Definition Momentum investing is an investment strategy that capitalizes on the continuance of existing trends in the market. It is based on the idea that stocks that have performed well in the past will continue to do so in the future and conversely, those that have underperformed will continue to lag. The strategy hinges on the behavioral finance principle that investors tend to follow trends rather than counter them.
Definition Quantitative investing is a systematic approach to investing that leverages mathematical models, statistical techniques and data analysis to make informed investment decisions. Unlike traditional investing, which often relies on subjective judgment and qualitative analysis, quantitative investing focuses on numerical data and computational methods to identify patterns and opportunities in financial markets. Key Components of Quantitative Investing Data Collection: The foundation of any quantitative strategy is the collection of vast amounts of data.
Definition Risk Parity is an investment strategy that focuses on balancing the risk contributions of various asset classes within a portfolio. Rather than allocating capital based solely on expected returns, risk parity allocates capital in a way that equalizes the risk across different investments. This means that each asset class contributes equally to the overall portfolio risk, which can lead to enhanced diversification and the potential for better risk-adjusted returns.
Definition A profit sharing plan is a retirement plan that allows employers to contribute a portion of their profits to employee retirement funds. This plan not only helps employees save for their future but also promotes a sense of ownership and dedication to the company’s success. The contributions can vary from year to year, based on the company’s profits, making it a flexible option for both employers and employees.
Definition A Target Benefit Plan is a retirement savings vehicle that aims to provide participants with a specific benefit at retirement. Unlike traditional defined benefit plans, where the employer guarantees a specific payout or defined contribution plans, which depend on employee contributions and investment performance, a Target Benefit Plan offers a hybrid approach. It sets a target benefit level that the plan strives to achieve, allowing for some flexibility in how benefits are funded and distributed.
Definition A UGMA custodial account, short for Uniform Gifts to Minors Act, is a financial account established to hold and manage assets for a minor until they reach the age of majority (usually 18 or 21, depending on the state). This account allows adults to make gifts to minors, which can be invested in a variety of financial instruments, including stocks, bonds and mutual funds. The beauty of a UGMA custodial account lies in its ability to foster financial literacy and investment experience for a child, paving the way for a solid financial foundation as they transition into adulthood.
Definition Implied Volatility (IV) is a critical concept in the world of finance, particularly in options trading. It reflects the market’s expectations regarding the volatility of an asset’s price over a specific period. Unlike historical volatility, which looks at past price movements, implied volatility is forward-looking and derived from the prices of options. Higher implied volatility indicates that the market expects significant price fluctuations, while lower implied volatility suggests the opposite.
Definition Wealth preservation refers to the strategies and practices aimed at protecting and maintaining an individual’s or family’s wealth over time. It encompasses a variety of approaches designed to minimize risks, reduce tax liabilities and ensure that assets are safeguarded against economic fluctuations, inflation and other unforeseen events. The ultimate goal is to ensure that wealth is not only preserved but can also be passed on to future generations.
Definition A balanced portfolio strategy is an investment approach that aims to maximize returns while minimizing risk through diversification across various asset classes. The primary goal is to achieve a balance between risk and reward, making it a popular choice among investors seeking steady growth and lower volatility. Key Components Investors typically include the following components in a balanced portfolio: Stocks: Represent ownership in companies and provide growth potential but come with higher risks.
Definition A Capital Preservation Strategy is a conservative investment approach aimed at protecting the principal amount of an investment. The primary goal is to minimize the risk of loss while ensuring that the investment retains its value over time. In a world of economic uncertainties and volatile markets, this strategy has gained traction among risk-averse investors who prioritize the safety of their capital over potentially higher returns. Key Components Risk Assessment