L

Large cap

Generally refers to companies with a large market capitalisation between $10 billion and $200 billion, although these figures can vary between stockbrokers.

Legal personal representative

The person who is legally recognised to manage your affairs when you die.

Listed company

A company whose shares are traded on the stock exchange and are able to be bought and sold by members of the general public.

Listed funds

A fund that invests in a particular asset such as property or shares and is listed on the Australian Stock Exchange. Investors therefore are able to buy and sell their investments on the Australian Stock Exchange.

Listing rules

Rules set out by the Australian Stock Exchange (ASX). Companies must comply with listing rules to remain eligible for listing.

Long term

In investment terms, this is usually a period in excess of five years.

Lump sum

A benefit payable as a single cash payment or as several part payments rather than as a pension or annuity.

M

Macro-economics

Analysis of broad trends and influences on the economy, as opposed to micro-economics, which focuses on the impact of individual companies and markets.
See also: micro-economics

Mandate

The agreed objectives given by a fund to their investment manager, often including a benchmark that represents the minimum performance objective, guidelines as to maximum and minimum sector exposures, and prohibited investments.

Marginal tax rate

The tax rate payable on the top proportion of income.

Market price

The last reported price at which a stock sold.

Market timing

Purchase or sale of stocks on the basis of shorter-term price patterns and temporary market opportunities, as well as judgements of underlying value. Market timing is extremely difficult to get right consistently, particularly for an individual investor.

Master trust

A fund that allows a large number of unconnected companies and/or individuals to operate through the same fund. They are generally operated by banks, life insurance companies, and specialist superannuation administrators.

Medium term

In investment terms, this is usually anywhere between one and five years.

Member Benefit Protection

A legal requirement whereby for accounts with a balance below $1,000, a fund cannot charge administration fees in excess of the interest credited unless the fund's total investment income is less than total expenses. In this way a small inactive account will not be continually eroded by fees. Note that the protection does not apply with respect to tax on employer contributions or any insurance premiums deducted.

Member contribution

A member contribution is money contributed by the employee from their after-tax salary and is not taxed when deposited into the superannuation account provided the member has not claimed a tax deduction for the contribution. Such amounts contributed from 1 July 1999 are preserved.

Mercer median

The return of the 'middle' manager in the Mercer Pooled Fund Survey, which measures the investment performance of over 30 commercial balanced managers.

Micro-economics

Analysis of the impact of individual companies and markets on the economy, as opposed to macro-economics, which focuses on broad trends and influences.
See also: macro-economics

Model stock portfolio

In relation to the ASX 100 Shares Investment Option, this refers to the model stock portfolios designed by Macquarie Equities Limited to achieve varying levels of growth and risk. There are six altogether - income, balanced and growth, for portfolios of five and ten stocks.

MSCI All Country (ex. Australia) Index

Measures the overall return of over 1,400 companies from most large and developed countries. This index is a good measure of the overall performance of international shares.

Multi-industry fund

An industry superannuation fund that caters for employees in a range of industries.
See also: industry superannuation fund

N

Net asset backing

Total shareholders' funds in a company (i.e. total assets minus total liabilities) divided by the number of shares on issue.

Net asset value

Total assets of a company less total liabilities.

Non-preserved amount

That part of a member's benefit that is not subject to preservation, and which can be withdrawn before a member reaches their preservation age.
See also: preservation

Not-for-profit

An organisation that returns all of its profits to members, not to shareholders.

O

Ordinary time earnings (OTE)

The earnings (before tax) on an employee's ordinary hours of work, generally excluding overtime, which is used as the basis for calculating employer contributions for Superannuation Guarantee purposes.

Outperformance

Obtaining a higher investment return than a benchmark or other measure against which that return is compared.

P

Participating employer

An employer who makes superannuation contributions to a superannuation fund on behalf of their employees.

Passive style management

An investment management style where the manager seeks to achieve performance equal to the market or index returns. In pure index funds, which are passively managed, no judgements are made about future market movements, unlike active management.

The term can also refer to an approach to asset allocation, where the manager does not actively change the proportions held in the various investment sectors according to market conditions, but fixes the sector proportions for an extended period.
Compare with: active style management

PAYG

Pay as you go, a taxation procedure for wage and salary earners under which income tax is deducted in instalments from periodic payments.

