Glossary

Glossary

Finance has it’s own language. Use this Glossary to better understand your finances, and remember that we are always happy to help so get in touch if you want some personal assistance!

At Building on Basics we believe that no matter your financial starting position, you can build towards the life you want. Everyone has ‘the basics’ – a starting position and a level of financial knowledge – and we’re here to support you on your journey to financial success.

Finance is simple, but it can be overwhelming. We believe in growing our clients’ financial knowledge and understanding as well as growing their wealth, so clients can feel confident about their financial future.

A

Active fund

Investments with money managers who aim to get investors the best results by choosing investments and trading them. This typically costs more, but if the fund managers are successful, it may be worth it. Passive funds are more ‘hands off’ than active funds. Active funds typically have higher fees than passive funds.

Active fund manager

A money manager whose style is to get investors the best results by choosing investments and trading them. They typically have teams of experts to analyse all the available information, and also make important decisions around currency, and asset allocations to improve investment returns.

Administrator

A company that (as a delegate of the fund manager) attends to some or all of the everyday workings of a KiwiSaver scheme. Sometimes called an ‘administration manager’, the administrator may handle tasks such as updating balances, loading transactions and paying withdrawals. An administrator may also be someone called in to manage a company in financial trouble.

Agreed Value

The value of an insured item, agreed between an Insured and the Insurer at the beginning of a period of cover, which does not change throughout the period of cover.

AML

This stands for Anti Money Laundering and refers to the procedures, rules and regulations aimed at uncovering crimes related to disguising illegal funds as legitimate income.  AML regulations require financial institutions to develop customer due diligence plans to assess money laundering risks and detect suspicious transactions.

Annual Premium

The amount of premium (money) which must be paid each year to keep an insurance policy in full force.

Annual report

A report sent or notified to you by your Investment/KiwiSaver scheme provider setting out information about the scheme. It includes the number of investors/members and whether there have been any material changes to the scheme during the year.

AP

Automatic payments 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 payment, like rent. They are also perfect for paying ourselves first and saving towards our goals. An automatic payment gives you control of when the money goes out.

Asset

Something you buy as an investment because it has the potential to become more valuable in time by being sold for a higher price, or because it produces a regular income, or both. An asset puts money in your pocket, as opposed to a liability, which drains it.

Asset allocation

The mix of investments chosen by a fund manager or investor. Investment funds typically have a certain mix of the main asset classes: cash, bonds, shares or property. A growth investor, for example, would have a mix that included more shares or property (these are called growth assets).

Asset classes

Kinds of investments, the main ones being shares, property, bonds, cash deposits.

Attributed tax

The tax an investor pays on their returns from an investment scheme. This is deducted from those returns.

Attributed tax credit

A rebate or refund of attributed tax that an investor may be eligible to receive. This is added to their returns.

B

Balance

The amount of money currently in your bank account, or investment. The balance is also the amount owing on a liability such as a credit card, eg. Limit $3000, balance is $1500 which is the amount owing.

Bank.

A bank is a financial institution licensed to receive deposits and make loans. Banks may also provide financial services such as wealth management, currency exchange, and safe deposit boxes. There are several different kinds of banks including retail banks, commercial or corporate banks, and investment banks.

Banks and Branch Number

The ‘bank number’ (also referred to as the inter change number) are the first two digits at the beginning of a bank account number, which tells us which bank the account resides with. The ‘branch number’ is the next four digits in the account number, which tells us which branch of that bank the account is held.

Bankruptcy

A legal action involving a person (or company) that is unable to pay their debts. This includes the process that follows to resolve this problem, which is sometimes called insolvency. Money held in your KiwiSaver account is not subject to the usual rules that apply upon bankruptcy.

Beneficiary

A beneficiary is the recipient of your insurance payout, in the event of your death. This could be your spouse or children, the trustee of your estate, the executor of your Will, or anyone named on your policy or in your Will.

Bonds

A kind of investment that is effectively a loan made to a government or a company which they (as borrower) promise to pay back in full on a specific date, paying regular interest at a fixed or agreed rate until then. For example, a city may sell bonds to raise money to build a bridge.

Break fee

A cost charged by a lender for the early repayment of a mortgage or Loan, such as when we leave a fixed term mortgage early to move to a lower interest rate.

