Glossary

In order to help you better understand investing and superannuation, we've developed a glossary of terms that explains key words and concepts.

A

Active style management
An investment management style where the managers use their skills in selecting and trading a portfolio of shares or other assets, seeking better performance than the index against which they are measured.

Administration fee
The fee charged by a fund against a member's account to cover administration costs.

After-tax money
An amount (usually income) after taxes have been subtracted.

All Ordinaries Index
An index of companies listed on the Australian Stock Exchange, which is used as a benchmark to measure the performance of the Australian share market. Other indices commonly used are the S&P/ASX 200 Index and the S&P/ASX 300 Index.

Allocated pension
A type of retirement income arrangement within Super under which an individual invests a lump sum and then draws down a regular pension to a value that takes account of expected cash flow needs and life expectancy. Income ceases when all capital has been used up.

Alternative assets
Refers to any non-traditional asset that has potential economic value and that wouldn't normally be found in a standard investment portfolio. Alternative assets may include investments that are not measured against an index, e.g. hedge funds.

Annuity
An arrangement whereby payments are made from a life office to a person at regular intervals in return for the investment of a lump sum. See also 'Pension' and 'Allocated pension'.

Asset allocation
The process of combining different types of assets to build a portfolio.

Asset class
A broadly defined category of financial assets, e.g. Australian shares, international shares, property, fixed interest, cash, etc.

Assets
The financial resources in which a fund invests on behalf of its members. Among other things, these may include shares, property, bonds or cash.

Assets under management
Investment managers and superannuation funds both look after 'assets under management'. It refers to the assets in all classes that are managed.

Australian Prudential Regulation Authority (APRA)
The Federal Government body responsible for the regulation and monitoring of the insurance and superannuation industries.

Australian Securities and Investments Commission (ASIC)
The Federal Government body responsible for administering and enforcing the Corporations Act and laws to protect consumers in the areas of superannuation, investments, insurance and banking.

B

Balanced fund
An investment portfolio that spreads its holdings over a range of high-growth and lower-growth asset classes. An average balanced fund is often used as a benchmark for funds to compare their investment performance.

Bear market
A market in which prices decline sharply in light of widespread pessimism about economic conditions. The opposite of a 'bull market'.

Benchmark
Usually represents the minimum performance objective for an investment portfolio.

Beneficiary
The person (or persons) a member has nominated to receive their superannuation benefits in the event of the member's death. The person must be either a spouse, child, financial dependant, someone who was in an interdependency relationship with the deceased,  or the member's legal personal representative.

Benefit
The amount of a member's entitlement in the IKEA Superannuation Fund or, in the event of the member's death, the amount that other beneficiaries are entitled.

Binding death benefit nomination
A legally binding nomination for payment of your super benefit in the event of your death. The Trustee of the super fund has no discretion as long as the binding death nomination is valid and current. Click here to download form.

Blue chip
A term referring to the shares of a leading company that is known for excellent management and a strong financial structure. The term has become a generic one used to refer to quality stocks.

Bonds
A debt security issued by corporations and governments (or their agencies), in return for cash from lenders or investors.

Bull market
A market in which prices rise in light of widespread optimism about economic conditions.

C

Capital
The wealth of an individual or company that can generate an income. Capital can be held in the form of cash or securities such as shares or property. Also refers to funding for investment in capital assets or to operate a business.

Capital gain/loss
The difference between the purchase and sale price of a capital asset, such as shares.

Capital gains tax
A tax on the increase in the capital value of investments, payable when the capital gain is realised (i.e. when the investment is sold). Capital gains tax is indexed so that increases in value due to inflation are not taxed as well.

Cash
Currency of a country or one of the lower-growth asset classes invested in as part of a typical diversified investment portfolio.

Concessional contributions
Superannuation contributions made from before-tax income for which a tax deduction can be claimed. They are also referred to as deductible contributions. Concessional contributions include employer Superannuation Guarantee (SG) contributions, additional employer contributions (salary sacrifice) and contributions made by the self-employed for which they claim a tax deduction.