Pension

A regular periodic payment, either by the Government (social security) or as a superannuation benefit.
See also: allocated pension

Personal superannuation

An arrangement between an individual and a life office or bank where the benefit is funded entirely from the member's own contributions, and not by their employer. Great caution should be exercised before entering into such an arrangement and close attention should be paid to the level of fees and commissions charged, especially the penalties that apply in the event of early termination of these arrangements.

Portability

The ability to take your superannuation with you when you change jobs. Industry funds are particularly well placed in this regard, as members can often stay with the same fund despite changing employers.

Portfolio

An investor's range of investment holdings, usually with reference to its composition; that is, the mix of different asset classes or if in a single asset class, the mix of different sectors and stocks.

Post-30 June 1983 component

The portion of your benefit that relates to service after 30 June 1983. The benefits are concessionally taxed and depend on your age and the amount involved.

Pre-1 July 1983 component

The portion of your benefit that relates to service before July 1983. Only 5% of this amount is included as taxable income in the year you receive the benefit.

Preference shares

Shares which rank before ordinary shares in the event of liquidation of the issuing company, and which usually receive a fixed rate of return on the unfranked investment.

Premixed investment options

Refers to an investment option in which the selection and allocation of asset classes is determined by the fund and its investment managers with the aim of achieving different levels of risk and return for a member's superannuation investment.

There are usually five premixed investment options in which to invest:

Active

Balanced

Sustainable

Stable

Capital Guaranteed

See also: Investment Options

Preservation

The legal requirement that certain superannuation benefits must be retained in a superannuation or rollover fund until the member retires after reaching their preservation age. Only in very limited circumstances, including total and permanent disablement and extreme financial hardship, can preserved amounts be released before the member reaches this age.

Preservation age

The age at which a member of a superannuation or rollover fund can have access to their preserved benefits, provided the member has permanently retired from the workforce:

Preserved amount

That part of a member's benefit that is subject to preservation.

Preserved funds

Funds that are maintained in a superannuation savings structure until retirement. These funds are 'preserved' and cannot generally be withdrawn until retirement.

Price-earnings ratio

A stock's market price divided by its current or estimated future earnings per share. The higher or lower the ratio relative to the average of the sharemarket, the higher or lower the expected profit.

Private equity

Shares in an unlisted company or enterprise.

Profit

The amount earned upon selling an asset that has increased in value beyond the original purchase price.
Property

Usually refers to real estate, including land and buildings that can be bought, sold or leased.

Property trust/listed property trust

A collective investment vehicle that owns a portfolio of property, thus providing a wider spread of ownership. Listed property trusts are quoted on the stock exchange.

Proxy

A written authorisation that a shareholder gives to someone else to vote at a shareholders' meeting.

Public offer fund

A fund that is not restricted to taking employer-sponsored members, but which can cater for a range of people not linked to a participating employer, such as self-employed people or those with lump sum amounts to invest.

Q
R

Real interest rate

A nominal (unadjusted) interest rate less the current inflation rate.

Real rate of return

The amount by which the rate of return exceeded the rate of inflation over a period. For example, some funds have an investment goal that their rate of return to members should, over any three-year period, exceed the rate of inflation by an average of at least 3% per annum.

Real return

An inflation-adjusted return, as distinct from a nominal (unadjusted) return.

Reasonable Benefit Limit (RBL)

The maximum level of superannuation benefit an individual can receive over a lifetime on a concessionally taxed basis. The RBL is much more generous if the benefit is taken as a pension than as a lump sum.

Recommendation

In relation to the ASX 100 Shares Investment Option, this refers to Macquarie Equities Limited's recommendation for each stock in the S&P/ASX 100. Recommendations are based on a short-term (3-12 months) or long-term (12 months-2 years) outlook. An example of such a recommendation may be to outperform (return >5% in excess of the benchmark sector return), market perform (return within 5% of the benchmark sector return) or underperform (return >5% below benchmark sector return).

Redeemable preference shares

Shares that can be sold back to the issuing company on a specified maturity date for their face value plus dividend.

Regulated superannuation fund

A superannuation fund that falls under the regulation of the SIS legislation. A fund becomes a regulated superannuation fund when it elects to adopt a corporate trustee structure, or when its principal activity is the provision of age pensions to its members.

Reporting compliance

Refers to the large body of information that superannuation fund trustees are required to provide to members, to their parties and to regulatory authorities such as the Australian Taxation Office and the Insurance and Superannuation Commission, so that they comply with (meet) the requirements set down by law.

