Glossary

Terms

Cost basis

What you actually paid for a holding, including the exchange rate that applied on the day you bought it. Distinct from current value, and the number every profit calculation is measured against. Read more.

Cross-rate

An exchange rate between two currencies derived from each one's rate against a third. Deriving cross-rates from a single pivot keeps a portfolio's sub-totals arithmetically consistent with its total. Read more.

Dividend yield

Annual dividend per share divided by share price, expressed as a percentage. Usually quoted gross, which overstates what an international investor receives. Read more.

Drawdown

The fall from a portfolio's peak value to its subsequent trough, usually as a percentage. A measure of the worst loss experienced, rather than the average.

Ex-dividend date

The cut-off for qualifying for a declared dividend. Buy on or after this date and the payment goes to the seller, not to you. Distinct from the pay date, which is typically two to six weeks later. Read more.

FIRE

Financial Independence, Retire Early. The point at which invested assets can sustain your living costs indefinitely, making paid work optional rather than necessary. Read more.

FIRE number

The portfolio value required to reach financial independence. Most commonly estimated as 25x annual spending, the inverse of a 4% withdrawal rate. Read more.

Franking credit

An Australian tax credit attached to a dividend, representing company tax already paid. It is why Australia withholds nothing at source from resident shareholders. Read more.

GBp (pence)

The currency code for shares quoted in pence rather than pounds on the London Stock Exchange. Treating GBp as GBP overstates a holding by a factor of 100. Read more.

Gross yield

Dividend yield before withholding tax. The figure most finance sites quote, and a poor basis for comparing holdings domiciled in different countries. Read more.

Net yield

Dividend yield after withholding tax has been deducted at source. What actually reaches your brokerage account, and the figure Portfolio On Fire uses throughout. Read more.

Nominal rate

An annual rate divided into periods without compounding those periods back in. A nominal 7% applied monthly compounds to an effective 7.23% over a year. Read more.

Pay date

The date a declared dividend actually reaches your account, as opposed to the ex-dividend date that determines entitlement. The one that matters for cash-flow planning. Read more.

Payout frequency

How often a company pays a dividend: monthly, quarterly, semi-annual, annual, or irregular. Market data feeds rarely state it reliably, so it is inferred from the spacing of past ex-dividend dates. Read more.

Safe withdrawal rate (SWR)

The percentage of a portfolio that can be withdrawn annually without exhausting it over a given horizon. The widely cited 4% figure comes from the 1998 Trinity Study, which examined 30-year US retirements. Read more.

Sequence-of-returns risk

The risk that the order in which returns arrive changes the outcome, even when the average is identical. A poor decade early in accumulation, or immediately after retiring, does far more damage than the same decade later. Read more.

Total return

Investment return including both price change and dividends received. A dividend-focused portfolio can show weak price growth and strong total return.

Withholding tax

Tax deducted from a dividend by the company's country before payment. Ranges from 0% to 35% depending on domicile, and is separate from any tax your own country levies. Read more.