AI bot

See Chatbot.

Alpha

The residual, excess return earned over and above what might have been expected given an investment's market risk profile.

Asset class allocation

How much money is allocated to, or is to be placed into each portfolio investment category (i.e., amongst bonds, stocks, cash, or alternatives).

Asset class benchmark

An unmanaged group of securities, like an index, to replicate and track a fund's, or stock's, comparative performance.

BPS

See Basis point.

Balanced funds

Hybrid funds which own stocks, bonds, and sometimes alternative investments, usually according to some prescribed and/or prospectus-advertised asset class mix.

Basis point

A metric that describes the change in the value or rate of a financial instrument, stated as a percentage. One basis point is .01%.

Behavioral Economics

An analysis applying psychological insights into human behavior to explain economic decision-making when making choices amongst alternative uses of financial resources.

Behavioral Finance

In the portfolio management context, the study of the influence of psychology on the decision-making behavior of individual investors, portfolio managers, or financial analysts.

Buy-side

Individual investors or analysts who work for fund managers, financial advisory firms, hedge funds, trusts, and entities responsible for other people's money.

Capital Market Theory

How rational investors should build efficient portfolios. Mathematical modeling based on the assumption that greater risk yields greater returns.

Capital underwriting

The process through which an investment bank or brokerage underwriter raises capital for a client (corporation, institution, government, or other political subdivision) from investors in the form of equity or debt.

Carrying costs

The cost over time of inventorying ingredients of a product line, the product itself, or financing inventory, whether for a commercial enterprise, or a dealer to carry bonds as a principal market maker.

Chartered Financial Analyst (CFA)

Certification credential of competence granted by CFA Institute, a global association of financial professionals across 135 countries.

Chatbot

A computer application that simulates human conversation rendered via the internet utilizing, and driven by, artificial intelligence logic. (Also, "AI bot")

Common stock new issue

See Initial Public Offering.

Comprehensive personal financial planning

Like long-range strategic planning for a business, a process for an individual tracking cash flow analysis, retirement planning, personal risk exposure, investment management, income tax strategies, and estate planning.

Computerized quantitative investment market analysis

Using mathematical and statistical modeling, measurement, and research with the aim to represent a given reality in numerical values.

Continuing consultative relationship

With a client's best interests paramount, providing ongoing unbiased advice on personal financial matters with the goal of the provider becoming the primary financial services resource for the individual.

Core-passive portfolio

Portfolio management approach for less efficient market segments based on a selection of passive, or index replication funds as a foundation with supplemental satellite active management positions.

Core-passive-active

Supplementing a core-passive foundation portfolio structure with specially focused equity and fixed income market segment participation (e.g., emerging market small cap). (Also, "Satellite")

Data Resources (DRI) econometric model

Firm founded in early 1960s by Otto Eckstein. Builder of mainframe-based econometric model tracking 2,700 economic dependent variables, driven by 1,200 equation computerized algorithms, sold in time-sharing mode to institutional and government clients, developed and rendered on a Burroughs mainframe.

Defined benefit pension fund

A company-sponsored retirement plan in which benefits are calculated according to length of service and salary grade at the time of retirement and funded by the sponsoring company.

ETFs

Exchange Traded Funds: a marketable pooled fund security tracking a basket of underlying actually owned assets, usually a benchmark index, trading throughout the day on US securities exchanges.

Emotional Finance

Recognizes that people are inherently irrational and largely driven by their emotions and their unconscious biases.

Excess return

An asset's return on original invested capital compared to its risk-adjusted expected or actual return. (Also, "Alpha")

Excess vs. benchmark risk-adjusted

The return on a portfolio, achieved above and beyond a comparable market proxy or benchmark that represents the market's broader movements. (Also, "Alpha")

Factor-based financial modeling

Computerized financial model attempting to isolate a key investment variable responsible for a certain portfolio behavior result (e.g., small vs large companies).

Factor-based passive fund

Portfolio built around a common characteristic such as high dividend yields, or low price/earnings ratios, with less regard paid to the usual underlying investment fundamental analysis attributes of the companies selected.

