Whether seeking financial advice for the first time, or you’ve been a long-term financial planning client no one can argue that there is a lot of terminology that is used in the profession that, for most, is not used in day-to-day life.
Through the advice process, there is a lot of information that is required to be included from a legislative standpoint, and many clients simply choose to focus on the recommendations, the benefits, and how this is going to help put them in a better position, relying on the knowledge and skill of their Adviser. A good Adviser should ensure that you fully understand the advice in its entirety before proceeding to the implementation phase. But just in case you were wondering what a few of these terms mean, we have included below a few ABCs.
Asset Class Allocation Investing: Avoid putting all your eggs in one basket. You spread and mitigate risks by allocating your investments across assets – such as shares, bonds, and property. This diversification ensures that if one sector underperforms, others might assist in offsetting that downturn.
Australian Government Guarantee on deposits: Refers to the Financial Claims Scheme (FCS) which protects depositors of up to $250,000 per account holder per authorised deposit-taking institution (ADI) (bank, building society, or credit union) in the event of the ADI failing. For joint accounts, each account holder is entitled to the $250,000 guarantee.
Bad Debt/ Good Debt: Credit that is used to purchase items either decrease in value or retain or increase in value over time.
Bear Market: The term used to describe a prolonged period of declining stock prices.
Benchmark: In investing, an index that can be used to evaluate the performance of an investment.
Binding Death Benefit Nomination: Where the superannuation fund, in the event of your death, must pay your superannuation benefit to your nominated beneficiary, unless it would be unlawful to do so.
Blue Chip Share: A share in a well-established company with a record of stable earnings over a long period, typically a market leader or among the top companies in its sector.
Bull Market: The term used to describe a prolonged period of rising stock prices.
Compounding Effect: Compounding is the process where your investment earns interest, which is then reinvested and then makes interest on itself. A snowball effect can dramatically enhance your financial well-being in the long term.
Contributions: are payments put into your super fund. Concessional Contributions are from your pre-tax income and are tax-deductible for self-employed people. They include your Employer’s Super Guarantee (SG). Concessional super contributions are taxed at 15% when they are received by your super fund. Non-concessional contributions are payments you put into your super from your savings or from income you have already paid tax on. They are not taxed when they are received by your super fund.
Condition of Release: A nominated event you must satisfy to be able to access superannuation savings. Examples include permanently retiring from the workforce after reaching preservation age, reaching age 65, or becoming totally and permanently disabled.
Consumer Price Index (CPI): Records the change in purchasing power by measuring changes, over time, in the weighted average price of consumer goods and services such as food, transport, and medical care. It represents consumption expenditure by households in Australian metropolitan areas.
Corporate Bond: A debt security issued by a company to investors to raise money to finance its business activities. Sometimes called fixed-income securities because the issuer promises to pay a specific amount of interest regularly and repay the principal on a set date.
Cost Basis: The value assigned to an asset, generally its purchase price plus the amount of subsequent deposits, that is used to determine a capital gain or capital loss for tax purposes.
Currency Risk: The risk that the value of your investments will be affected by changes in foreign currency exchange rates.
This is but a few terms you may hear your Adviser mention. For more, the Government’s MoneySmart website has an extensive Glossary of Terms.
While this provides some great basic explanations, we all learn and take in information in different ways so if you need more information or explanation, don’t hesitate to reach out to your Financial Adviser.
Katrina Dhu (MFinPlan, GradDipFinPlanC, DFS(FP), ADFS[FP]) is a representative of Alman Partners Pty Ltd, Australian Financial Services Licence No: 222107.
Any information provided to you was purely factual in nature. It has not been taken into account your personal objectives, situation or needs. The information is objectively ascertainable and is not intended to imply any recommendation or opinion about a financial product. This does not constitute financial product advice under the Corporations Act 2001 (Cth). It is recommended that you obtain financial product advice before making any decision on a financial product such as a decision to purchase or invest in a financial product. Please contact us if you would like to obtain financial product advice.