Amanda Stanhaus

Tag: index

Alpha

A number that measures the performance of an investment compared to a benchmark, like the stock market index.

(Originally published on Amanda Stanhaus’s financial literacy vocab blog: XO, Bettie Vocab.)

Stock Market Index

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“The Dow is up…”

Usually, I feel like the CNBC news anchor’s cue cards are missing a few descriptive words. Financiers do love their jargon.

But, I have cracked the code and want everyone to join the club.

Whenever we see #s like these from the close of the market on Wednesday March 26th

(Thanks, The New York Times!)

we now will know they represent indexes (or indices) of the Dow Jones Industrial AverageS&P 500 and NASDAQ.

Go forth and watch financial news fully informed!

(Originally published on Amanda Stanhaus’s financial literacy blog: XO, Bettie.)

 

 

Consumer Price Index

CPI. A # that tracks changes in prices (inflation) by tracking a basket of goods ranging from groceries to cars.

(Originally published on Amanda Stanhaus’s financial literacy vocab blog: XO, Bettie Vocab.)

 

Index

A measure of the market overall.

(Originally published on Amanda Stanhaus’s financial literacy vocab blog: XO, Bettie Vocab.)

Index Fund

mutual fund that invests in companies that make up the index.

(Originally published on Amanda Stanhaus’s financial literacy vocab blog: XO, Bettie Vocab.)

Index Investing

Returns are based on market returns. Watch out, it’s expensive to recreate the index.

(Originally published on Amanda Stanhaus’s financial literacy vocab blog: XO, Bettie Vocab.)

Random Walk

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I had the most lovely solo Sunday afternoon. After successfully sending out my Sunday Brunch with Bettie newsletter, I took a random walk.

I walked east, then west, then north. I ran into friends and chatted. I strutted past an ex. I petted a pomeranian sitting outside of a newly opened cafe.

Sitting down with my shot of espresso and big glass of water, I read the investment classic, A Random Walk Down Wall Street by Burton Malkiel.

Just like why this Dem turns on Fox news every once in awhile, this value investor wanted to understand the index investor’s argument.

(click on the bold-faced vocab words:))

Here are the highlights:

Chimps are stock market champs

“The market prices stocks so efficiently that a blindfolded chimpanzee throwing darts at theWall Street Journal can select a portfolio that performs as well as those managed by the experts.”

The past does not predict the future

“A random walk is one in which future steps or directions cannot be predicted on the basis of past actions. When the term is applied to the stock market, it means that short-run changes in stock prices cannot be predicted. Investment advisory services, earning predictions, and complicated chart patterns are useless.”

Investors are in it for the long haul

“I view investing as a method of purchasing assets to gain profit in the form of reasonably predictable income (dividends, interest, or rentals) and/or appreciation over the long term. It is the definition of the time period for the investment return and the predictability of the returns that often distinguish an investment from speculation.”

Main takeaway: avoid temptation

“Investors who select a portfolio of stocks by throwing darts at the stock listings in the Wall Street Journal can make fairly handsome long-run returns. What is hard to avoid is the alluring temptations to throw your money away on short, get-rich-quick speculative binges. It is an obvious lesson, but one frequently ignored.”

If you want to delve deeper, here is the copy I read.

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(Originally published on Amanda Stanhaus’s financial literacy blog: XO, Bettie.)

R-squared

Correlation squared. Movements of a stock’s price, relative to an index. Close to 100, they move hand-in-hand.

(Originally published on Amanda Stanhaus’s financial literacy vocab blog: XO, Bettie Vocab.)

S and P 500

Standard & Poor’s 500 Index. How is the stock market doing? This benchmark of 500 stocks fills me in.

(Originally published on Amanda Stanhaus’s financial literacy vocab blog: XO, Bettie Vocab.)

ETF? WTF?

Financiers LOVE their acronyms more than $$. The more not obvi(ous) the better!

ETF= Exchange traded fund.

(click on the bold-faced vocab words:))

ETFs are giving Mutual Funds (MFs) a run for their money in the popularity contest that is the stock market.

Why hot?

Best of both worlds: ETFs allow for diversification (like a fund) and frequent trading (like a stock).

Easy access: ETFs don’t have minimum investment requirements like MFs. Good news for newbie investors.

Why not?

Tips: Owners have to pay extra $$ per trade. If dollar cost averaging is your investment strategy, then commissions are your enemy.

Passive Action: Index investing is really the only option for these babies. You have to believe the market is efficient (and be anti-Warren). Do you believe??

When you make the MF/ETF decision…ALWAYS read the prospectus.

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(Originally published on Amanda Stanhaus’s financial literacy blog: XO, Bettie.)