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A&B Financial Planning Blog

23

Simply Put: Terms and Definitions

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In our efforts to demystify the things we do and some of the jargon used in the financial industry, we'll be continually updating this page to provide a glossary of regularly used terms and definitions.


Advance Care Plan

A set of instructions regarding your values and the type of health care you wish to receive, should you become unable to make or communicate your own preferences.


Annuity

A type of pension which pays you a guaranteed income for a set period of time, regardless of how markets perform. How much you receive is set when the annuity is purchased and can be a single amount or indexed each year (by a fixed percentage or in line with inflation).

The frequency of the payments can usually be monthly, quarterly, half-yearly or yearly and you can have the payments last for the rest of your life, your life expectancy or a fixed number of years.


ASX

An abbreviation referring to the Australian Securities Exchange, which is Australia's largest share market with roughly 2,200 companies and issuers listed.


ASX200

An index that tracks the combined movement of the largest 200 publicly traded companies on the ASX and is considered the benchmark for Australian share performance.


Death Benefit (Superannuation)

The superannuation benefit (or money payment) made after your death.


Death Benefit Nomination

Your direction to whom and/or what share, payment is to be made. This is your opportunity to ensure who you want your superannuation to go to.

At the end of the day who your super monies goes to, depends on the direction (nomination) made to the Trustee of your superannuation fund. If you don't make a nomination, the Trustee will need to decide who they believe your superannuation benefit should go to, according to the trust deed and trust law.


Deeming (Centrelink Age Pension)

The process Centrelink uses to assess the income you make from your investments. Rather than assessing each type of investment individually, they "deem" your assessable investment income as a set percentage of the value of your investments.


Franking Credits

When an Australian Company earns a profit, it pays dividends to its shareholders, relating to that profit. The company is also required to pay tax on that profit at the Company Tax Rate. Shareholders, when determining their personal tax liability on income earned, are eligible for a credit on tax already paid by the company. This is to avoid the shareholder paying tax twice on the same profits made from their share of that company.


Gearing

Investing with the assistance of borrowed monies.


(Negative) Gearing

When the interest on money borrowed, and other expenses relating to an investment, are greater than the income made from the investment and results in a short term loss. These actions are usually taken with the hope that the investment will grow in value, resulting in a net capital gain over time and be used to reduce your net taxable income.


(Positive) Gearing

When the expenses including interest on money borrowed is less than the income made from the investment.


Market Correction

When the value of a stock, bond, commodity or index shifts drastically (at least 10%) in the opposite direction to which it was trending, often caused by the market or asset being overvalued. It's usually a downward movement in value and happen fairly regularly, but are far shorter in duration than a recession, lasting anywhere from a couple of days to several months. 


Superannuation Guarantee (SG)

The compulsory contribution employers must make on behalf of their employees to their superannuation. The contribution must be 9.5% (minimum) of the employee's ordinary time earnings and needs to be paid at least every quarter to the employee's superannuation fund.
 

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Disclaimer - Information current at time of publishing - This information is of a general nature only and has been prepared without taking into account your particular financial needs, circumstances and objectives. While every effort has been made to ensure the accuracy of the information, it is not guaranteed. You should obtain professional advice before acting on the information contained in this publication. You should read the Product Disclosure Statement (PDS) before making a decision about a product. Copyright © 2016 Matrix Planning Solutions, AFSL & ACL No. 238256. All rights reserved.

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