Investing Terms

What Is The CAPE Ratio? The cyclically-adjusted price-to-earnings (CAPE) ratio is a variation on the standard price-to-earnings (PE) ratio that seeks to determine if stocks are in a bubble. While the more common PE ratio measures a stock or stock index's valuation over the next year or so, the CAPE ratio is calculated by using an average of corporate earnings over the past 10 years, adjusted for inflation. By using…

Since 1788, every fourth year has brought an election for the Presidency of the United States. During such years, candidates from all walks of life dedicate their time, money and effort in an attempt to earn the highest American political office. While only a select few ever become the President of the United States (POTUS), the electoral process in itself is an institution. Presidential elections are often turning points in…

Historically, the outbreak of a rapidly spreading and life-threatening virus can quickly send global markets into chaos. Negative economic consequences are typically felt as trade and travel restrictions, as well as increased social welfare costs, spike investor trepidation. 2020 brought a harsh reminder of how devastating a viral outbreak can be with introduction of the novel coronavirus (COVID-19). Disease Outbreaks And The Markets According to the World Health Organization (WHO),…

What Is The Wall Of Worry? The "wall of worry" refers to a tendency in financial markets for stocks to rise in the face of seemingly difficult or insurmountable problems. It usually turns out, however, that these problems—though serious—are temporary and eventually resolved or able to be put off to the future. Generally, stocks are able to "climb the wall of worry" because many investors see potential problems as a…

What Is An Asset-Backed Security? Asset-backed securities (ABS) are fixed-income instruments similar to bonds that are collateralised by a pool of loans, the payments on which are channeled to the holders of the securities in the form of interest payments. When the loans are paid off, holders of the ABS receive their principal back. ABS issues are structured by a lender or investment firm using different types of loans. The…

What Is A Target Date Fund? A target date fund is a mutual fund designed for retirement that automatically rebalances the fund's assets as the investors in the fund draw closer to retirement age. In the years prior to retirement, the fund is more aggressive and heavily invested in growth stocks, but as the holders near retirement the fund becomes more conservative. At this point, its allocation shifts to include…

The Glass-Steagall Act was a 1933 U.S. law signed by President Franklin Roosevelt shortly after he took office that effectively separated commercial banking from investment banking. The act is named for its sponsors, Sen. Carter Glass, D-Virginia, a former Treasury secretary, and Rep. Henry Steagall, D-Alabama, the chairman of what was then called the House Banking and Currency Committee. Glass-Steagall was largely repealed in 1999 by the Gramm-Leach-Bliley Act, which…

What Is A Master Limited Partnership? Master limited partnerships (MLPs) are exchange-traded vehicles that invest primarily in energy and other natural resource projects, particularly oil and gas storage, transportation, exploration, development and pipelines. MLPs are popular with some investors for their very high yields, but they tend to track the price of oil, which means they can be volatile. Also, their share prices have been depressed in recent years, reducing…

What Is Venture Capital? Venture capital (VC) is a form of private equity (PE) financing in which investors buy stakes mostly in young companies in need of financing. Unlike PE funds, which typically invest in more established companies, VC firms invest mainly in startups, particularly in technology, biotechnology, financial services, payments and other businesses that show promise for growth. VC firms operate the same way as PE firms in that…

What Is A Mid-Cap Stock? Mid-cap stocks are generally considered to be those companies with a market capitalisation—the stock price multiplied by the outstanding number of shares—between US$2 billion and US$10 billion. They fall between large cap stocks, which have market caps above US$10 billion, and small caps, which are valued at between US$300 million and US$2 billion. Generally speaking, mid-cap stocks are slightly more risky than large caps, which…

What Is A Robo-Advisor? A robo-advisor is an automated, online platform that creates investment portfolios and financial plans for individuals. Roboadvisors compete with traditional human financial advisors but provide their services at a far lower cost with much lower minimum investment requirements and greater convenience. Robo-advisors have been around since 2008, but they have attracted a growing number of clients and share of assets under management. Indeed, several large traditional…