C

Capital

The money you put into an investment

Capital gain/loss

The profit we make when we sell an investment for more than we paid for it. If we buy a house for $450,000 and sell it for $600,000, our capital gain is $150,000. The increase of $150,000 over time is called Capital Growth. A decrease is called Capital Loss. Capital Growth/Loss may be expressed as a %.

Cash advance

A cash advance is when we withdraw money from our credit card account, usually through an ATM. Cash advances are an expensive option because we get charged a higher interest rate, typically from the day we withdraw the money.

CCCFA

When you borrow money, the Credit Contracts and Consumer Finance Act (CCCFA) ensures you are able to make informed choices, know what you’re agreeing to, and can keep track of your debts. The CCCFA requires lenders to act responsibly at all times.

Certificate of Insurance

The certificate of insurance first issued to you or any further certificate issued as a result of a change to the policy or a renewal of the policy (whichever applies).

CFT

Combating the Financing of Terrorism (CFT) is a set of government laws, regulations, and other practices that are intended to restrict access to funding and financial services for those whom the government designates as terrorists.

Claim

Notifcation to an insurance company that payment or some benefit is required because a loss which is covered by the policy has occurred.

Claimant

A person who makes a claim. This would be you in the case of an insuance claim for your stolen or damaged property, or your beneficiaries in the event of your death (if claiming your life insurance).

Class Service / Class Advice

A service or advice targeted toward a wide class of people rather than an individual.

Clawback

A clawback is the money that a Lender may want to be repaid by an Adviser/Broker if the client moves the lending away from that Lender (bank) within the first 2 years. A Financial Adviser may charge a clawback fee to the client to cover the fee that the bank will claim from the Adviser.

Commission

The money paid to a broker, financial adviser or planner who sells products on behalf of a company (like insurance).Commission can be based on the number or the value of the products they sold, based on the funds invested, or on the amount of lending secured.

Commodity

An alternative kind of investment that is typically a raw material or agricultural product, such as copper or coffee

Compound interest

Interest paid on interest. We earn compound interest when we have savings and don’t spend the interest we earn on those savings. Over the long term, compound interest makes our money grow faster. Unfortunately it can also work against us when we carry debt, where the costs compound instead. The more we put off paying it back, the more we end up paying.

Comprehensive Policy

A policy which covers most risks relating to an insured item, with certain named exclusions. Often used in motor vehicle and liability insurance.

Conflicts of Interest

A conflict of interest can occur when an adviser’s interests are different from yours. (E.g. if an adviser is paid to sell an investment to people they could be tempted to sell you that product even if it is not suitable for you.)

Construction Loans

If you are building a home or renovating, a construction loan is a good option. These loans start as interest-only and allow you to make progress payments to your builder to a maximum limit. Once your build is complete your loan will be converted to a standard table loan (or another loan structure agreed to at the outset).

Contribution

Money put into a KiwiSaver fund or funds to invest. This can be from you, your employer or the government.

Cover

Credit

The amount of money a lender makes available for someone to borrow. It’s important to remember that your credit limit is not your own money – it’s only the amount that you can borrow (and will need to repay). Credit may be in the form of a loan, credit card limit, or a store account limit. The people you owe are the Creditors.

Currency

The money used in a particular country, such as New Zealand or Australian dollars

Custodian

A company separate from your KiwiSaver scheme provider that keeps hold of the assets of the provider’s KiwiSaver scheme. This function may sometimes be performed by the supervisor. Some other investments may also have a Custodian/Supervisor.

D

Debt

Debt is what we owe when we borrow – it comes in many forms, including mortgages, personal loans, creditcard balances, hire purchase agreements, loans from family. Debt usually costs us in interest and fees.

Declaration

A statement, signed by the customer (you), warranting that the information provided by the customer is in fact true. 

Default fund

See KiwiSaver default fund.

Derivatives

A type of alternative investment. These include financial contracts whose value depends on the future value of investments.

Direct debits

Direct debits are a way of paying someone a variable amount direct from our 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. They can also be used for personal savings.

Disclosure

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Diversification

Not putting all our eggs in one basket, or spreading our risk by choosing different individual investments within an asset class. So instead of us buying a single share worth $800, we can buy 80 shares worth $10 in different companies, industries and countries around the world. Most managed funds like KiwiSaver are diversified for you.

