P/E Ratio
Price-to-Earnings ratio. Compares a company's share price to its earnings per share. A higher P/E suggests investors expect more growth; a lower P/E may indicate undervaluation.
Valuation
P/B Ratio
Price-to-Book ratio. Compares market capitalization to book value (assets minus liabilities). Values below 1 may indicate undervaluation relative to assets.
Valuation
P/S Ratio
Price-to-Sales ratio. Market cap divided by revenue. Useful for comparing companies that have no earnings yet, common in growth investing.
Valuation
EV/EBITDA
Enterprise Value to EBITDA. A valuation measure used to compare businesses, factoring in debt. Lower values typically indicate cheaper valuations.
Valuation
Market Capitalization
Total market value of a company's outstanding shares (price × shares). Small cap: under $2B. Mid cap: $2–10B. Large cap: over $10B.
Valuation
Enterprise Value
Total company value including market cap plus debt minus cash. Represents the theoretical price to acquire a business outright.
Valuation
Book Value
Net asset value of a company — total assets minus total liabilities. Represents what shareholders would theoretically receive if the company was liquidated.
Valuation
Dividend Yield
Annual dividend per share divided by share price, expressed as a percentage. Shows the income return from an investment before price appreciation.
Valuation
Standard Deviation
A statistical measure of the dispersion of returns around the average. Higher standard deviation means higher volatility and risk.
Risk
Beta
Measures how volatile an asset is relative to the market (S&P 500 = 1.0). Beta > 1 means more volatile; Beta < 1 means less volatile than the market.
Risk
Sharpe Ratio
Return earned above the risk-free rate per unit of total risk (standard deviation). Higher Sharpe ratios indicate better risk-adjusted performance.
Risk
Max Drawdown
The largest peak-to-trough decline in portfolio value over a specific period. Measures the worst-case scenario an investor would have experienced.
Risk
Alpha
Excess return generated compared to a benchmark index. Positive alpha means the fund outperformed; negative alpha means it underperformed.
Risk
Correlation
A measure of how two assets move in relation to each other (-1 to 1). Combining low-correlation assets reduces portfolio volatility through diversification.
Risk
Value at Risk (VaR)
The maximum expected loss over a given time period at a specified confidence level. E.g., a 5% daily VaR of $10,000 means a 5% chance of losing $10,000 in a day.
Risk
Duration
For bonds, duration measures sensitivity to interest rate changes. A 5-year duration means a 1% rate rise reduces the bond's price by roughly 5%.
Risk
Expense Ratio
Annual fee charged by a fund as a percentage of assets, deducted daily. A 0.03% expense ratio means $3 per year for every $10,000 invested.
Etf
AUM
Assets Under Management. Total market value of assets managed by a fund. Larger AUM generally indicates better liquidity and lower spreads.
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Bid-Ask Spread
The difference between the highest price a buyer will pay and the lowest price a seller will accept. Narrower spreads mean lower transaction costs.
Etf
NAV
Net Asset Value. The per-share value of a fund's underlying holdings. ETFs can trade at a small premium or discount to NAV throughout the day.
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Tracking Error
How closely an ETF follows its benchmark index. Lower tracking error means more accurate index replication and fewer surprises.
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Passive vs Active ETF
Passive ETFs track an index (like S&P 500) with minimal trading. Active ETFs have managers making investment decisions, typically at higher cost.
Etf
Creation/Redemption
The unique mechanism that keeps ETF prices close to NAV. Authorized participants can create or redeem large blocks of ETF shares to arbitrage away premiums/discounts.
Etf
Index
A basket of securities representing a market or sector. Common examples: S&P 500 (500 large US companies), Nasdaq-100 (100 largest non-financial Nasdaq companies).
Market
Sector Rotation
The movement of money from one sector of the economy to another as business cycles evolve. Investors try to be in the right sector at the right time.
Market
Market Cap Weighting
An indexing method where larger companies have more influence. The S&P 500 is cap-weighted — Apple, Microsoft, and Nvidia have outsized impact.
Market
Liquidity
How easily an asset can be bought or sold without affecting its price. High-liquidity ETFs have tight spreads and can be traded in large sizes quickly.
Market
Short Interest
The number of shares sold short (borrowed and sold) as a percentage of total shares. High short interest may indicate bearish sentiment.
Market
52-Week High/Low
The highest and lowest price an ETF or stock has traded at over the past year. Used as reference points for technical analysis and sentiment.
