Glossary of terms

Fund managers who move investments between different assets often to get the best return for their investors. Active fund managers usually have teams that analyse all the available information and use complicated forecasting techniques to get the best performance for the funds they manage.

A person who sells financial advice and/or products. They include financial advisers, insurance agents, planners, sharebrokers, mortgage brokers and bank managers or agents. They may be salaried, paid a commission or have an hourly rate.

A type of investment where you pay a lump sum at the start, and receive regular payments (say monthly) for the rest of your life. Some annuities will continue for a minimum period, normally 10 years. You can also take out an annuity that is dependent on both your life and that of your partner's. Often the level of payment would reduce on the death of the first person. Normally the annuity payment is for a constant amount. It is possible to get an increasing amount to cover inflation, but it will cost more to purchase.

An asset is a useful or valuable person or thing. In financial terms it's an item that can be converted into cash such as bank deposits, shares or property.

Types of investment, e.g. shares, property, bonds, cash deposits.

Automatic payments (APs) are a way of paying someone a set amount direct from your bank account, usually on a fixed day of the month. Automatic payments are ideal for bills that are the same amount each month, like rent.

A term used to describe the inability of an individual/company to pay their debts.

The profit you make when you sell an investment for more than you paid for it. If you buy a house for $300,000 and sell it for $320,000, your capital gain is $20,000. A capital loss is when you sell an investment for less than you paid for it.

When the value of your investment (your capital) grows. If you invested $100,000 in shares last year that are worth $110,000 this year, your capital growth is $10,000, or 10%.

A cash advance is when you withdraw money from your credit card account, usually through an ATM. Cash advances are an expensive option because you get charged interest from the day you withdraw the money.

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The money paid to a broker, financial adviser or planner, who sell products on behalf of a company. Commission can be based on the number and/or the value of the investments they sell.

Interest paid on interest. You earn compound interest if you have savings and don't spend the money you earn from interest. For example, if you save $100 at 3%, you'll earn $3 in the first year. You now have $103. In the next year, you earn 3% interest on your $103. The 3% you earn on the $3 you earned as interest last year is compound interest. Over the long term, compound interest makes your money grow much faster than the straight interest rate.

Debt is what you owe - it comes in many forms, including mortgages, personal loans, credit card balances, hire purchase agreements, loans from family.

The payments due on a long-term debt consisting of interest and principal, eg. a monthly mortgage payment.

This is to do with the structure of the population and changes to that structure.

Direct debits (DDs) are a way of paying someone a variable amount direct from your bank account, usually on a fixed day of the month. Direct debits are ideal for bills that are a different amount each month – like telephone and power bills.

This is the money you receive from others, as payment for the use of your money.

A scheme operated by an employer to help their employees save for their retirement. In some cases employers add money to the amount the employer saves, in other cases the employer meets some of the costs of the scheme, such as bank fees. Sometimes the employer superannuation scheme provides life insurance cover for the employees. Also called a corporate or group superannuation scheme.

The amount you would get if you sold an asset and paid back any money you owed on it. For example, if you have a house worth $350,000, and a $300,000 mortgage, your equity in your house is $50,000.

Long-term interest-earning investments, such as bank term deposits and government stock. These investments are generally low-risk, and offer a reliable return rather than growth of capital.

The rate of interest paid on a loan may be either a fixed rate or a floating rate. For a fixed rate loan, the interest rate is set at the date you take out your loan and remains the same throughout the term of your loan, irrespective of whether bank interest rates rise or fall.

The rate of interest paid on a loan may be either a fixed rate or a floating rate. For a floating rate loan, the interest varies from time to time. If interest rates fall, then so does the amount you have to repay. Or you can choose to continue with the same level of repayment and reduce the term of your loan. However, if interest rates rise, then the opposite effect happens, either your repayments need to be increased or the term of your loan is extended.

An IOU from the Government. The public and companies can lend the Government money. In return they get a fixed rate of interest for a certain period of time and then the money is repaid. The document which acknowledges the amount the Government owes each person or company is called Government Stock.

A type of managed fund. GIFs are often marketed and managed by a trustee company.

Hire purchase is an agreement to buy something on credit, without paying the full amount straight away. With HP you usually pay a deposit followed by monthly payments (including any interest and fees charged) over a set period. Also known as a credit sale or a credit contract.

Indexes are tracking devices that measure the ups and downs of various market prices. The term 'indexed by inflation' means the tracking of inflation as it falls and rises over time.

Inflation - is the rate at which the prices of goods and services increase over time. The effect of this is to reduce the purchasing power of money. For example, if you could buy something with $1000 now, in one years time, you would need $1020 to buy that same thing (assuming 2% inflation).

Increasing an amount of money each year by the same amount as inflation each year. For example, if you saved $1,000 last year, and the rate of inflation for the 12 months was $2%, you should increase this year's savings by 2%. So $1,000 inflation adjusted, is now $1,020. You make an inflation adjustment to maintain the value of your savings.

Money paid in return for the use of money. If the bank is using your money (in a savings account) they pay you interest. If you are using the bank's money (via a loan), you pay the bank money.

The amount of interest you pay on a loan or are paid for an investment, usually expressed in a percentage.

A way to use your money to make it grow.

What you owe - a debt or a promise to pay money for something in the future.

How easily you can turn your investments into cash.

