years. Other companies gradually increase the benefits over a number of years of employment.
Will: a legal document that specifies how assets in an individual's name will be distributed after death.
Yield: the interest rate earned on a bond, or the dividend paid on an investment, expressed as a percentage.
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