PWLCapital

Glossary

A list of some of the terms you will find on this site.

Annualized Rate of Return
The rate of return on an investment (including the income on the investment) over a specified period of time expressed on an annual basis.

Asset Class
A specific category of investment, such as: cash, bonds, equities and real estate. Assets within the same class generally exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same laws and regulations. Also see Sub-Asset Class.

Asset Class Strategy
A portfolio strategy articulated around asset classes and sub asset classes.

Asset Mix
A profile listing the portfolio weights of each asset class and/or sub-class. Here is an example:

Sub Asset Class
Subdivisions of actual asset classes. For example, equity investments can be divided between its Canadian, U.S., and International component

Derivative Products
A type of security: basically, a derivative product is a contract whose value is based on (or derived from) the changing price of an underlying asset, such as commodities, currencies, interest rates, stock indices, corporate debt, and even the climate.

Frequency Distribution
In statistics, a frequency distribution is a list of the values that a variable takes in a sample. It is usually a list, ordered by the percentage of times each value appears. For example, a specific asset mix may have produced the following returns in the last 80 years:

Investment Policy Statement - IPS
A document drafted between a portfolio manager and a client that outlines rules for the manager. This statement provides the investment goals and objectives of a client’s’ portfolio and describes the strategies that the manager should employ to meet these objectives. Specific information on matters such as strategic asset allocation, risk tolerance, and liquidity requirements would also be included in an IPS.

Law of Large Numbers
The law of large numbers is a fundamental concept in statistics and probability that describes how the average of a randomly selected large sample from a population is likely to be close to the average of the whole population. This means that as the sample size grows larger, the difference between the sample mean and the population mean will approach zero. For example, if last year's stock market return is 8%, the sample's average return will converge towards this value as we add more and more stocks.

Market Value
The current quoted price at which investors buy or sell a security at a given time.

Portfolio Rebalancing
This is the process of re-establishing the portfolio to its targeted asset allocation. This can mean purchasing under-weighted securities with newly saved money or selling over-weighted securities to buy under-weighted securities

Rate of Return
The gain or loss on an investment (including its income) over a specified period, expressed as a percentage increase (decrease) over the initial investment value.

Risk-Adjusted Return
The return on an asset or a portfolio of assets, adjusted to reflect a specific risk level.

Risk Management
The process of measuring risk and developing strategies to manage it. In the field of investments, it means controlling the likelihood and potential severity of negative returns. Strategies include transferring the risk to another party, avoiding the risk, reducing the negative effect of the risk, and accepting some or all of the consequences of a particular risk.
 

Strategic Asset Allocation
The process of dividing investments among different kinds of assets, such as stocks, bonds, real estate and cash, to optimize the risk/reward trade-off based on the investor's specific situation and goals.
 

Structured Diversification
Diversification strategies designed to maximize a portfolio's risk adjusted returns. These strategies include, among others: security diversification, asset class diversification and international diversification.
 

Standard Deviation
A statistical measure of the volatility of a portfolio, usually computed with at least 36 monthly returns. Standard deviation is compared to the annual rate of return of an investment to measure the portfolio's volatility.
 

Volatility
Volatility refers to the amount of uncertainty or risk about the size of changes in a portfolio's value. A high volatility level means that the market value of the portfolio can change dramatically over a short time period in either direction. A low volatility level means that a portfolio's value does not fluctuate dramatically, but changes in value at a steadier pace over a period of time.