KEY POINTS:
A - Asset: An asset is anything such as a house, share or bank balance which has a monetary value. Financial professionals talk about three asset classes, cash including fixed investments, shares, and property.
B - Bond: This has two completely different meanings in finance. Bonds are an investment that pays a fixed rate of interest and is sold by a company or government. They are sometimes called debt securities in New Zealand. Or, if you're a property investor, a bond is a deposit of money paid by a tenant to ensure a landlord is paid if the tenant defaults on rent payments or damages the property.
C - Capital gain. The increase in value of an asset whose price is going up.
D - Diversification: The spreading of your investments in different classes such as property, equity and cash to avoid losing everything in one market crash. It's the opposite of keeping all your eggs in one basket.
E - Equity: The net value of a property, share or other investment, calculated by subtracting all debts such as mortgage interest from the value of the investment.
F - Fixed Rate Mortgage: A mortgage with which the interest rate stays the same during the term of the loan. This is the opposite of a floating rate mortgage where the interest rate can change daily.
G - Guarantor: A person who commits to guarantee the debts of another in case
that person goes into default.
H - Home Equity Loan: A mortgage that permits older people who own their home to borrow against it to release capital, but not pay back the interest until they die or in some cases move home.
I - Inflation: The general increase in the price of goods and services over time. In New Zealand, it's measured by changes in the consumer price index (CPI) and usually expressed as an annual percentage.
J - Junk bonds: An investment such as a finance company debenture which is
rated BB or lower by international ratings agencies such as Standard & Poors. AAA is the best rating.
K - Krugerrand: A coin minted in South Africa containing one ounce of pure
gold. People buy them to invest in gold - selling when the price goes up.
L - Leverage: Borrowing funds to make an investment.
M - Managed Fund: Is an investment that pools money from many people
and invests that in a number of assets. It helps spread an investor's risk because instead of putting $1000 in one share, it may be spread across 20.
N - Negative Gearing: Where the income of an investment is less than
the costs. This is the opposite of Positive Gearing.
O - Off the Plan: Means entering into a contract to buy a property before it's been built.
P - Portfolio Investing: This is a method of investing that involves diversifying
your investments across various asset classes such as shares, property, or bonds,
to minimise investment risk.
Q - Quality: A measure of excellence. Quality property and shares can be
expected to weather the ups and downs of investment markets.
R - Risk: The likelihood of loss on any investment or that the actual return
will be different from what is expected.
S - Supply and demand: Supply is how much of something such as four bedroom houses in Matamata is available and demand is how much people want it. The interaction between buyers and sellers that results in a price agreeable to both is known as supply and demand.
T - Trust: A legal arrangement where the title of property and other assets are
given to party to hold for the benefit of a third party, the beneficiary. A family trust is a trust set up to benefit members of your family.
U - Underwriter: A professional who determines the risk associated with an
insurance or loan risk and sets the premium or interest rate accordingly.
V - Valuation: an estimate of the value of a property prepared by a registered
valuer. The term can also mean the process of determining the value of an asset.
W - Withdrawal: A removal of funds from an account or certain types of
investments such as managed funds.
X - Exit plan: An investor's method of ultimately selling an investment
should it no longer be needed or go awry.
Y - Yield: The annual rate of return on an investment expressed as a percentage
of the value of the asset.
Z - Zoning: Local council guidelines for the allowable use of land and/or buildings within the defined area.
