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The process of growing your investments over time, by contributing savings and earning returns. Contrast this with decumulation, where you draw down over time what you have accumulated.
Active funds have 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 – they simply follow a market’s performance without the fund managers choosing investments and trading often. This generally makes them cheaper, so the costs eat less into the results.
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.
The mix of investments that a fund holds at a certain time. This ‘actual’ mix can vary from a fund’s ‘target’ investment mix, although fund managers typically aim to track their targets closely. See target asset allocation.
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.
Kinds of investment other than the main asset classes of cash, bonds, property and shares. Examples of alternatives can be derivatives, currency, venture capital or private equity.
A report sent or notified to you by your KiwiSaver scheme provider setting out information about the scheme. It includes the number of members and whether there have been any material changes to the scheme during the year.
Automatic payments are a way of paying someone a set amount direct from our 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. They are also perfect for paying ourselves first and saving towards our goals.
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.
The mix of investments chosen by a fund manager or investor. KiwiSaver 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).
Kinds of investments, the main ones being shares, property, bonds, cash deposits
The tax a KiwiSaver member pays on his or her returns from a KiwiSaver scheme. This is deducted from those returns.
A rebate or refund of attributed tax that a KiwiSaver member may be eligible to receive. This is added to his or her returns.
The only type of Australian superannuation scheme from which money can be transferred into KiwiSaver. See superfundlookup.gov.au for a list.
The amount of money currently in your KiwiSaver account
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.
Benchmarks are used to assess the performance of a fund, particularly to gauge how much of the performance is from the manager's ability versus the overall performance of the relevant market. For example, the performance of a NZ equities fund can be judged in how it compares to the NZX50 index. Sorted typically uses the benchmark of the average for a type of fund (e.g. comparing a balanced fund with the average of all balanced funds).
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.
A cost charged by a lender for the early repayment of a mortgage, such as when we leave a fixed term mortgage early to move to a lower interest rate
The money you put into an investment
The profit we make when we sell an investment for more than we paid for it. If we buy a house for $300,000 and sell it for $320,000, our capital gain is $20,000. A capital loss is when we sell an investment for less than we paid for it.
How much your investments have grown in value. For example, if you invest $100,000 (your capital) into shares and after a year they’re worth $110,000, your capital growth is $10,000, or 10% more.
How much your investments have reduced in value. For example, if you invest $100,000 (your capital) into shares and after a year they’re worth $90,000, your capital loss is $10,000, or 10% less.
One of the main kinds of investment that pays interest. Cash includes term deposits, floating rate notes and money market accounts.
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.
The money we pay 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 sell.
An alternative kind of investment that is typically a raw material or agricultural product, such as copper or coffee
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.
Money put into a KiwiSaver fund or funds to invest. This can be from you, your employer or the government.
See savings suspension.
The amount of protection our insurance gives us
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).
The government
See government contribution.
The money used in a particular country, such as New Zealand or Australian dollars
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.
See direct debit.
Debt is what we owe when we borrow - it comes in many forms, including mortgages, personal loans, credit card balances, hire purchase agreements, loans from family. Debt usually costs us in interest and fees.
Gradually drawing down on the pile of money built up in your KiwiSaver account. In KiwiSaver, you usually accumulate during your working years and decumulate in the years after stopping paid work.
See KiwiSaver default fund.
A retirement scheme like KiwiSaver, where what you receive is based on how much was put in and returns resulting from the investment of that money – after fees and taxes are deducted.
A type of alternative investment. These include financial contracts whose value depends on the future value of investments.
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.
An independent company that can help you resolve a dispute with your financial services provider – at no cost to you. You can find your KiwiSaver provider’s dispute resolution scheme in their product disclosure statement.
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.
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).
See shares.
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 $300,000 mortgage, our equity in the house is $50,000.
Everything we own at the time of our death. Our KiwiSaver accounts are also part of our estate.
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.
A marketplace such as the NZX, where investments such as shares and bonds are traded
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.
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.
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 mentors (used to be known as budget advisers) provide a one-on-one, free service focusing on empowering people to get control of their money.
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.
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.
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.
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 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.
The rate at which one currency, such as the New Zealand dollar, converts into the currency of another country
Moving money from an overseas pension or superannuation scheme into KiwiSaver. Not all countries will permit transfers into KiwiSaver.
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.
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.
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.
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 aged 18-65. To receive your $521, you need to put in $1,043 over the course of a year (by mid-June).
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).
A way that fund managers protect investors against the risk of prices suddenly dropping. When they are hedging against currency shifts, for example, they will lock in a future foreign exchange rate for an overseas currency to convert into New Zealand dollars, protecting against it falling lower.
A grant from the government to help you buy or build your first home. You can apply for a HomeStart 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, see kaingaora.govt.nz. The HomeStart grant is on top of the KiwiSaver first-home withdrawal.
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.
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.
Essentially an imaginary portfolio of securities representing a particular market or a portion of it. When most people talk about how well the market is doing, they are referring to an index.
