Definition Robo Advisors are automated investment platforms that provide portfolio management and financial planning services using algorithms and artificial intelligence, with limited human interaction. The primary function of Robo Advisors is to create and manage diversified investment portfolios based on the investor’s goals, risk tolerance and time horizon.
Components of Robo Advisors Algorithmic Portfolio Management: Robo Advisors employ algorithms to automatically manage, rebalance and optimize investment portfolios based on market conditions.
Definition Sector rotation is an investment strategy that involves shifting investments among different sectors of the economy to capitalize on the cyclical performance of industries. The strategy is based on the notion that different sectors outperform or underperform during various phases of the economic cycle, such as expansion, peak, contraction and trough.
Components of Sector Rotation Economic Cycles: Understanding the four main phases—expansion, peak, contraction and trough—is crucial as each phase influences sector performance differently.
Definition A Share Buyback, also known as a stock repurchase, is a corporate action in which a company buys back its own outstanding shares from the stock market. This process reduces the number of shares available in the open market, which can lead to an increase in the value of remaining shares. Share buybacks signal to investors that management believes the stock is undervalued and can enhance various financial metrics such as earnings per share (EPS).
Definition Tactical Asset Allocation (TAA) is an active investment management strategy that seeks to improve portfolio returns by temporarily adjusting asset allocation models based on current market conditions or economic forecasts. By diverging from a long-term strategic allocation, TAA allows investors to capitalize on market movements and changes driven by economic indicators.
Components of Tactical Asset Allocation Asset Classes: Commonly utilized asset classes in TAA include equities, fixed income, commodities and cash equivalents.
Definition Prepaid tuition plans are specialized savings programs that enable families to pay for their children’s future college education at current tuition rates. They are primarily designed to help offset the financial burden of rising tuition costs by allowing families to pre-purchase tuition credits or share units at specific colleges or universities. These plans can be operated by states or other qualifying entities and typically cover public college in-state tuition, though some plans may extend benefits to private institutions or out-of-state colleges.
Definition Dollar Cost Averaging (DCA) is an investment strategy that involves regularly investing a fixed dollar amount into a particular asset or portfolio over a specified period, regardless of the asset’s price. This method reduces the impact of volatility by spreading out the investment over time, which can lower the average cost per share and reduce the risk of making a large investment at an inopportune time.
Importance of Dollar Cost Averaging Risk Mitigation: By investing consistently over time, DCA reduces the risk of making a large purchase when prices are high, thereby minimizing the impact of market volatility.
Definition Growth investing is an investment strategy that focuses on identifying and investing in companies expected to grow at an above-average rate compared to other companies in the market. This approach typically involves targeting stocks of companies that show signs of accelerated growth in earnings, revenue or cash flow, even if their current price-to-earnings (P/E) ratio is high. Growth investors are less concerned with short-term profits and more focused on long-term capital appreciation.
Definition Portfolio rebalancing is the process of realigning the weightings of assets in an investment portfolio to maintain the desired level of risk and return. Over time, as different assets grow at different rates, the original asset allocation can shift, potentially exposing the investor to more risk than intended. Rebalancing involves selling or buying assets to bring the portfolio back to its target allocation, ensuring that the investment strategy remains aligned with the investor’s goals and risk tolerance.
Definition Value investing is an investment strategy that involves picking stocks that appear to be trading for less than their intrinsic or book value. Value investors seek out companies that the market has undervalued, believing that their true worth will eventually be recognized, leading to price appreciation. This strategy is based on the idea that the market overreacts to both good and bad news, causing stock prices to fluctuate more than their underlying fundamentals justify.
Definition A buyout refers to the acquisition of a controlling interest in a company, typically by purchasing the majority of its stock shares. It can be conducted by private equity firms, management teams or other corporations, often aiming to take the company private, restructure its operations or merge it with another entity.
Importance of Buyouts Buyouts play a crucial role in the business landscape by facilitating ownership transitions, providing liquidity to founders or early investors and enabling strategic shifts in management and business direction.