Dividend

A payment per share that a company makes to share holders from its profits. (E.g. if a company pays 5c per share as a dividend and you hold 1000 shares, you will be paid$50.)

Due Diligence

Due diligence is the phrase used for the activities involved in investigating and learning about the different aspects of the property. These activities can include formal reports, as well as some informal enquiries. Due diligence may include: getting a market valuation, checking the title of a property, getting council reports, getting a building inspection.

Duty of Disclosure

When an insurer underwrites or assesses you, they are trying to determine how big a risk you are to insure and to what amount if any your risk differs from other New Zealanders of a similar age, sex and lifestyle. Insurers determine this based on the information you provide – generally relating to your health and lifestyle. This can include whether or not you are a smoker, family medical history, dangerous sports or activities you take part in. Your obligation to let your insurer know the above information is known as your ‘duty of disclosure’.

E

EFTPOS

Electronic Funds Transfer at Point Of Sale!

Employer contributions

What our employer puts into our KiwiSaver account(if we’re an employee). In addition to contributions from our wages and the government, employers are required to put in at least 3% of employees’ pay (before tax).

Equities

See shares.

Equity

The amount of something we own, typically in a property or business. If we sold the asset and paid back any money we owed on it, our equity would be what’s left. For example, if we have a house worth $350,000 and a$300,000mortgage, our equity in the house is $50,000.

Estate

Everything we own at the time of our death. Our KiwiSaver accounts are also part of our estate.

Excess

The amount we agree to pay when we make an insurance claim. For example, if the excess on our car insurance is $250 and we have an accident that causes $750 damage, we pay $250 and the insurer will pay anything above that, in this case $500.

Exclusion

The risks or property defined in an insurance policy as NOT being covered. Some health and lifestyle situations aren’t covered by your policy because they’re deemed too risky, eg. if you are a professional sports person. You may struggle to find insurance that covers these situations, as they’re often excluded from coverage. If you speak to a Financial Adviser, they may be able to source an insurer that specialises in covering these more complex risks. This cover will however come at a higher premium.

F

Fees

The costs we pay for financial services, such as credit cards, mortgages or fund management. These can be fixed (a set amount per month or for setup) or a percentage(based on the amount of funds being managed or the returns).It’s important to factor these fees in when we’re gauging whether a decision is worth making.

Financial adviser

A qualified expert who can advise you on products like mortgages, insurance, and investments like KiwiSaver; or draw up a savings and investment plan for you to reach your goals in life, like saving and investing for a home deposit, or long-term goals like retirement.

Financial Institutions

Financial institutions include registered banks (i.e. banks that are registered with the Reserve Bank of New Zealand)and non-bank financial institutions (e.g. building societies, financial services cooperatives, credit unions, friendly societies, industrial and provident societies, and finance companies).

Financial Markets Authority (FMA)

The New Zealand conduct regulator: responsible for promoting the development of fair, efficient and transparent financial markets. The FMA regulates all KiwiSaver schemes. See fma.govt.nz.

Financial Service Provider (FSP)

Includes financial advice providers, providers of client money or property services, building societies, credit providers, credit unions, money changers, finance companies, foreign currency exchange dealers, fund managers, insurers, investment portfolio managers, issuers and registered banks.

Financial Service Provider Register (FSPR)

The FSPR is a searchable register of individuals, businesses and organisations that provide financial services in New Zealand.

First-home withdrawal

A withdrawal that a KiwiSaver member can make from their KiwiSaver account balance to put towards a first home. For more details on how this works and whether you are eligible, see kaingaora.govt.nz.

First Home grant

A grant from the government to help you buy or build your first home. You can apply for a First Home grant(or pre-approval) if you have been contributing regularly to KiwiSaver for three years or more. For details of the eligibility criteria and the subsidy amounts, seekaingaora.govt.nz. The First Home grant is on top of the KiwiSaver first-home withdrawal.

Fixed interest investments

Long-term, interest-earning assets, such as bank term deposits and bonds. These investments are generally lower risk, and offer a reliable return that can be used as income.

Fixed rate / Fixed Home Loan

Interest paid on a mortgage can be either a fixed rate or a floating rate, which means it either stays constant for a time or moves up and down variably. For a fixed rate loan, the interest rate is set at the date we take out our loan and remains the same throughout the agreed term, irrespective of whether bank interest rates rise or fall.

