Glossary

Allocated Pension
is an amount paid regularly from an investment account in which the level of annual income payments falls within a range determined by government regulations.  Payments are made until all capital is withdrawn or you die (in which case the balance of the investment is available to your estate or to the person nominated as your reversionary pensioner (spouse) who may continue to receive a pension until account balance falls to zero (usually around age 80 – 85 as a guide).
Annuity
is a regular income paid to you by an insurance company in exchange for a lump sum.  The income stream received is a combination of return of capital and of investment earnings.  Annuities now can be fixed term and may be taken out by people of any age.  However, there are special advantages for Age Pension applicants in taking out an annuity for either lifetime or since 20 September 1998 “life expectancy annuities” (LEAs) are available for periods between 5 and 15 years or more and depending on age, can be exempt from the Assets Test, provided they are taken out after or on reaching Age Pension age.
Bear Market
represents a consensus by economists and market watchers that the stock market has suffered a downtrend and could continue to suffer a downtrend at least for the foreseeable future.
Beneficiary
is a person who is entitled to receive part or all of the estate of a deceased person or the benefit from a superannuation plan annuity or pension.
Bequest
is a gift of personal property under the terms of a legal will.
Bonds
are fixed interest investments, usually for the medium to longer term.  They are issued by governments, companies or other entities (the borrowers) who pay the investor interest throughout the life of the bond.  The level of security varies with the quality of the offering institution.
Brokerage
is the fee paid to a stockbroker for providing the service of buying or selling shares.  Fees are charged according to a scale which takes account of the total value of shares traded.  The fee may vary from one broker to another and is included in the purchase price (or deducted from the sale price) i.e. it is not paid separately.
Bull Market
is the reverse of a bear market; i.e. investors expect a prolonged upturn in the stock market.
Capital Gains Tax (CGT)
is levied on the capital profit made on the sale of assets acquired after 20 September, 1985.  It is only levied when an asset is disposed of and cost value is adjusted for inflation.  The family home is generally exempt.  The rate of tax payable depends on your marginal tax rate in the year of sale (i.e. financial year to 30 June).  After 1/10/99 only 50% of gain taxed  if the asset is held for longer than twelve months, and there is no inflation allowance as with previous method until that date.  Consult your accountant/financial planner on ways and means of minimising any capital gains tax liability.
Capital Guaranteed Fund
a fund in which the original capital and usually the declared investment “bonuses” are guaranteed by the fund manager.
Capital Stable Fund
a fund which usually carries a little more risk than a Capital Guaranteed Fund because it includes not only low risk fixed interest investments but also investments in low risk equities (shares).  There have been times, however (e.g in 1994), when value of “capital stable” investments dropped in value 10-15% over a period of several months.
Cash Management Trusts
are unit trusts that allow investors to pool their money in order to take advantage of investment opportunities in the short term money market.  They provide ready access to investors’ funds and are therefore ideal for meeting short term cash requirements and unforeseen expenses.  Security of the investments is high since they include securities offered by government or banks but not shares or property.  They do not provide any growth on the capital invested.
Commission
is money paid by an organisation to a financial planner for placing investments with that particular organisation.  The commission is paid out of fees deducted from your investment.
Commutation
is the action of changing from one kind of superannuation payment to another; e.g. surrendering pension or annuity payments to receive a lump sum payment instead, i.e. cashing in at “today’s value” a future income stream.
Diversification
spreading funds across various sectors of investment markets and/or fund managers to minimise risk.
Equities
stocks and shares that do not yield fixed interest, e.g. ordinary shares in companies like BHP, CBA, etc.
Compound Interest
is interest which is allowed to remain with the investment capital and thereby becomes merged or compounded with the principal.  It is a very effective way of growing an investment since the amount working for the investor grows at a faster and faster rate – compound interest has been humorously called the “8th Wonder of the World”.  For example, if $10,000 is invested in a capital guaranteed (or managed) insurance bond paying, say 10% p.a. it will double in value after 7-8 years – refer “Rule 72” below.
Consumer Price Index (CPI)
is a measure of the movement in prices of a specific group of goods and services.  It is used in wage and pension determinations by the Commonwealth Government.
Defined Benefits Fund
a superannuation fund that pays a member of the fund a defined amount of super money (i.e. pension) that is linked to salary level at retirement and length of service (e.g. in the State public service normally 66% of average salary over the last 3 years provided after, say, 30 years of service.)
Discretionary Trust
allows a trustee (who holds an interest in property for the benefit of another who is known as the beneficiary) complete discretion to distribute capital and income to the beneficiaries specified in the Trust Deed.  A non-discretionary trust would restrict the trustee’s freedom.  Discretionary trusts are used mainly for a family’s affairs.
Dividend
is that portion of a company’s after-tax profits which is paid to its shareholders, usually at six-monthly intervals (known as an interim dividend after 6 months profit results and a final dividend after a full 12 months results are declared).
Dividend Imputation
gives investors in companies that pay Australian corporate tax rate (currently 30%) credit for the tax paid by the companies over the next couple of years.  This makes dividends from most Australian companies “tax free” to many shareholders.  It also reduces the tax payable on income from other sources by low income earners. 
Eligible Termination Payment (ETP)
is the name given to the lump sum paid to a person who terminates employment or withdraws from a superannuation fund and which the Tax Office determines to be eligible for concessional tax treatment.  While ETPs include payments from a superannuation fund, severance pay (e.g. redundancy) and commutation payments from a pension or annuity, they do not include lump sum payments for unused annual leave or long service leave.
Estate Planning
refers to the actions which a person may take to arrange their affairs in order to maximise the value of their estate, minimise tax liability and give consideration  to what should be included in a legal will, the appointment of an executor, provision for the power of attorney and the use of testamentary trusts.
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