Market
Total Return
The full return including price appreciation plus dividends or income distributions, reinvested. The most accurate measure of investment performance.
Returns
Annualized Return
A rate of return applied consistently for each year in a multi-year period. Allows comparison of returns over different time periods.
Returns
CAGR
Compound Annual Growth Rate. The rate at which an investment would have grown if it grew at a steady rate each year. A smoothed representation of growth.
Returns
YTD Return
Year-to-Date return. Performance from January 1st to the current date. Useful for comparing current-year performance across funds.
Returns
Risk-Free Rate
The theoretical return of an investment with zero risk, typically the yield on 3-month U.S. Treasury bills. Used as a baseline for evaluating other investments.
Returns
Rebalancing
Periodically buying/selling assets to restore a portfolio back to its target allocation. Ensures risk exposure stays aligned with your goals as markets move.
Returns
PEG Ratio
P/E ratio divided by expected earnings growth rate. A PEG near 1 suggests a stock's valuation is roughly in line with its growth; below 1 may indicate undervaluation relative to growth.
Valuation
Forward P/E
P/E ratio calculated using projected future earnings instead of trailing (historical) earnings. Useful for gauging valuation based on where a company is headed, not just where it's been.
Valuation
Free Cash Flow Yield
Free cash flow per share divided by share price. Measures how much cash-generating power you're buying relative to the stock's cost — higher yields can signal better value.
Valuation
R-Squared
Measures how much of a fund's movement is explained by its benchmark index, from 0 to 100. A high R-squared (like 95+) means the fund closely tracks its benchmark.
Risk
Sortino Ratio
Similar to the Sharpe Ratio, but only penalizes downside volatility instead of all volatility — a better fit for judging risk when you only care about losses, not upside swings.
Risk
Downside Deviation
Measures volatility of only the negative returns in a series, ignoring upside swings. Useful when you want to isolate "bad" risk from overall price movement.
Risk
Premium/Discount to NAV
The difference between an ETF's market price and its underlying Net Asset Value. A persistent premium or discount can signal liquidity issues or valuation mismatches.
ETF
Authorized Participant
A large institution that can create or redeem large blocks of ETF shares directly with the fund, which keeps an ETF's market price closely aligned with its NAV.
ETF
In-Kind Redemption
The process where an ETF exchanges its underlying securities directly for shares instead of selling assets for cash — a key reason ETFs tend to be more tax-efficient than mutual funds.
ETF
Bull Market
A prolonged period of rising prices, typically defined as a 20%+ gain from a recent low, often accompanied by investor optimism.
Market
Bear Market
A prolonged period of falling prices, typically defined as a 20%+ decline from a recent high, often accompanied by investor pessimism.
Market
Time-Weighted Return
A return measure that removes the effect of when you added or withdrew money, isolating pure investment performance — the standard way fund managers report returns.
Returns
Real Return
Your investment return after subtracting inflation. A 6% return in a year with 3% inflation is really only a 3% increase in purchasing power.
Returns
Asset Allocation
How your money is divided among broad categories like stocks, bonds, real estate, and cash. Widely considered the single biggest driver of long-term portfolio returns and risk.
Portfolio
Diversification
Spreading investments across different assets, sectors, or regions so that no single holding's decline can sink your entire portfolio.
Portfolio
Dollar-Cost Averaging
Investing a fixed amount on a regular schedule regardless of price, which smooths out the impact of volatility over time instead of trying to time the market.
Portfolio
Modern Portfolio Theory
A framework showing that a mix of assets can produce a better risk-adjusted return than any single asset alone, because assets that move differently offset each other's swings.
Portfolio
Capital Gains Tax
Tax owed on profit from selling an investment. Short-term gains (held under a year) are taxed as ordinary income; long-term gains (held over a year) get preferential, lower tax rates.
Tax
Qualified Dividend
A dividend that meets IRS holding-period requirements and is taxed at the lower long-term capital gains rate instead of your ordinary income rate.
Tax
Cost Basis
What you originally paid for an investment, used to calculate your taxable gain or loss when you sell. Includes purchase price plus fees, and can adjust for reinvested dividends or stock splits.
Tax
Step-Up in Basis
When an inherited asset's cost basis resets to its value on the date of death, potentially erasing decades of unrealized capital gains for tax purposes.
Tax