Financial Planning Glossary

  1. AAA

The top credit rating awarded by rating agencies such as the USA’s Moody Investors Service and Standard and Poors.

  1. Approved Deposit Fund (ADF)

A type of fund into which termination payments (ETPs) can be rolled over upon a person’s retirement, resignation or retrenchment.  ADFs were introduced in the second half of 1984 in response to changes in the way that lump-sum superannuation payments are treated in terms of taxation.  Funds placed in ADFs benefit from favorable tax treatment.

  1. Accumulation fund

A type of superannuation fund in which the benefit the member receives reflects the total contribution plus what has been earned less expenses and tax.  Therefore the benefit reflects the performance of the fund investment.

  1. All ordinaries index

The Australian Stock Exchange of share price movement within the 250 identified companies in the index.

  1. All ordinaries accumulation index

An index which measures movements in the value of major shares listed on the Australian Stock Exchange.  It takes into account the capital appreciation and dividends of the 500 biggest listed companies.

  1. Amortization

An accounting term describing the write-down of the book value of an asset over a time period or the systematic repayment of debt.

  1. Angel investor

A wealthy individual who invests in private entrepreneurial firms.  Although these investors perform many of the same functions as venture capitalists, the investment capital is their own and not that of institutions or other individuals.

  1. Annuity

A form of life insurance which operates to provide retirement income.  The person who takes out the annuity pays the life office a lump sum and in return receives a series of payments.

  1. Asset allocation

The process of allocating the total investment between the different asset sectors like shares, bonds, property, cash and overseas investments.  Asset allocation can also be referred to as the split between growth and interest bearing investments.

  1. Asset class/sector

This refers to a grouping of securities with broad characteristics in common.  These sectors include Australian and International shares, property, cash, Australian and International fixed interest and private capital.

  1. Asset mix

The percentage of an investment held in each asset sector.  Investment analysis is the outworking of asset allocation.  Investment analysis shows the asset mix is a major factor investment performance.  Asset mixes are applicable to both the total fund and individual products.

  1. Average IRR

The arithmetic mean of the Internal Rate of Return.

  1. AWE

Average Weekly Earnings.

  1. AWOTE

Average Weekly Ordinary Time Earnings (Basically a measure of average wages)


  1. Balanced fund

A fund/portfolio which invests in all major asset classes such as cash, fixed interest, property/shares, domestic and international. It provides long term capital and a reasonable return.

  1. Basis point)

1/100 th of 1 % (100 basis points = 1 %)

  1. Bear market

A market which might fall. A situation where a dealer is more prone to sell an asset even to the extent of selling assets which he does not have.

  1. Beta

An indication of the price volatility of a security/portfolio compared to the market as a whole.

  1. Bond

A debt security issued by entities such as corporations or governments and their agencies. A bond holder is a creditor of the issuer and not a shareholder.

  1. Book to market ratio

The ratio of a firm’s accounting book value of its equity to the value of the equity assigned by the market.

  1. Book value

Value of an asset recorded in the accounting books of an organization.

  1. Burn rate

The amount of cash a company needs to remain operating. Very similar to Burn time (How long can the company operate until they run out of money).

  1. Buy ins

A management buy-n (MBI) uses a leveraged buy-out organized by new managers or a management team external to the business to buy into a company.

  1. Call

When a company makes a call on shares, it asks the holders of partly paid shares to contribute more money. A call in futures trading refers to a margin call. Funds can be placed on the money market “at call” which means they have not been lodged for a fixed term.

  1. Capital

The value of the investment in a property/business expressed as Total Asset-Total Liabilities.

  1. Capital Growth Fund

An investment fund which invests primarily in assets more likely to appreciate in value (typically shares and property).

  1. Coupon Rate

The annualized value of a bond’s regular interest rate repayments expressed as a % of a bond’s par value.

  1. Consume Price Index(CPI)

A quarterly measurement taken of movements in the prices of a set list of good/services. The CPI is used as a guide in adjusting award wages and other costs which are linked to the inflation rate.

