Fiduciary – A person or entity legally appointed and authorized to manage assets in trust for another party. The fiduciary must manage the assets with the best interest of the asset owning party at all times.

Formula Investing – Investing by rigid adherence to a formula, which governs both asset allocation and timing.

Quantitative Trading – Trading strategies based on quantitative and technical analysis that relies on mathematical computations based on tremendous amounts of aggregate data and current trends.

Securities – Financial investment instruments which are expected to represent value (stocks, bonds, ETFs, derivatives, etc.).

Stocks – Represent fractional ownership of companies and for-profit organizations. Can also be referred to as equities.

Bonds – A debt investment in which an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period of time at a fixed or variable interest rate.

Mutual Funds – A pooling of funds collected from many investors, which are in turn invested per the objectives of the fund. While they allow small investors access to professionally managed portfolios, funds typically have fees and may be less liquid than ETFs.

ETFs – Exchange Traded Funds are similar to mutual funds in that they are pools of investments, but are dissimilar because they are typically not actively managed. Many ETFs have lower expense ratios and trade like stocks. In simple terms, each ETF share represents fractions of the many shares/bonds that each ETF holds.

Leveraged ETFs – ETFs in which the performance of the underlying investments (indices) is amplified by leverage, identified by a ratio. Leveraged ETFs, like their traditional siblings, are generally either bullish or bearish in flavor. A 2:1 S&P 500 ETF will grow by 2% on the days the S&P 500 gains 1%, and lose 2% when the S&P loses 1%.

Portfolio – A combination of investment instruments, such as those listed above, designed to meet investment objectives while giving consideration to risk tolerance. At Pivotal Financial, that can mean blending different model allocations. Each model contains securities that are either stocks, bonds, or ETFs that meet the objectives of each model.

Risk Tolerance – The degree of uncertainty or downside (loss in value) that an investor is willing to accept in their portfolio. Lower-risk investments, such as many bonds, have less upside and downside potential. Higher-risk securities, such as high beta stocks, have more upside and downside potential.

Risk Premium – The amount of return or reward that is probable in exchange for taking on risk above the risk-free rate. Risk premium is the compensation for tolerating greater risk.

Unsystematic risk is the risk of individual industries or companies; systematic risk is the risk the entire market or “system” faces. If a new fabric were created that needed no cleaning, it would be unsystematic risk to laundry detergent stocks but would not impact steel or baby food stocks. Conversely, if the Treasury changed interest rates, that would represent a systematic risk, affecting most stocks.

Diversification – The objective of diversification is to reduce unsystematic risk. Like the saying “don’t put all your eggs in one basket,” diversification seeks to minimize losses should any single basket—or investment—fail. Blending multiple allocation models can help create a more diversified portfolio.

Standard Deviation – A measure of volatility or fluctuation. The higher the standard deviation, the more the price changed from the average price. It is often used to depict how “bumpy” the ride has been for a particular investment or portfolio.

Sharpe Ratio – The risk premium on the portfolio (expected return minus risk-free rate) divided by the standard deviation of the portfolio. It is a measure of risk-adjusted performance: the higher the Sharpe ratio, the better the return relative to the risk taken.

Beta – A measure of systematic risk compared to either a specific industry benchmark or the market as a whole. The benchmark is assigned a beta of 1. Betas above 1 are more volatile than the benchmark; betas below 1 are less volatile.

Aggressive Investing – Seeking higher potential returns and accepting increased risk and volatility. This typically involves portfolios with higher equity exposure and a beta above 1 relative to a broad market index.

Conservative Investing – Seeking lower risk and accepting lower potential returns. This typically involves a higher allocation to bonds and cash equivalents, with portfolio beta below 1 relative to a broad market index.

Dividend – Recurring payment to shareholders of certain companies or funds in exchange for their investment, typically paid from profits or retained earnings.

Dividend Yield – The dividend per share divided by the market price per share. It reflects how much cash flow you are getting for each dollar invested in a dividend-paying security.

Market Capitalization – Also known as “market cap,” it is the total dollar market value of all of a company’s outstanding shares. Calculated by multiplying the number of shares outstanding by the current market price of one share. Common groupings include:

• Small Cap – Market cap of less than $2 billion
• Mid Cap – Market cap between $2 and $10 billion
• Large Cap – Market cap greater than $10 billion

Long vs. Short – Long positions are taken when prices are expected to rise; investors profit if the price goes up. Short positions involve borrowing and selling a security with the expectation of buying it back at a lower price later and profiting from the difference.

