This is your finance dictionary, a place to go for help in understanding the jargon of the finance world.

ANNUITY. This is a type of investment where you pay a lump sum at the start and receive regular payments for the rest of your life. Some annuities continue to be paid for a minimum period, normally 10 years. Usually the annuity payment is for a constant amount but it is possible to get one that is inflation adjusted � this will cost more to purchase. ASSET. An asset is an item that has a value that can be measured in money. It is normally an item that can be converted into cash e.g. bank deposits, shares or property.

BABY BOOMERS.
This is the generation of people born after WWII between 1946 and 1965.

CAPITAL. The amount of money you use to purchase an asset, or have available for the purchase. CAPITAL GAIN. Capital gain is the profit you make when you sell an investment for more than you paid for it. It is the difference between what you paid to gain the investment and the price you sold it for. A capital loss is when you sell an investment for less than you paid for it. Refer to nominal return, to find out about the difference between real and nominal gains. CAPITAL GROWTH. When the value of your investment grows this is known as capital growth. If you bought $10,000 worth of shares last year that are worth $11,000 this year, your capital growth is $1,000, or 10%. COMPOUND INTEREST. Interest paid on interest. You earn compound interest if you reinvest the money you earn from interest. Over the long term, compound interest makes your money grow much faster than the straight interest rate. When you earn interest on interest, even on modest sums, your investment grows at amazing rates�. in fact some people have called it the 8th wonder of the world!?
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DEBT. Debt is what you owe -- this could be the amount owed on a mortgage, personal loan, credit card, hire purchase agreements or loans from family.

DEMOGRAPHICS. This is to do with the structure and changes of the population. It includes such things as race, age, income and employment status. The term is used mainly in economics and marketing research.

DIVERSIFICATION. Diversification simply means not putting "all your eggs in one basket". Investing in a range of securities across a range of investment classes reduces the risk of investing. This principle is based on the fact that investment markets do not all move in the same direction at the same time. They move in cycles and will behave in different ways under different economic circumstances and climates. Diversification reduces your risk, and improves the consistency of your returns. The major asset classes of investment are cash, fixed interest, property and shares. Each class has a domestic and an international element and by spreading investments across the classes both domestically and internationally provides diversification across the different asset class cycles. Read articles on diversification

EARNINGS, RETURN OR INTEREST.
This is the money you receive as payment for the use of your money.

ETHICAL INVESTING.
Ethical investing covers concepts of right, wrong, good, evil and responsibility. (See SRI)

EQUITY.
The amount you would get if you sold an asset after paying back any money you owed on it.

FISCAL.
To do with government finances.

FIXED INTEREST INVESTMENTS.
Long-term interest-earning investments, such as bank term deposits and government stock. These investments tend to be low-risk offering a reliable return rather than growth of capital.

GDP.
Gross Domestic Product or GDP is the amount earned by all of the economic activity in a country. It includes income earned by residents of a country and foreign firms operating within

GEARING.
Borrowing money to invest is called gearing. It has the potential to magnify returns as well as magnifying losses. (See negative and positive gearing)

GOVERNMENT STOCK.
This is an IOU from the Government when the public and companies lend the Government money. In return a fixed rate of interest is paid for a certain period of time and then the money repaid. The document acknowledging the amount the Government owes is called Government Stock.

IMPUTATION CREDITS.
In New Zealand Unit Trusts are taxed at the company rate of 33%. Because the fund has already paid tax, distribution imputation (or tax) credits are issued. This is to ensure that you only pay tax once. Distributions are either fully, partially or not imputed. Each fund manager advises you of the available imputation credits in the end of year tax statement.

You pay tax on your distribution income then claim a credit back based on the imputation credit attached to your distribution payment. If you are on a lower tax rate you will receive a credit. You need other income to offset your imputation credits � the Inland Revenue won't refund a cash sum.

INTEREST.
Money paid in return for the use of money is known as interest whether you are receiving interest for savings or paying interest for a loan.

JOINT LIABILITY. If two or more parties have joint liability, then each is liable up to the full amount of the relevant obligation. If a husband and wife take out a loan they will normally be "jointly liable" for the full amount. If one party dies, disappears or is declared bankrupt, the other remains fully liable. The lender can sue one, or other, or both, for the full amount. But in suing, the creditor can only sue for the debt once. Therefore, if the bank could not recover the full amount,they are then unable to recover the remaining amount from the partner who is left out in the lawsuit. JOINT AND SEVERAL LIABILITY Joint and several liability is a hybrid of joint liablity and of several liability. To the claimant, the parties are jointly liable, but between the parties themselves, the liabilities are several. This means that if the claimant pursues one party, and receives payment in full, that party can then go after the other for a contribution to their share of the liability.

LIABILITY.
This is the amount you owe - a debt or a promise to pay money for something in the future.

MANAGED FUNDS.
Both Unit Trusts and Superannuation Funds are types of managed funds. Your money is pooled with that of other investors and used to purchase shares, property, fixed interest or a mix of investments. This is a great way to diversify for smaller investors.

MUTUAL FUNDS.
The American term for managed funds.

NEGATIVE GEARING.
This is where the return is made up of mainly capital growth with income being insufficient to cover the cost of borrowing. Capital gain will need to be greater than the losses incurred. (Refer to gearing.)

NOMINAL RETURN.
The money made on an investment without taking into account inflation. The real return on an investment is where allowance is made for inflation. E.g. If you have earned a nominal return of 10% on your investment and inflation is 3% then your real rate of return is 10% less 3% giving you a return of 7%.

PORTFOLIO.
This is a collection of assets such as shares, property, fixed interest.

PORTFOLIO RETURN.
The weighted average of individual returns of assets in a portfolio.

POSITIVE GEARING.
This refers to the increase in return on equity achieved by borrowing more of the purchase price of an investment. (Refer to gearing and equity.)

RISK.
An investment is normally considered risky if there is a reasonable chance that its value will vary significantly in the future. Take, for example, an investment in shares and compare it to an investment in a bank term deposit. You know what you should get at the end of your term deposit but the shares may fall below the price you paid for them or significantly increase. The shares obviously have a higher risk. Investments with higher risk should only be taken on for long-term goals, as you would expect a high long-term return to compensate for high risk.

SEVERAL LIABILITY.
Several liability is the converse to joint liablility and is where the parties are liable for only their respective obligations.

SHARES, EQUITIES.
Shares and equities are the same thing - a share in the ownership of a company with entitlement to any distributions (e.g. dividends).

SECURITIES.
A piece of paper proving ownership of stocks, bonds and other investments.

SOCIALLY RESPONSIBLE INVESTING.
Socially responsible investing (SRI) is an investment strategy combining the intention to maximise financial returns and social good. Generally investors will favour environmentally responsible companies with good workplace ethics. Investors do not support industries such as tobacco and gambling.(See Ethical Investing)
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SUPERANNUATION FUNDS.
See managed funds. Superannuation funds are designed specifically to save for retirement and are registered as a Superannuation Scheme. Taxation is set at 33% with no imputation credits available. Income earned on the fund does not have to be declared for tax purposes. Many funds have a locked in period, often until age 60.

UNIT TRUSTS.
See managed funds. These funds are normally accessible at any time. They are taxed at 33% with imputation credits being available.

WEIGHTED AVERAGE.
The average assigned to weighting of items of different size. E.g. If you have two debts and the first is twice the size of the second, then the first debt will be given a weighting twice that of the second.

YIELD.
The profit or return earned on your investment.