  1. Dept Security

A financial security that represents lending that must be repaid by the issuer.

  1. Deal Flow

The term used to describe the number of proposals being received by a private equity fund on some sort of calendar basis (for example 5 deals/week).

  1. Dealers License

A license issued by the Australian Securities Com under the corporation’s law to a person in the business of dealing in securities or making securities recommendations or providing investment. The license may be subject to conditions, including liquidity requirements.

  1. Default

The failure to honor one’s debt obligations.

  1. Development Capital

Also known as Expansion Capital.

  1. Diversified Option

An option investing in more than 3 different asset sectors.

  1. Dividend

The distribution of a portion of a company’s earnings to its shareholders.

  1. Earning Rate

Growth or interest rate earned on amounts held in the superannuation plan (usually expressed as a % of each year.

  1. Early Stage Financing

A term used in the private equity industry. It is also known as Start-up Capital. A company in the early stages of its life cycle is likely to have completed the product development stage but requires further funds to initiate commercial manufacturing and sales. They may or may not yet be generating profits.

  1. Equity Kicker

A transaction in which a small number of share/warrants are added to what is primarily a debt financing.

  1. Escrow

A temporary holding place for earnings of a private equity fund. Typically the fund will require a private equity manager to place all or a portion of its carried interest in escrow until certain performance milestones are met or the fund is terminated.

  1. Expansion Capital

  1. Fair Value

The latest stated value of an investment. This could be based on the market value of the publicly traded securities or if the investment has already been sold, the sale price of the investment.

  1. Financial Engineering

An investment strategy executed by private equity groups. Implementation of the strategy usually purchasing a company using significant amount of leverage. Over time the private equity manager seeks to reduce the leverage causing profits and equity values to accelerate rapidly as debt is eliminated and interest payments are also eliminated.

  1. Financial Leverage

The use of debt to increase the rate of return on equity. Normally expressed as the ratio of debt to debt + equity.

  1. Fix Interest

Interest paid on investments such as bonds and debentures paid at a predetermined and unchanging rate for specified period.

  1. FX, Forex

Abbreviations for Foreign Exchange.

  1. G3

Group of 3. The 3 largest western industrial economies namely:

• Germany
• Japan
• USA

  1. G7

Group of 7. The 7 leading industrial countries outside the communist block:

• Canada
• France
• Germany
• Italy
• Japan
• UK
• USA

  1. Gatekeepers

Specialist advisors assisting institutional investors in investment allocation decisions. They usually manage funds of funds.

  1. Gross Domestic Product(GDP)

A measurement in dollar terms of aggregate goods/services produced within a particular economy over a year excluding income earned outside the country. Considered one of the main yardsticks of the health and vitality of a particular economy.

  1. Gross National Product(GNP)

The GDP with the addition of interest, profit and dividends received from abroad. The GNP better reflects the welfare of the population in monetary terms although it is not as accurate as a guide to the productive performance of the economy as the GDP.

  1. Gross IRR

The internal rate of return inclusive of management expenses and fees. It is the annual % pre-tax return from an investment (of funds) cash outflows (including the cost of investment and costs of formation and management) and cash inflows (including sale proceeds from investments over a period of time adjusting for the fact that money received later is worth less than money received now).

  1. Gross investments

These investments generally include Australian and International shares, direct resources and property investment. These assets are expected to experience capital growth but a certain degree of risk is involved.

  1. Hedging

This is taking steps to protect against or at least reduce a risk or a form of insurance. The term is widespread in futures and foreign exchange markets where traders use facilities available to protect themselves against future price or exchange rate fluctuations.

  1. Hurdle Rate

The expected rate of return on a potential investment that an investment manager demands before committing his money. It is an arrangement that caps the downside risk for investors.