A kind of fund that aims to hold investments that mirror a given index using passive management
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 outpaces inflation, so that we are not rolling backwards but rather truly getting ahead.
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.
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.
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.
A description of the return that the manager of a fund is aiming to achieve over a stated period. The investment objective will also usually include how much risk or volatility is expected to be involved.
The results a fund gets – how much your investments return to you. These can be gains or losses, depending on whether the assets that a fund holds go up or down in value or produce enough income.
How soon you expect to need your money back from your investments at any time. If you are investing for retirement, for example, this may be a way off; if you are planning on using KiwiSaver to help you buy or build a first home, this will be much sooner.
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 in different ways and are suited for different purposes.
The personal account (or accounts) managed by for you by your KiwiSaver provider and holding the full balance that you have in KiwiSaver
The KiwiSaver Act 2006, which sets out many of the rules applying to a KiwiSaver scheme
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.
The day you are eligible to withdraw your KiwiSaver account balance
An investment fund within a KiwiSaver scheme. See fund.
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).
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.
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 debt or a promise to pay money for something in the future.
An investment option where your allocation to growth assets automatically reduces, and your allocation to income assets automatically increases, as you get closer to your KiwiSaver end payment date. This option aims to maximise your savings growth at first and then increasingly protect you from sudden falls in value as retirement nears. For example, when you’re in your 20s you will have significantly more investments in growth assets than when you reach your 50s.
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.
Investments listed or quoted on a stock exchange. Listed investments are typically less risky than unlisted investments.
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.
Being unable to remove our 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 our retirement. For example, if we make a six-month fixed-interest investment at the bank, our money is locked in for six months.
A large, one-time payment of money to pay off a debt or invest in a fund. Typically these will save us significant amounts of interest for debt or help us leap forward with investing.
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.
Someone who belongs to a KiwiSaver scheme and is entitled to its benefits
The amount you put in to your KiwiSaver account
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 payments can save tens of thousands in interest.
See government contribution.
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.
The money we get back from an investment, without taking inflation into account. Our ‘real’ return, instead, includes 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.
New Zealand Superannuation is the pension that the government currently pays to all eligible New Zealanders aged 65 or over. To be eligible for NZ Super we need to be a legal resident of New Zealand, having lived here for at least 10 years since turning 20. Five of those years have to be since age 50.
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.
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.
A money manager whose style is more ‘hands off’ than an active manager, essentially having set asset allocations 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.
An income paid at regular intervals to a retired person, by a government or a superannuation scheme
Yearly, or each year
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)
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% tax on our share of the returns, depending on our income.
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, see ird.govt.nz/toii/pir/.
The written contract between us and our insurer
The regular amount we pay for insurance
The amount we borrow when we take out a loan or mortgage. Our repayment amounts are typically made up of principal plus interest.
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.
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.
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.
The age you are eligible to withdraw your KiwiSaver account balance. See KiwiSaver end payment date.
See fund update.
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).
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.
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.
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.
A KiwiSaver scheme that is not open to the general public, and has restrictions on who can become a member
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.
The chance that we might not reach our goals by investing. An investment may not be as good as we expected or were promised. Many kinds of risks come with investing, and the particular risks you face depend on the individual investment or fund.
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.
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.
See ‘investor profile’.
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.
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.
A fund or group of funds managed by a provider, such as a KiwiSaver scheme
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.
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.
Early withdrawal of money from KiwiSaver in the case of an injury illness, or disability that makes you totally and permanently unable to work in a job for which you are suited or that poses a serious and imminent risk of death. To make a serious illness withdrawal, you apply to your KiwiSaver provider and must include medical evidence.
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.
Early withdrawal of money from KiwiSaver if you experience significant financial difficulty. The KiwiSaver scheme rules define what ‘significant financial hardship’ means. To make this kind of withdrawal, you apply to your KiwiSaver provider and the supervisor makes the decision.
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.
Low-interest borrowing for assets that build wealth, like a house or an education
See shares.
See asset allocation and target asset allocation.
A type of retirement savings scheme. Typically money is invested into a managed fund, aimed at providing a lump sum or income for the years after you stop working.
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.
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.
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.
For tax in KiwiSaver, see attributed tax.
Money deposited for a fixed term – usually between 30 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.
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).
A kind of bond issued by a government, usually short-term borrowing (such as 90 days)
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.
For KiwiSaver, see supervisor.
A company that manages money through will preparation and trust and estate administration
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.
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.
A structure in use by many managed funds. Managed funds work by pooling money from a number of investors and then using this money to buy a variety of assets. In a unit trust, each investor owns a portion of the total fund.
The investments that a fund holds are divided into units. This allows your KiwiSaver provider to easily track and price the amount you own of these investments.
Investments that are not listed or quoted on an exchange like a stock exchange. This tends to make them harder to sell than listed investments.
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.
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 be little chance (risk) of us not reaching our goals by investing.
Payment based on the time you work, usually payment per hour
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