Floating rate / Floating Home Loan

Interest paid on a mortgage can be either a fixed rate or a floating rate, which means it either stays constant for a time or moves up and down variably. Floating is sometimes called Variable rate. For a floating rate loan, if interest rates fall, so does the amount we have to repay. Or we can choose to continue with the same level of repayment and reduce the term of our loan. However, if interest rates rise, then the opposite effect happens, and either we’ll need to increase our repayments or lengthen the term of our loan.

Fund

A pool of money from many individuals that a fund manager invests. Each KiwiSaver scheme has a number of investment funds within it to choose from. There are different types, such as conservative, balanced, or growth, each with a different mix of growth assets and income assets.

Fund manager

A person or organisation who looks after some or all of a KiwiSaver scheme’s investments on behalf of the KiwiSaver provider. Sometimes also called an investment manager.

Fund update

A quarterly (or, for a restricted KiwiSaver scheme, annual) update from your KiwiSaver scheme provider about how the funds have performed. The update is available on your provider’s website and on Sorted’s Smart Investor.

G

Government contribution

The government’s annual contribution to our KiwiSaver accounts, matching 50 cents for every dollar we put in, up to $521 each year. (Used to be called a “member tax credit” or MTC, but the term actually has nothing to do with tax.) This is available to KiwiSaver members aged18-65. To receive your $521, you need to put in $1,043over the course of a year (by mid-June).

Growth assets

Typically shares or property. These are called ‘growth’ assets because they have more potential to grow in value over the medium to long term than income assets (although they also involve more risk and will have greater ups and downs in value).

H

Home Start grant

The old name for the First Home Grant

HP

Hire purchase is an agreement to borrow to buy a product on credit, and we can take it home and use it while we’re paying it off. With HP we usually pay a deposit followed by monthly payments (including the interest and fees charged) over a set period. HP can also be called a credit sale or a credit contract.

I

Income assets

Typically cash or bonds. Sometimes called ‘defensive assets’, these kinds of investments are called ‘income assets’ because they receive a regular amount of interest. Income assets generally have fewer ups and downs in value than growth assets and involve less risk, but in general will have lower returns over the long term.

Index fund

A kind of fund that aims to hold investments that mirror a given index using passive management

Inflation

Inflation is the rate at which the prices of goods and services increase over time. This reduces our money’s purchasing power. For example, if we buy something worth $1,000 now, and inflation were at 2%, in one year’s time we would need $1,020 to buy that same thing. This makes it important to invest in a way that at the least out paces inflation, so that we are not rolling backwards but rather truly getting ahead.

Inflation-adjusted

Increasing an amount of money each year by the same amount as inflation. For example, if we saved $1,000 last year, and the rate of inflation for the 12 months was 2%, we should increase this year’s savings by 2% in order to maintain the value of our savings. So $1,000 inflation adjusted becomes $1,020.

Insurance

An arrangement by which a company undertakes to provide a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a specified premium.

Insurance Contract

A formal contract between the insured (you) and the Insurer agreeing to the level of cover which is to be provided and the terms and conditions of that cover. It is generally made up of 3 separate documents – the Policy Wording, the Policy Schedule/Notice and the Proposal, Application or Declaration.

Insurance Policy

A written contract of your insurance cover – outlining what you are covered for and how much you pay.

Interest

Interest is the money we pay to use other people’s money. If we are using the bank’s money (by taking a loan), we pay them interest. If the bank is using our money(such as in a savings account) they pay us interest.

Interest-Only Loans

As the name suggests, this is when repayments cover just the interest calculated on the loan. You are not repaying any of the principal, therefore you are not reducing the loan at all. Many use this interest-only option for a short period when they need additional cashflow and then switch to a table loan.

Interest rates

The amount of interest we pay on a loan or are paid for an investment, usually expressed as a percentage. Seemingly small changes in these rates can make huge differences over time.

Investor profile

They type of investor we are, based on our capacity to invest, attitude toward risk and time horizon(duration). Our investor type will determine what mix of investments we choose, since different kinds of investments work indifferent ways and are suited for different purposes.

J

K

KiwiSaver account

The personal account (or accounts) managed for you by your KiwiSaver provider and holding the full balance that you have in KiwiSaver

KiwiSaver Act

The KiwiSaver Act 2006, which sets out many of the rules applying to a KiwiSaver scheme

KiwiSaver default fund

A handful of lower-cost funds picked by the government, for KiwiSaver members who have not yet chosen the fund that suits them best. When someone is opted into KiwiSaver, such as when they start a first job, they are automatically funnelled into one of these default funds until they actively choose the fund they want to be in.