Over Sold – A state in which price falls rapidly, often spurred by panic or overreaction to recent events, to a level below the security’s perceived intrinsic value. Some investors may view this as a potential buying opportunity.

Over Bought – A state in which price climbs rapidly, often spurred by hype or overreaction to recent events, to a level above perceived intrinsic value. Some investors may view this as a potential signal to reduce or avoid new purchases.

Technical Analysis – Analysis of securities using price, volume, and other market data to identify patterns, trends, and potential future movements.

Divergence – When price or volume movement conflicts with what a particular technical indicator or analysis would suggest, potentially signaling a change in trend.

Golden Cross – When a short-term moving average (e.g., 50-day) rises above a long-term moving average (e.g., 200-day), often interpreted by technical analysts as a bullish signal.

Rounding Bottom – A U-shaped pattern that may extend over weeks or months, marked by a gradual shift from downward to upward price trends.

Moving Average – A technical indicator that shows the average value of a security over a specified period of time, helping smooth out day-to-day price fluctuations and highlight trends.

Money Flow Index – A momentum-based technical indicator that combines price and volume to indicate buying and selling pressure and potentially spot trend reversals.

Bull Market & Bullish Positions – A bull market is one in which prices are rising and widely expected to keep rising. Bullish positions aim to profit from this growth, such as long positions in equities.

Bear Market & Bearish Positions – A bear market is one in which prices are falling and widely expected to continue falling. Bearish positions, such as short positions or certain defensive assets, aim to protect or profit during declines.

Technical Indicators – Also referred to as “technicals,” these are mathematical calculations based on price, volume, or open interest used to evaluate securities and identify potential trading opportunities.

Capital Appreciation – An increase in the market price of a security over time, distinct from returns generated by dividends or interest.

Asset Class – A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same laws and regulations, such as equities, fixed income, and cash equivalents.

Volatility – A statistical measure of the dispersion of returns for a given security or market index, often used as a proxy for risk.

Market Index – An aggregate value produced by combining several stocks or other investments and expressing their total values against a base value from a specific date. Common examples include the S&P 500 or Dow Jones Industrial Average.

Hedges – Investments made to reduce the risk of adverse price movements in an asset, often by taking an offsetting position in a related security.

Cash Equivalents – Highly liquid, short-term investments that can be converted into cash quickly with minimal loss of value. Examples include certain money market instruments and Treasury bills.

Debt Securities – Exchange-traded corporate or government debt obligations, the proceeds of which are used to pay back the initial loan. These are commonly referred to as bonds or notes.

Capital Appreciation – A rise in the value of an asset based on a rise in market price above its cost basis. Capital appreciation is one of the two main sources of investment return, alongside dividends or interest income.

Asset Allocation – An investment strategy that aims to balance risk and reward by apportioning a portfolio’s assets among different asset classes according to an individual’s goals, risk tolerance, and time horizon.

High-yield Corporate Debt – Also known as junk bonds or speculative bonds, these are debt securities rated below investment grade, carrying higher risk of default but offering higher potential yields.

Blue Chip – A nationally recognized, well-established, and financially sound company, typically known for stable earnings, strong balance sheets, and a history of paying dividends.

Monte Carlo – A type of simulation where problem solving and statistics are combined to approximate the likely outcome of retirement or investment scenarios using repeated trials and random variables.

FNA – Financial Needs Analysis is a holistic and comprehensive examination of an individual or family’s financial situation and goals, both present and future.

Net Worth – A snapshot of financial health calculated as total assets minus total liabilities. Often primary residence is considered separately, depending on context.

ADR – American Depositary Receipts are certificates issued by U.S. banks representing shares of foreign companies traded on U.S. exchanges, making it easier for American investors to own foreign stocks.

REIT – Real Estate Investment Trusts are securities that represent ownership of a portfolio of real estate properties or mortgages and typically offer income-focused yields.

Black Swan Event – A significant event that is highly unexpected and difficult to predict in advance, often only fully explained in hindsight. Such events can cause major market disruptions.

Qualified – A retirement or benefit plan that meets requirements of the Internal Revenue Code and, as a result, is eligible to receive certain tax benefits. These plans must be for the exclusive benefit of employees or their beneficiaries.

Non Qualified – A plan that does not meet the requirements of qualified plans. Non-qualified plans may not receive the same tax advantages as qualified plans.