Contribution
A contribution is the money deposited into a superannuation account by either an employer or a member and does not refer to rollover or transfer amounts.

Contribution fee
A fee charged by some funds on contributions paid to a member's account.

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

D

Death benefit
The amount payable to a member's beneficiary and/or dependant in the event of the member's death.

Death insurance (death cover)
An insurance arrangement whereby the member's beneficiary and/or dependant receive an insured amount in the event of the member's death.

Default fund
A superannuation fund into which an employee's contributions are paid by an employer in the absence of a choice being made by the employee.

Default option
The investment option for members who do not make an investment choice. Please see the Investment Choice page for further details.

Direct property
Investments held directly in real estate, as opposed to investing in property through a property trust.

Diversification
A strategy whereby investments are spread among different asset classes and locations in order to control and distribute risk. Put simply, 'don't put all your eggs in one basket'.

Dividend
The amount a company pays out to its shareholders from its after-tax earnings. For individual shareholders, the payout is in proportion to the number of shares held. When company profits are down, the company may decide to pay a reduced dividend, or no dividend at all.

E

Equities
Another name for shares. See also 'Shares'.

Exit fee
A fee that a fund may charge when you make a full or partial withdrawal.

F

Fixed interest
Interest income that remains constant, such as income derived from bonds, annuities and preference shares.

Fund-of-funds
A fund-of-funds is a single fund comprising a variety of different investment funds all wrapped up into one fund.

Fundamental analysis
Analysis of investments based on factors such as sales, earnings and assets that are fundamental to the investment.

G

Growth
Refers to the returns from investments that exceed inflation.

Growth assets
A general term for assets such as shares and property that provide investment returns that outperform inflation.

Growth investing
Investing for capital gain through company earnings. See also 'Capital gain'.

H

Hedging
The practice of undertaking an investment activity in order to protect against losses in another activity. Whilst hedging reduces potential losses, it can also reduce potential profits. Typical hedges include currency forwards and share and bond futures.

I

Income Protection insurance
Insurance cover where you may be eligible to receive a regular income if you become temporarily disabled and are not able to work for a time through injury or illness.

Index
A measure of price levels in a particular financial market, e.g. All Ordinaries Index for shares listed on the Australian Stock Exchange.

Index fund
An index fund is a portfolio of securities structured in such a way that its value will closely follow a nominated market index. Index funds can be designed for Australian and international shares, bonds or property trusts.

Indices
Every country's stock exchange has indices that measure the price of listed companies. These indices are generally managed by third-party agencies, such as Standard & Poor's. In Australia, the most common index is the S&P/ASX Index, which covers a range of market segments, such as the largest 100, 200 and 300 companies. Other examples are the FTSE in the UK, CAC in France, DAX in Germany and Nikkei in Japan.

Inflation
An increase in the prices of goods and services in the economy.

Infrastructure
An investment in essential services and facilities, such as airports, roads and utilities.

Insurance premiums
The sum of money paid to purchase insurance against death or disablement.

Investment management fee
The fees charged by an investment manager for their services. The fee is normally charged as a percentage of the funds invested and is often passed on to members.

Investment manager
An organisation appointed by a fund to manage the investment of part of the fund's assets. It is common for funds to appoint a range of investment managers who may have specialist expertise in particular areas of investment. Appointing a range of investment managers also has the advantage of spreading risk.

Investment style
The approach that an investment manager applies to investing.

Investment time frame
The length of time you have to invest.

Investment vehicle
An asset such as shares, bonds, managed funds, options, futures or a property trust which is invested in with the aim of achieving a financial return.

L

Large cap
Generally refers to companies with a market capitalisation of between A$10 billion and A$200 billion, though these figures can vary between stockbrokers.

Liquidity
The ability of an investment to be quickly converted into cash.

Listed company
A company whose shares are traded on the stock exchange and can 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.