KiwiSaver fund

An investment fund within a KiwiSaver scheme. See fund.

KiwiSaver provider

The organisation responsible for managing a KiwiSaver scheme. A provider has obligations under the KiwiSaver Act and the Financial Markets Conduct Act 2013 and must be licensed by the Financial Markets Authority (except in the case of a restricted KiwiSaver scheme).

KiwiSaver scheme

A primarily work-based scheme governed by the KiwiSaver Act that takes in contributions and invests them for your retirement. A KiwiSaver scheme is run by a KiwiSaver provider and typically has a number of funds into which members can invest.

L

Lapsed Policy

A policy terminated because of non-payment of premiums, or that has expired at the end of the period of cover without renewal.

Liability

Something that drains money from our pockets; the opposite of an asset. Most things we buy each day are liabilities, but the goal of investing is to buy assets instead. For example, a holiday is a liability (even if it’s a good one) and a bond is an asset (as long as it returns something to us). Liability can also refer to a debtor a promise to pay money for something in the future.

Liability Protection

Insurance which provides protection for the Insured from damage arising out of the Insured’s negligence to a third party’s property. This could include if you damage someone else’s car. 

Liquidity

When we invest, we buy assets to gain returns. Liquidity refers to how easily we can turn our investments back into cash afterwards. Shares are more ‘liquid’ because they can be sold on a market quickly; property is less so because it can take some time to sell a house.

Loan

Money we borrow to use over a set period of time. To do this, we typically pay a setup fee and a certain rate of interest as we pay back the borrowed amount over time. The terms Mortgage and Loan can both be used when referring to the money you have borrowed to purchase a house.

Locked in

Being unable to remove our money from an invest mentor 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 our retirement. For example, if we make a six-month fixed-interest investment at the bank, our money is locked in for six months.

Lump sum

A large, one-time payment of money to pay off a debtor invest in a fund. Typically these will save us significant amounts of interest for debt or help us leap forward with investing.

LVR (Loan to value ratio)

Your LVR is calculated by dividing the loan amount by the value of the property. The lower the LVR the better, as it usually means you have more equity in your home. Your LVR is considered high if the loan makes up more than 80%of the property’s value. In this situation there is a risk you could stretching financial resources and you are more vulnerable to financial changes such as a recession or interest rate rise.

M

Managed funds

Pools of investors’ money that are invested by specialist fund managers. KiwiSaver is a common example. With a managed fund, we’re able to spread our investments much more widely than we could typically do by ourselves, with less money needed to get started.

Market Value

The value of an asset (such as your home) based on current market valuation, eg. the amount for which the item could be sold for on an open market. Often a bank will ask for a Market Valuation of a property if looking to lend to you.

Member contribution

The amount you put in to your KiwiSaver account

Mortgage

A kind of debt (often called a home loan) typically used to buy a house. Borrowers pay off a mortgage over decades, but often don’t realise that slightly larger payment scan save tens of thousands in interest.

N

Net worth

Our overall financial position, and a good way to measure if we’re getting ahead or not. Net worth is the difference between what we own and what we owe, or the value of our assets minus our debts. It helps to focus on whether our net worth is trending upwards and what we can do to keep it doing so.

No Claims Bonus

A discount or reduction in insurance premium allowed if no claims are made by an Insured (that’s you!) in one or more consecutive preceeding years. 

Non-Bank Lenders

The main banks provide day to day banking such as transactional accounts and savings accounts, and credit in the form of credit cards and loans. A Non-Bank generally provides access to loans but not day to day banking services. The key difference: The main banks get their money from the Reserve Bank of New Zealand (RBNZ), and depositors. Non-banks self fund and get money from depositors, they do not get “cheap” money from the government.

Non-Disclosure

A failure to disclose a fact which is important to the acceptance of a contract by an Insurer or Lender. For example, not disclosing to an Insurer that you are a smoker. 

NZ Super

New Zealand Superannuation is the pension that the government currently pays to all eligible New Zealandersaged65 or over. To be eligible for NZ Super we need to be a legal resident of New Zealand, having lived here for at least10 years since turning 20. Five of those years have to be since age 50.

