Investment Glossary

The process of dividing your investment portfolio among different asset categories, such as stocks, bonds, and cash. The goal is to balance risk and reward based on your goals, risk tolerance, and investment timeline.

Interest calculated on both the initial principal and the accumulated interest from previous periods. Often called "interest on interest," it's the key to long-term wealth building.

Spreading investments across various financial instruments, industries, and other categories to reduce risk. The idea is that a portfolio of different investments will yield higher returns with lower risk than any individual investment.

An investment strategy where you invest a fixed amount regularly, regardless of market conditions. This approach can reduce the impact of market volatility and eliminates the need to time the market.

A type of investment fund that trades on stock exchanges like individual stocks. ETFs typically track an index, commodity, bonds, or a basket of assets, offering diversification at a low cost.

The annual fee charged by a fund (mutual fund or ETF) expressed as a percentage of your investment. Lower expense ratios mean more of your money stays invested and compounds over time.

New Zealand tax rules that apply when you invest more than $50,000 in overseas shares. Under FIF rules, you're taxed on 5% of the value of your investments each year, regardless of actual returns.

A type of mutual fund or ETF designed to track the performance of a specific market index (like the S&P 500 or NZX 50). These funds offer broad market exposure with low fees.

New Zealand's voluntary retirement savings scheme. You contribute a minimum of 3% of your gross salary, your employer contributes 3%, and the government adds $260.72 annually (if you contribute at least $1,042.86).

The total value of a company's shares. Calculated by multiplying the share price by the number of shares outstanding. Companies are often categorized as large-cap, mid-cap, or small-cap.

A valuation metric calculated by dividing a company's share price by its earnings per share. It shows how much investors are willing to pay for each dollar of earnings.

A New Zealand tax structure for managed funds. PIE funds are taxed at your Prescribed Investor Rate (PIR), which caps at 28%, potentially lower than your marginal tax rate.

Your personal tax rate for PIE fund investments in New Zealand. Based on your income, it can be 10.5%, 17.5%, or 28%. It's important to notify your fund provider of the correct rate.

Your complete collection of investments, including stocks, bonds, funds, and other assets. A well-balanced portfolio aligns with your financial goals and risk tolerance.

The process of adjusting your portfolio back to your target asset allocation. As different investments grow at different rates, rebalancing ensures your risk level stays consistent with your goals.

Your ability and willingness to handle fluctuations in the value of your investments. Factors include your age, financial situation, investment timeline, and emotional comfort with volatility.

The degree of variation in an investment's price over time. Higher volatility means the price moves up and down more dramatically. Generally, higher potential returns come with higher volatility.