Reserves

That part of a fund's assets that is not allocated to members' accounts when interest is credited. Reserves are used to 'smooth' the fluctuations of returns from year to year. For example, in a year of good returns, a fund might put some of the earnings into reserve, and declare a lower crediting rate than another fund earned; in a year of poor returns, the reserves might be used to increase the crediting rate to members.

Resource shares

Shares of companies engaged in mining, energy and commodity related (e.g. agricultural) activities, as distinct from industrial shares (see above).

Retail investment products

Products offered by companies that are structured to accept investments from individuals rather than employer-sponsors. The money of these investors is pooled and invested by an investment manager. A number of different types of products exist aimed at meeting the investment requirements of individuals.

Retirement Savings Account (RSA)

A form of superannuation account offered by banks and life offices designed for employees who only have very small superannuation contributions or who work infrequently. RSAs are required to be capital guaranteed, and are therefore likely to provide much lower returns to members than superannuation funds. RSAs are not subject to the same reporting and accountability requirements as superannuation funds, and are not required to provide members with details of their costs. Few RSAs provide insurance cover.

Return

The amount of money received from an investment, usually expressed as a percentage.

Rights issue

An offer made to a holder of an existing stock to purchase new stocks issued by a company at a discount compared with the existing market price, and able to be exercised within a relatively short time, e.g. 30-60 days.

Risk

Risk is the variability of returns. Investments with greater inherent risk must promise higher expected yields if investors are to be attracted to them.

Risk aversion

An investment portfolio that is relatively low-risk and the return more predictable.

Rollover

The transfer of a benefit or Eligible Termination Payment (ETP) into a superannuation fund, approved deposit fund or deferred annuity.

S

Salary

Salary or wages are generally any periodical payment made to a person in return for work or services.

Salary sacrifice

An agreed arrangement between an employer and an employee whereby the employee agrees to salary sacrifice a part of their gross salary in exchange for a benefit, such as extra employer contributions to superannuation. Salary sacrifice contributions to superannuation are preserved.

Screening

Examining a company according to economic, environmental and/or social criteria to determine its compatibility with the key values of a socially responsible investment plan.

Sector

Securities that have the same characteristics, e.g. resources sector, textile sector etc.

Securities

A financial investment such as a share or bond which is tradeable in financial markets.

Self-managed superannuation fund

A superannuation fund where all administration and investment management is performed by the trustee rather than by external service providers.

SG contribution
See: Superannuation Guarantee.

SG legislation
See Superannuation Industry (Supervision) Act

Shares

The ownership of part of a company which gives investors (known as shareholders) certain rights such as the right to participate in profits through dividends and voting rights.

Short term

In investment terms, this is usually less than one year.

Simple interest

The interest paid on an initial investment - not the interest earned in subsequent years.
Compare with: compound interest

SIS legislation
See Superannuation Industry (Supervision) Act.

Small cap

Generally refers to companies with a relatively small market capitalisation between $300 million to $2 billion, although these figures can vary between stockbrokers.

Socially responsible investment

A style of investing that integrates personal and social values with sound financial management. Also known as 'ethical', 'green'or 'sustainable' investing, socially responsible investing provides the opportunity to build an environmentally and socially sustainable future, and aims to provide steady investment returns in the process. Social or ethical considerations may include corporate behaviours, labour standards, animal testing practices and involvement in armaments.

Spread

In relation to shares, this is the difference between the price requested and the price offered, incorporating estimates of demand and potential profit for the seller.

S&P/ASX 100 Index

The S&P/ASX 100 Index is an index recognised as the industry standard for measuring the top 100 companies in the Australian equities market.

S&P/ASX 300 Accumulation Index

An index created by Standard & Poor's, a company that provides independent financial information, credit ratings and risk analysis. The S&P/ASX 300 Accumulation Index includes stocks in the S&P/ASX 100 and S&P/ASX 200 indices in addition to another 100 companies in the Australian market. This index provides a broad benchmark for fund managers.

Stock suspension

Trading on a stock can be suspended at the discretion of the ASX. This may occur when a company or trust has not paid its listing fees, when the ASX requires further disclosure, or for other reasons. A suspension can last indefinitely. There can be no trading while a stock is suspended unless permission is granted by the ASX.

Superannuation

Money saved during a person's working life to use in retirement.

Super Cadets

A 12 month cadetship program designed to identify and fast track the next generation of leaders in the not for profit superannuation industry.

Superannuation Complaints Tribunal (SCT)

A tribunal established by the Federal Government to deal with complaints about decisions of superannuation fund trustees. The SCT requires complaints to be fully addressed through a fund's internal dispute resolution procedure before considering a complaint.