Being unable to remove your money from an investment or savings scheme without paying some kind of penalty. Usually an investment is locked in for a certain period - a number of years, months or until an event, like your retirement. For example if you make a six month fixed interest investment at the bank, your money is locked in for six months.

A large one-time payment of money.

A pool of money from many investors that is then invested (managed) by a specialist fund manager.
Managed funds are often very large, and can invest in many more areas than a single investor could.

Your overall financial position - the value of your assets minus your debts. Or the difference between what you own and what you owe.

The money you make on your investment without taking into account inflation. Your real return on an investment is where allowance is made for inflation. For example if your investment has achieved a nominal return of 10% and inflation was 2% then your real rate of return is 10% less 2% giving a return of 8%.

Married or in a committed relationship.

Fund managers that don't move the money they manage between different assets a lot as much as active fund managers . A passive fund manager usually buys a range of assets to spread the risk, then holds the same assets for a long time. Passive fund managers generally rely on the market to dictate the performance of their fund. A passive fund is likely to be a lower risk investment than an active fund, but also has less potential for higher returns.

The situation in New Zealand where taxes paid by today's taxpayers are used to pay New Zealand Superannuation to today's retired people. An alternative system would establish a dedicated fund into which each generation of taxpayers puts aside funds which finance their own retirement income.

An income paid at regular intervals to a retired person, by a government or through an employer superannuation scheme.

Yearly. Often shortened to "p.a."

Assets that have a physical presence, such as real estate or jewellery, as opposed to financial assets, such as shares or government bonds.

The saving that people undertake to fund their own retirement income.

A company such as a bank, finance or insurance company that creates and provides insurance, mortgage, banking, savings or investment products.

Retirement income provided on a pay-as-you-go basis from general tax revenues. New Zealand's public provision is New Zealand Superannuation (NZS). Other taxpayer-funded assistance is available to elderly people.

What you earn on your investment as a percentage of the amount you invested. For example, if you by a house for $300,000, and it makes you $15,000 from rent each year (after all the running costs have been paid), the rate of return on your asset (the house) is 5% ($15,000 is 5% of $300,000).

Changing the terms of your loan, or replacing your existing loan with a new one. Refinancing is often associated with going to a different provider. You may choose to do this because:

* You would benefit from choosing another mortgage repayment option ie moving from a fixed to a floating rate or vice versa.
* You wish to change the amount you pay each month on your loan.
* There may be a cost charged by the lender if you choose to refinance within the term of your loan.

A superannuation scheme into which individual investors save money. These are generally offered by financial organisations.

The change in the value of your investment over a period of time, including any distributions (eg dividends) made from the investment during that period. Returns can be both positive and negative.

An investment is normally considered to be risky if there is a reasonable chance that its value will vary significantly in the future. For example, an investment in shares is more risky than an investment in a bank term deposit. The value of shares may fall below the price paid for them while the value of bank deposits generally do not. High risk investments should only be taken on with long term intentions. You would expect a high long-term return to compensate for high risk.

A secured loan is secured against some or all of a borrower's assets decreasing the risk associated with the loan. If the borrower defaults on the loan, the lender may get some/all of these assets in order to cover the loan payments.

Piece of paper that proves ownership of stocks, bonds and other investments.

Shares and equities refer to the same thing - a share in the ownership of a company and entitlement to any distributions (eg dividends).

Any security traded on a public exchange including fixed interest or equity securities.

Funds specifically designed for people saving for their retirement. They are in the form of retail funds available to all savers, or employer funds available only to employees of the sponsoring employer.

A loan that is paid back by making regular payments of fixed amounts. Each payment pays back part of both the interest and the capital. Under a floating rate mortgage, when interest rates change, you have the option of maintaining the level of payment and varying the term of the loan or maintaining the term of the loan and varying the payment. Under a fixed rate mortgage you may elect to change the level of payment but there is usually a charge associated with this.

Money deposited for a fixed term - usually between 30 days and five years. If you want your money back before the term is up you may have to forego a portion of your interest as a penalty.

'Today's dollars' means that any amount you pay or receive in the future will have the same buying power as this many dollars today. For example, if you buy something worth $1000 now, in 10 years time, you would need $1220 ("nominal dollars") to buy that same thing (assuming 2% inflation). The $1220 nominal dollars in 10 years time is equivalent to $1000 today’s dollars. This means that the actual dollar amounts that you pay or receive are likely to be more than the figure quoted here, but it will have the same current buying power.

Companies that were originally established to manage a deceased individual's estate and trust funds. Trustee companies now actively manage money on behalf of clients.

A type of managed fund. Managed funds work by pooling money from a number of investors and then using this money to buy a variety of investments. In a unit trust, each investor owns a proportion of the total fund.

A loan which is not secured against any of the borrowers assets and hence is more risky than a secured loan. In order to compensate for this, the lender will charge a higher interest rate.

Subsidised employer superannuation schemes sometimes have what's called a 'vesting period'. Vesting provisions set out the period of time you must stay with the employer before you can keep the employer's contributions. (You will always get the contributions you paid yourself). If 'full vesting' occurs at 10 years, only after that will you get all of your employer's contributions. Often, though, there will be a sliding scale. After one year, for instance, you may get 10 per cent of the employer's contributions, and after 5 years you may get half.

An average that assigns different weighting to items of different size. For example, if you have two debts and the first one is twice the size of the second, then the first debt will be given a weighting twice that of the second.

Generally a superannuation or savings scheme for large groups of investors to save money into, generally offered by financial organisations to workplaces.