Listed property
Refers to property owned by property trusts listed on the Australian Stock Exchange. Listed trusts' shares can be bought and sold on the share market and their price and investment returns can fluctuate like other shares over the short-term.

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

Managed fund
A fund that pools the money invested by many investors to buy a portfolio of assets.

Management Expense Ratio (MER)
The expenses of the fund, e.g. management, investment and other fees, as a proportion of the fund's net asset value.

Mandate
The agreed objectives given by a fund to its 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 income. For information on income ranges and applicable tax rates, please visit the Australian Taxation Office's website at www.ato.gov.au.

Master fund or master trust
A fund that allows a large number of unconnected companies and/or individuals to operate through the same fund. Banks, life insurance companies, and specialist superannuation administrators generally operate them.

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

Member contributions
A member contribution is money contributed by the member to their own superannuation account.
It can include after-tax contributions by employees or self-employed people and personal deductible contributions by self-employed people.

N

Non-concessional contributions
These are contributions made from a person's after-tax income. The terms 'non-concessional contributions', 'post-tax contributions' and 'after-tax contributions' are often used interchangeably.

O

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

Overweight
Where investments in a particular area have a greater exposure compared with the benchmark exposure.

P

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.

Pension
A regular periodic payment, either by the government (social security) or as a superannuation benefit.

Personal contributions
Personal contributions are contributions made to your superannuation account from your after-tax or take-home pay (employees or sef-employed people) or, pre-tax income (sefl-employed people).

Portfolio
An investor's range of investment holdings. Usually it refers to its composition, i.e. the mix of different asset classes or, if in a single asset class like shares, the mix of different sectors and shares.

Preservation age
The minimum age at which members can access their superannuation benefits, provided you have permanently retired from the workforce.

Private equity
Shares in an unlisted company or enterprise.

Product Disclosure Statement
An information booklet members receive upon joining a fund. It sets out the key features of that fund.

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 Australian Stock Exchange.

R

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

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 an employment termination payment or a super fund benefit to another superannuation fund.

S

S&P/ASX 200 Index
An index created by Standard & Poor's, a company that provides independent financial information, credit ratings and risk analysis. The S&P/ASX 200 Index is an index recognised as the industry standard for measuring the top 200 companies in the Australian share 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.

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

Sector
Securities that have the same characteristics, e.g. Resources sector, Telecommunications sector, etc.

Securities
A financial investment, such as shares or bonds that are tradeable in financial markets.

Shares
The ownership of part of a company that gives investors (shareholders) certain rights, such as the right to participate in profits through dividends.

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

Small cap
Generally refers to companies with a relatively small market capitalisation of between A$300 million to A$2 billion, though these figures can vary between stockbrokers.

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

Superannuation fund
A fund regulated under legislation for the investment of retirement savings.

Superannuation Guarantee (SG)
Employer contributions are usually called Superannuation Guarantee (SG) contributions. Currently the minimum level of SG contributions is the equivalent of 9% of ordinary time earnings. This money is not taken out of your wage or salary; it is paid in addition to your wage or salary. An annual contribution limit applies.

Switching
Where you move all, or part, of your account balance from one investment option to another.

Switching fee
A fee that a fund may charge when you change investment options.

T

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. Legally, you do not have to provide your TFN to your super fund, but you will have to pay more tax if you don't.

Term allocated pension
Term allocated pensions (TAP) are also known as market-linked pensions (MLP). They are invested for a term based on your life expectancy (or the life expectancy of your spouse/de facto). All income earned and original capital invested is paid out over this term. The income each year will vary depending on the investment earnings during the term and in the event of negative returns the capital may become exhausted before completion of the term.

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.

Transition to retirement
The period in which a person prepares to leave the (full-time) workforce and move into retirement.

U

Unclaimed superannuation
Superannuation that people have lost.

Underweight
Where investments in a particular area have lesser exposure compared with the benchmark exposure.

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 Australian 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.

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

W

Weighting
The relative proportion of each of a group of securities or asset classes within a single investment portfolio.

Y

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