Superannuation Concessional Rate

A Federal Government tax (15%) that is applied to most superannuation contributions made by employers and some members.

Superannuation Guarantee (SG)

The minimum amount an employer is required to contribute to a complying superannuation fund on behalf of each qualifying employee. Employers who fail to meet their SG obligations are liable to a substantial financial penalty, called the Superannuation Guarantee Charge (SGC).

Superannuation Guarantee Charge

A penalty payable by an employer if the minimum SG contribution for any employee is not paid by 28 July.

Superannuation Industry (Supervision) Act (SIS)

The legislation that governs the operation of all complying superannuation funds.

Superannuation Surcharge

A Federal Government tax on superannuation contributions made by employers (including salary sacrifice contributions) for high-income earners. It may also apply to members who have not provided the Fund with their Tax File Number.

Sustainability

The sustainability of a company is its ability to maintain long-term growth without causing environmental or social damage. A company's economic, social and environmental performance is evaluated as part of its overall sustainability rating. This is also known as the triple bottom line.

T

Tactical asset allocation

Where the asset allocation of a portfolio is changed on a short-term basis to take advantage of differences in the relative values of the various asset classes.

Tax File Number (TFN)

A unique number issued to individuals and organisations by the Australian Taxation Office to increase the efficiency in administering tax and other Commonwealth Government systems such as income support payments.

Today's dollars

The projected amount discounted to take out the effect of inflation i.e. the amount reflects the current buying power of your final superannuation account balance. For example $100 in 20 years' time may be worth only $60 today.

Top-down analysis

Analysis of a security commencing with broad macro-economic trends, then assessing the impact on industries and, finally, on individual companies.

Total and permanent disablement (TPD)

The definition of TPD may vary slightly, but generally it requires that, for payment of an insurance benefit, the trustee of a fund must be satisfied that the member is unlikely to be able to work in any occupation to which they may be suited by reason of their training, education or experience. It is a frequent misunderstanding of members that they would be covered if they are unable to return to the position they held before they became disabled, but the test is normally much stricter than this. Some funds do provide different forms of disablement insurance cover, such as temporary disablement cover.

Trust deed

A legal document that sets out the rules governing the operation of a superannuation fund. Members are entitled to view a copy of their fund's trust deed, although they may be charged a fee to be sent a copy.

Trustee/s

The persons or corporate body that has legal responsibility for the running of a fund in accordance with the requirements laid out in the trust deed. The trustee has a duty to act in good faith and in the best interests of members, and is governed by ASIC and APRA.

U

Unfranked dividends

Dividends paid by companies that are (a) not subject to Australian tax; or (b) paid by Australian companies, but before the introduction of dividend imputation (see above) in 1986. Recipients of unfranked dividends are subject to tax at their normal marginal rate.

Unit trust

A collective investment vehicle, established under a trust deed, that continually offers new units and stands ready to redeem existing ones from the owners.

Unlisted

Refers to a company, shares or fund that is not available for purchase or sale through the Australian Stock Exchange.

Unlisted property trusts

A collective investment vehicle which owns a portfolio of real property through the trust's manager, as opposed to listed property trusts which can be bought and sold on the stock exchange.

V

Value investing

Investing in an asset that is seen as undervalued and selling when the asset is overvalued. This type of investing tends to run counter to market trends.

Value investor

An investor who seeks to buy stocks when they are underpriced and make a profit by selling them when they appear overvalued.

Venture capital

Capital usually associated with a new business or venture and particularly in relation to new technology projects.
See also: development capital

Vesting

The inclusion of all or part of the employer contributions in the benefit payment to a member who leaves his or her employment before being eligible for a retirement benefit. 'Full vesting' means that the member is entitled to all of the employer contributions, while 'partial vesting' means that only a portion of the employer's contributions are applied to the member's benefit. A 'vesting scale' sets out the rate at which, over the period of employment, the employer's contributions vest in the member. In general, vesting scales now apply to only a limited number of schemes, most of which have been in operation for many decades. Almost all industry funds provide for full vesting for all their members.

Volatility

The degree of fluctuations in an investment, for example share prices, exchange rates or interest rates. Volatility is one measure of risk.

Voluntary contributions

Personal contributions made by a member to his or her account. These are additional to any employer contributions.

W
X
Y

Yield

The return of an investment, expressed as a percentage. Can also refer to the profit that an investment is likely to return.

Z