O

OCR

Official Cash Rate – the interest rate set by the Reserve Bank to influence the price of borrowing money in New Zealand. It is also a tool that influences the amount of economic activity and inflation. Changes in the OCR can affect how much interest we pay on our mortgage and how much we earn on our savings.

Offset Loans

If you choose an offset loan set up, the Lender takes into account any savings or funds you may have in other accounts and deducts this from the loan total before calculating your interest. For example, if you have a $500,000home loan and $25,000 in your savings account you would only pay interest on $475,000. The interest is calculated daily, so the more money you have in your accounts the less interest you pay. Interest is calculated at the floating(or variable) rate.

P

Passive fund

Passive funds are more ‘hands off’ than active funds– they simply follow and track the performance of a given market, avoiding the costs of their fund managers choosing investments and trading often. This generally makes them cheaper than active funds.

Passive fund manager

A money manager whose style is more ‘hands off’ than an active manager, essentially having set asset all ocations for each fund. They generally set up their funds to follow the performance of a given market (an index).As a result they can keep their costs of running a fund down.

Pension

An income paid at regular intervals to a retired person, by a government or a superannuation scheme. Refer to WINZ.

Per annum

Yearly, or each year

Permitted withdrawal

The ability to withdraw your money under certain conditions, as permitted by the KiwiSaver scheme rules(summarised in each KiwiSaver scheme’s product disclosure statement)

PIE

A Portfolio Investment Entity is a type of savings or investment fund that has special tax advantages. KiwiSaver funds are examples. When we save through or invest in a PIE, we pay either 0%, 10.5%, 17.5% or 28% taxon our share of the returns, depending on our income.

PIR

Prescribed Investor Rate – the tax rate for our investment earnings from a PIE such as KiwiSaver. It’s important to let your KiwiSaver provider know yours. If you do not check that your PIR is correct, you will be taxed at the highest rate (currently 28%). This money cannot be refunded to you, so it’s important you check. For more information, seeird.govt.nz/toii/pir/.

Policy

The written contract between you and your insurer, setting out the terms and conditions of the insurance contract.

Premium

The regular amount we pay for insurance. This may be paid weekly, monthy, quarterly, yearly – by paying more frequently you can sometimes make savings.

Principal

The amount we borrow when we take out a loan or mortgage. Our repayment amounts are typically made up of principal plus interest.

Product disclosure statement (PDS)

A key document that describes how a KiwiSaver scheme works, including information about the provider. The PDS also gives you an understanding of the funds, their risks and returns, and the fees.

Property

A kind of investment. Property refers to commercial property (not the family home) owned through property trusts or companies who own or develop property as their business. Property can be listed on an exchange or be unlisted.

Provider

A company such as a bank, finance or insurance company that creates and provides insurance, mortgage, banking, savings or investment products. KiwiSaver providers, who are fund managers, are an example.

Q

R

Rate of return

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 is5% of $300,000).

Real return

The money we get back from an investment, including the effects of inflation. If our investment achieved a nominal return of 5% and inflation was 2%, our real rate of return is 3%. This is good to keep in mind when looking at term deposit rates, for example.

Recession

While there is no official definition, technically a Recession is 2 negative economic growth periods in a row.  A growth period is measured in quarters (3 months).

Redraw Facility

A redraw facility can help you out if you need extra cash. It enables you to access funds from what you have already paid into your home loan. The amount you can redraw is limited to the amount of principal you have paid on the loan.

Redundancy

Losing your job because your employer determines your position is no longer needed. Note that an employer can’t make you redundant because of your performance, pregnancy or illness.

Refinance

Working with a lender to change the terms of our loan or replace our loan. This often involves switching lenders to get a better deal.

Refix

At the end of a fixed rate period for a loan, you have the choice to refix at whatever interest rate the Lender offers. This can be negotiated with your Financial Adviser. If you do not refix your loan it will automatically go on to the Floating Rate. You can then choose to refix it at any time.

Registered Bank

A financial institution that is registered as a bank with the Reserve Bank of New Zealand. The list of banks currently registered can be seen at www.rbnz.govt.nz

Repayment Holiday

Many Lenders can offer borrowers a break from their repayments. During this repayment holiday you won’t have to make any home loan repayments. However, you will still be accruing interest which will have to be paid at some stage. This means you will need to increase loan repayments down the track or pay a lump sum on return from the holiday.