  1. Hybrid Security

A term used to describe a complex security consisting of virtually any combination of two or more risk management building blocks bond or note, swap forward or future or option. A hybrid listed on a stock exchange is generally one that pays a fixed return similar to a bond while containing the option of being converted into shares in the issuing company.

  1. Indexing

A low risk investment management strategy in which the investor trades according to the performance the market as a whole rather than particular assets or stocks.

  1. Inflation

An increase in the volume of money/credit relative to available goods/services resulting in a continuous rise in general price levels.

  1. Initial Public Offer(IPO)

The first fund-raising from the general public. This generally results in a stock exchange listing.

  1. Interest Bearing Investments

These investments usually include Australian, International and short dated (cash) fixed interest investments.

  1. ITAA

Income Tax Assessment Act



  1. Kangaroo Bond

Bond issued in Australian dollars by a foreign company/body (for example the Asian Development Bank).

  1. Listed asset

A company that is publicly owned and listed on a recognized stock exchange.

  1. Liquidity

The ease with which an investment can be converted into cash.

  1. Listed Property

Constitutes shares in property companies or units in property trusts listed on the Australian Stock Exchange. For example Cento properties limited or Westfield trust.

  1. Macro

Usually a term used in Economics. The study of economic aggregates and their relationships for example to money, employment, interest rates, government spending, investment and consumption.

  1. Manage Fund

An arrangement which usually involves the pooling of the contributions of a plan in a particular fund. This is managed by an external manager and managerial charges, insurance premiums and benefits are paid.

  1. Nominal Interest Rate

An interest rate expressed in monetary terms.

  1. Non Complying Fund

The type of superannuation which does not comply with the old section 23F of the ITAA and/or the SIS act.

  1. Option

A type of derivative. It is a contact giving the holder the right but not the obligation to buy or sell an underlying asset at a specified price during a given period of time.

  1. Payback Period

The time taken for an investment to recover its initial outlay.

  1. Public to Private

A transaction where an under analyzed publicly listed company is de-listed and managed as a private company.

  1. Purchase multiple

A valuation parameter associated with the purchase price of a specific investment. It is analogous to the P/E ratio used in public listed companies.

  1. Put Option

The right but not the obligation to buy a financial instrument or a commodity within a specified period.

  1. Quant

A specialist usually working in portfolio management or bond research who develops systems that map past movements in financial markets with a view to predicting future equity, commodity and currency values.

  1. Recapitalization

The restructuring of a company balance sheet by either increasing or the decreasing the amount of corporate debt. The aim is to alter the capital structure of a company in order to improve its profitability. This strategy is considered to be a form of financial engineering.

  1. Secured Debt

Debt which in the event of a default has first claim on specified assts.

  1. Securitization

Replacing tradeable securities for privately negotiated instruments.

  1. Senior Debt

In the event of bankruptcy this is the debt which must be repaid before subordinated debt receives any payment.

  1. Short Term Investment(STI)

An investment usually maturing in less than 2 years.

  1. SMP

Separately Managed Portfolio.

  1. Swap

On the debt market when one party pays a fixed interest to another party in exchange for a floating rate.

  1. Swap Rates

The fixed interest rates traders would pay in order to secure a floating money market rate. The gap between those rates and government bond yields are known as swap spreads and indicate risk appetite.

  1. Trust

An arrangement where an asset is held by a person or persons (the trustees) for the benefit of some other person (the beneficiaries).

  1. Underwriter

A firm which buys an issue securities from a company and resell it to investors.

  1. Unit Price

  1. Vest Benefit

The amount of vested benefit is the minimum sum which must be paid to a member of a superannuation fund when the member becomes entitled to a benefit on withdrawal (for instance on resignation.

  1. Weighting

Percentage or proportion of the portfolio invested in each asset class.

  1. Withholding tax

Tax due on any dividends paid out abroad.


  1. Yield

A measure of return on an investment expressed as a % (calculated by dividing the income from an asset by its current capital value.

Not a comprehensive list by any stretch of the imagination but enough to make a man start putting his money under his mattrass.