Glossary of Financial Terms
If you're new to the 'financial world' you may well be daunted by the large amount of industry jargon that you hear. Below are a list of commonly used terms and phrases and their meaning. We trust this assists you in getting a grasp of some of the key terms used in this ever increasingly complex industry.
Accumulation Phase
This refers to the period when an investor’s superannuation savings are growing and cannot be withdrawn as either a lump sum or a pension. Your super enters the ‘’pension phase’’ when you are eligible to withdraw it as a means of funding your retirement.
Allocated Pension
A pension paid from a super fund. Investors receive regular payments within legal limits and the pension continues until the investor dies, or his or her account is exhausted.
Asset Allocation
Asset allocation is the process of building an investment portfolio by blending different asset classes like cash, bonds, property and shares. The amount invested in each asset class will depend on your age, financial objectives and tolerance for risk.
Binding Nomination
Some superannuation funds allow members to make a binding death benefit nomination. This means that a member can nominate who is to receive his or her super entitlements if they die – and that the trustees of a super fund have no option other than to pay the entitlements to the nominated beneficiary.
Capital Gains Tax
There is no separate rate of tax applied to a capital gain on an investment - but it is common for people to refer to tax payable on capital gains as a "capital gains tax". A capital gain occurs when someone sells an investment - for example, property or shares - for more than his or her original purchase price.
Commutation
The process of converting a pension or annuity into a lump sum.
Deductible Amount
The tax-free component of a pension or annuity. Deductible components are counted as an annual amount.
Dividend
A cash distribution by a company from its after-tax profits to shareholders.
Dividend Yield
The yield - or income - from shares expressed as a percentage. Dividend yield is calculated by dividing a company’s total annual dividends by its share price.
Eligible Termination Payment
A lump sum superannuation benefit or similar payments you receive when you leave a job. For example, a lump sum payment from your employer "in consequence of termination of employment" will usually be an ETP.
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