Responsible Lending

All lenders have to comply with the “lender responsibility principles” set out in the Credit Contracts and Consumer Finance Act (CCCFA). Some of these include considering your borrowing needs and ability to repay, helping you reach informed decisions, meeting all legal obligations, and reasonable and ethical treatment.

Return

What we ‘get back’ when we invest. This is the money you make by investing; that is, the money that comes back to you. Returns typically come from your investment becoming worth more so that someone else is willing to pay more for it, or from the income it spins off, such as rent from property, dividends from shares, or interest from bonds and cash. Or both! Returns can be both positive and negative, and there is always a balancing act between risk and return. The higher returns we chase, the more risk we have to shoulder.

Revolving Credit Loans / RCF (revolving Credit Facility)

Having a revolving credit loan is like having a really large overdraft. You have the one account that your pay goes into and your bills and loan repayments are deducted from this same account. The interest you pay is calculated daily based on the balance of your account. So the more money you have in the account the less interest you pay. You can make lump-sum repayments and redraw money up to the loan amount limit.

Risk

A hazard, exposure or chance of loss. In KiwiSaver, funds are typically grouped by risk levels with the amount of growth assets each holds determining the level. Growth assets tend to bring more risk, so funds with more growth assets have a higher risk level. Risks and returns go hand in hand in investing. Taking on more risk should mean the potential for higher returns over time (after all, that return should be what you’re paid for taking on more risk), but also potentially larger losses if the market suddenly changes. Less risk typically leads to lower returns but less volatility. More risk leads to potentially higher returns but more volatility. Chasing higher returns always brings higher levels of risk with it. Risk can also be measured by how your investment or savings keep up with inflation. That is the dollar you have today is able to buy the same goods in the future.

Risk indicator

A graphic to help you see at a glance how much the value of a fund’s investments is likely to go up and down. Fund updates and product disclosure statements include risk indicators, and they can be seen on Smart Investor for each fund.

Risk profile

Your risk profile is the level of risk you are prepared to have in relation to your investments. Knowing your risk profile helps you choose investments that are right for you. Assess your profile at www.sorted.org.nz.See also ‘investor profile’.

S

Salary or wages

Money you earn as an employee. Salary and wages include any money you receive as a bonus, commission, tips or overtime. They can also include ACC and parental leave payments, but not accommodation benefits or redundancy payments. Your contribution to KiwiSaver is a percentage of those earnings.

Savings Account

An account with a bank or other deposit-taking financial institution in which you are paid interest in return for depositing your money. These accounts are debt securities as you have lent your money to the bank or other financial institution, and have the right to be paid back.

Savings suspension

Temporarily stopping your contributions to KiwiSaver. You can suspend for as little as three months or as long as five years, provided you have been contributing for at least 12 months – or less if you are experiencing hardship. Suspending your savings, however, means that employer contributions and government contributions to your KiwiSaver account will also stop and you will miss out on that money going into your fund.

Scheme

A fund or group of funds managed by a provider, such as a KiwiSaver scheme

Secured loan

A loan that is secured against some or all of a borrower’s assets, reducing the lender’s risk. If the borrower fails to make repayments, the lender may get some or all of those assets in order to cover the outstanding loan amount.

Securities

A real or virtual document that proves ownership of shares, bonds and other investments. This term is sometimes used interchangeably with ‘investments’ and the shares and bonds themselves.

Shares

A kind of investment that gives part ownership in a company and can bring returns from profits shared by the company (dividends) or from selling the shares for more than you paid. Shares are growth assets and are also known as equities or stock.

SIPO

Statement of investment policies and objectives. The document that details a KiwiSaver provider’s investment strategy and goals for the scheme and each fund in the scheme, and how scheme investments are required to be managed. Every scheme must have one, and you can get it from your KiwiSaver scheme provider’s website and Sorted’s Smart Investor.

Sum Insured

The maximum amount covered under a contract of insurance, eg. a house insured for the sum of $400,000.

Superannuation scheme

A type of retirement savings scheme. Typically money is invested into a managed fund, aimed at providing a lumpsum or income for the years after you stop working.

