Every industry uses jargon that leaves outsiders scratching their heads. Investors may be among the worst offenders.
Despite pressure for advisors to communicate with clients more clearly, industry slang can be hard to shake. We asked advisors to share the investment jargon they hear most – and sometimes catch themselves using. Here are 10 of those terms, explained.Most of us have heard the term “alpha” to describe a high achiever who gets things done or an “alpha dog” who leads the pack. Alpha has a similar meaning in investing: it describes how much an investment return beats the benchmark.
“Beta” isn’t a term you hear as often, but it’s related to alpha. Beta is a numeric value that measures the volatility of a stock compared with the broader market. If the beta is 1.0, the stock has the same volatility as the market. If it’s more than 1.0, it’s more volatile; less than 1.0, it’s less volatile. You can see why it’s not as sexy as alpha.Pilots measure headwinds and tailwinds to help navigate an aircraft’s speed and performance.
The terms have been used a lot in recent years as market watchers predict what will happen to the economy – and, in turn, financial markets – after central banks began raising interest rates. When rates go up too quickly, it can lead to a hard landing. Now that rates are starting to fall, it appears a recession may have been avoided. However, not all market watchers are convinced.Hawks and doves have very little to do with investing, except when it comes to monetary policy.
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