ACTIVE MANAGEMENT
"Hands on" portfolio management of a fund with the sole purpose of trying to outperform the return of an unmanaged or passive benchmark or index. Active managers use economic data, investment research, market forecasts, etc. to help make investment decisions.
ADVISORY FEE
The amount paid by a fund company to the investment manager for managing or advising the fund's portfolio. Sometimes referred to as management fee. At the client level, an advisory fee is paid to a financial advisor for portfolio oversight, financial planning, and other related services.
AFTER TAX RETURN
The return from an investment after all income taxes have been accounted for and deducted. The SEC has adopted a number of rule and form amendments requiring mutual funds to disclose standardized after-tax returns. The amendments require a mutual fund to disclose standardized after-tax returns for 1-, 5-, and 10-year periods in the risk/return summary of the prospectus.
ALPHA
A mathematical measurement of the amount of return expected from an investment. For example, an alpha of 1.20 indicates that a stock is projected to rise 20% in a year when the return on the market and stock's beta are both zero. Generally, a low priced investment in relation to its alpha is considered a good choice because of its undervalued status.
ANNUITY
An insurance contract that guarantees a fixed or variable payment to the annuitant, or contract owner. The two phases of an annuity contract are the accumulation and distribution periods.
ASSET ALLOCATION
The process of apportioning investments among various asset classes, such as stocks, bonds, commodities, real estate, collectibles and cash equivalents. Asset allocation affects both the risk and return of investors, and is often used as a core strategy in basic financial planning.
ASSET CLASS
Refers to the categorization of an asset. Representative asset classes include, equities, bonds, commodities, etc.
BASIS POINT
Measurement used to quote bonds. One basis point is equal to 0.01%, or one one-hundredth of one percent. 100 basis points is equal to 1%, whereas 50 basis points would equal one half percent, or 0.50%.
BASKET
A unit or group of securities. Baskets can be arranged according to industry/sector, market capitalization, and security type.
BEAR MARKET
A prolonged period of declining prices in stocks, bonds, or commodities. A bear market in stocks is precipitated by negative economic activity or a series of events that have a negative influence upon stocks. A bear market in bonds is caused by rising interest rates.
BENCHMARK
A standard index used for measuring the performance of an investment. The goal of most money managers and investors is to outperform their respective benchmark.
BETA
A volatility measurement of a fund or stock versus the Standard & Poor's 500 Stock Index. A fund or stock with a higher beta than the Standard & Poor's 500 will rise or fall greater. To the contrary, a stock or a fund with a low beta will rise or fall less.
BOND
A debt instrument issued by corporations and governments to raise capital. Interest on the outstanding debt is paid to bondholders at specific intervals, with the principal amount of the loan paid on the bond maturity date.
BROKER/DEALER
An individual or firm that acts as principal in a securities transaction.
BULL MARKET
A prolonged period of increasing prices in stocks, bonds, or commodities.
BUY AND HOLD
A market strategy that involves purchasing and owning an investment for a long time, often years. This permits investors to receive favorable capital gains treatment on any potential profits. Buy and hold also helps investors to focus less on the short-term market performance or fluctuations of their investments.
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