Fiduciary

The ethical obligation to act solely in someone else's best interest (i.e., putting the client's interest ahead of the advisor's).

Fiduciary role

In an actual or implied position of trust, the advisor, attorney, trustee, etc., is obliged to act with the client's best interest paramount (vs a broker's less stringent standard of only "suitability at the time").

FinTech

Information technology, computer programs, and/or algorithms, used to support or enable banking and financial services.

Float

Number of shares outstanding of a company's stock and available for trading on global public exchanges. Also, as in commercial banking "float," money present in the banking system during the time between a deposit being made in a recipient's account and the money being deducted from the sender's account.

Head and shoulders

Describes a specific stock price chart formation that, according to chartist (stock technician) mythology, predicts a bullish-to-bearish trend reversal.

High net worth (HNW)

Generally, a household or investor with (excluding primary residence) in excess of $1 million in personal assets, or extremely large amounts of free cash flow.

Index replication

A passive strategy that attempts to generate similar returns as a broad market index (e.g., S&P 500 Index), often merchandised in the form of mutual funds or ETFs.

Initial Public Offering

Initial Public (stock) Offering (IPO) which is underwritten by one or more investment banks, or brokers, who also arrange for the shares to be listed for public trading on one or more stock exchanges. (Also, "Common stock new issue")

Insider trading

Trading of a public company's stock or other securities by individuals with access to non-public information about a company.

Leveraged tax shelter strategies

Employing borrowed capital to amplify the return (and/or risk) on an investment with features taking advantage of tax-reduction tactics and IRS Code allowances.

Liquid asset class

An asset class (e.g., stocks, bonds, US Treasury bills) that can be converted into cash speedily without price impact.

Macro-economic outcomes

How the aggregate economy behaves, whether global or national. Relating to the whole rather than individual (micro) segments.

Marked-to-market

Repricing a company's assets and liabilities to current realistic levels; an up-dated appraisal of a company's financial situation.

Mean return

The theory that suggests that asset prices and historical returns eventually will revert to a long-term mean or average level, as will all of the items in the entire dataset.

Mean reversion investment

The assumption that a security's price or portfolio's return will tend to move to an average for the dataset over time. The tendency for a security's or portfolio's return to revert to its average of its category. This process may last for years, and thus not be of value to a short-term investor.

Modern Portfolio Theory

How risk-averse investors can construct model portfolios to optimize expected return against a given level of risk (i.e., price volatility).

No-load mutual fund

A mutual fund sold directly by an investment company to the investor bypassing second party distribution channels, therefore avoiding sales charges.

Passive equity

Any rules-based, transparent, and investable strategy that does not involve identifying mispriced individual securities (e.g., an equity market index like the S & P 500 Index).

Personal financial advisor

A professional who suggests and renders financial advice and services to clients based on their unique personal financial situation.

Personal financial planning

The process by which individuals and families develop and implement a comprehensive blueprint for achieving defined personal financial goals.

Private Letter Stock

Common stock issued directly by a company to a buyer at a discounted price with a resale restrictions legend appearing on the certificate tied to a given period of elapsed time, and subject to SEC registration requirements.

Prudent man rule

Managing another's investments as a careful person would manage their own circumstances seeking reasonable income and preservation of capital.

Registered Investment Advisor

A Registered Investment Advisor (RIA) is an SEC registered individual or firm managing more than $200 million of client assets, acting in the capacity of a fiduciary, who manages other people's financial resources.

Regression to the mean

See Reversion to the mean.

Reversion to the mean

The tendency of random variables in a dataset over time to regress toward an average. (Also, "regression to the mean")

Satellite

See Core-passive-active.

Sell-Side

A general term that indicates a firm or individual that (who) sells investment services to asset management firms, or the public and is compensated through commissions.

Sharpe Ratio

A calculation to examine the performance of an investment by adjusting for its risk; a measure of the incremental risk-adjusted return for an investment portfolio introduced by Nobel Laureate William Sharpe.

Tax-exempt bond

Fixed income security issued by a local or state government, the interest on which is exempt from federal income taxes and sometimes state and local taxes as well.

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