Supervisor

A licensed entity independent of your KiwiSaver provider that supervises the provider’s management of the scheme. KiwiSaver schemes are trusts, and (except in the case of a restricted KiwiSaver scheme) the terms of the trust deed state that the supervisor (or another custodian)must hold all contributions and investments in trust for the investors. This means your funds are effectively ring-fenced in the event that the provider’s business fails.

T

Table mortgage/loan

A loan that is paid back by making regular payments of fixed amounts. Each payment pays back part of both the interest and the principal.

Target asset allocation

The target mix of asset classes that a fund manager aims to hold in a given fund – e.g. the target percentages of shares and bonds. This is different from a fund’s actual asset allocation, which is the mix of asset classes that a fund has at any moment. The actual allocation can vary from the target.

Tax

Tax is money that people have to pay to the government. This can be in the form of Income tax, tax on business profits, or a tax added to the cost of some goods, services, and transactions (such as 15% GST here in NZ). Income taxes are based on the amount of money you earn, or your income. For tax in KiwiSaver, see attributed tax.

It’s important that we pay tax as taxes are used to pay government employees, provide services such as education and health care, and to maintain or build things like roads, bridges, and sewers.

Term 

A fixed or limited period for which something, for example an insurance policy, mortgage, or investment, lasts or is intended to last.

Term deposit

Money deposited for a fixed term – usually between30 days and 5 years. If we want our money back before the term is up, we may have to forego a portion of our interest as a penalty. We are paid an agreed rate of interest and our money is repaid at the end of the term.

Third Party

Any person other than the person insured who has suffered or caused an injury or loss (the Insured and the Insurer are the first and second parties to the insurance contract). For example, the guy who backed his Ute into your car at the supermarket carpark.

Time horizon

In investing, the period of time before we need our money back. This is particularly important when we’re choosing a mix of investments, to make sure the money will be there when we need it. Typical time horizons (also called‘ duration’) are 0–3 years (short term), 4–9 years(medium term), and 10 years or more (long term).

Total Loss

A loss where the cost of repair exceeds the market value of the insured item, or where it is uneconomical to repair the item. The Insurer will generally pay out sum that the item is insured for.

TPD (Total Permanent Disability)

An insurance term used to describe a disability which is total and permanent and persists continuously for a period of at least six months, and which wholly prevents the Insured (you!) from ever performing their occupation or other occupation for which they are reasonably fitted by reason of training, education or experience. You can apply for TPD cover alongside life and health insurance.

Trauma

Trauma is the insurance term for a severe medical event, (eg. cancer, stroke, heart attack or paraplegia). You can insure against these types of events. What you can get insured for differs from policy to policy, however all policies tend to cover the main events. Trauma insurance is a highly specialised area as they use complex medical terminology so you should speak to a Financial Adviser to be sure that the chosen plan is fit for purpose.

Treasury bill

A kind of bond issued by a government, usually short-term borrowing (such as 90 days)

Trust deed

The governing document that sets out how your provider’s KiwiSaver scheme operates and what the provider can and can’t do with your money. It covers the rights and responsibilities of members, the supervisor and the provider.

Trustee

A person appointed to look after investors’ interests for certain securities e.g. those offered by credit unions, building societies and finance companies, and for unit trusts. For KiwiSaver, see supervisor.

U

Underwrite

The process an Insurer goes through in evaluating and accepting or rejecting an application for cover. 

Unit

The measure of your ownership in the investments that your fund holds. You buy units by contributing to a given fund; you cancel the purchase when you withdraw money from that fund. The administrator of each KiwiSaver scheme keeps track of individual members’ units.

Unit price

The price of buying or selling a unit in an investment fund. The unit price moves up and down reflecting the value of the investments in the fund. Your balance is calculated by multiplying the number of units you have by the unit price on the day.

Unsecured loan

A loan which is not secured against any of the borrower’s assets. These are more risky for a lender than a secured loan. To compensate for this, the lender charges a higher interest rate.

V

Variable Loan

See Floating Home Loan definition.

Volatility

The ups and downs in value that an asset can have. Often mistakenly used interchangeably with ‘risk’. Although the two are related, they are not the same. We might invest in a growth fund that has a lot of ups and downs(high volatility), but because we have a long time before we need our money (a long time horizon), there actually may belittle chance (risk) of us not reaching our goals by investing.

W

Wages

Payment based on the time you work, usually payment per hour.

Will

A document that outlines what you want to happen with your estate in the event of your death.

X

Y

Z