Glossary
Plain-language definitions of the market and portfolio terms used across the Charter and the Lab.
- Asset classA broad category of investments that behaves distinctly — equities, bonds, gold, commodities — the building blocks of a diversified, tactically allocated portfolio.
- BacktestApplying a set of rules to historical data to see how it would have behaved — useful for understanding a strategy, never a forecast of the future.
- BenchmarkA reference index against which a portfolio's return and risk are measured — the yardstick that says whether a result is good in context.
- CorrelationHow closely two assets move together, from +1 (in lockstep) to −1 (opposite) — the property that makes diversification work, when it is low.
- DiversificationSpreading capital across assets that behave differently, so weakness in one is offset by others. It reduces avoidable risk but does not remove market-wide risk.
- DrawdownThe decline from an investment's most recent peak to its subsequent trough, in percent — a direct measure of pain endured, and of the gain needed to recover.
- ETF (Exchange-Traded Fund)A fund that trades on an exchange like a single share and usually tracks an index, giving low-cost, diversified exposure to a whole market.
- Fund fees (TER)The ongoing cost of holding a fund, quoted as a total expense ratio (TER). Small-looking annual fees compound into large sums over an investing lifetime.
- HedgingTaking an offsetting position to reduce a specific risk — trading away some potential upside in exchange for protection against a particular loss.
- LiquidityHow easily an asset can be bought or sold at a fair price without moving the market — high for large ETFs and major indices, low for niche holdings.
- Market regimeA persistent market environment — trending, calm, or turbulent — that a rules-based reading identifies from price behaviour, rather than a prediction of what comes next.
- Mean reversionThe tendency of a stretched price or ratio to move back toward its historical average — the mirror image of momentum, and often at odds with it.
- MomentumThe tendency of assets that have performed well (or poorly) recently to keep doing so for a time — a well-documented pattern used by trend and momentum strategies.
- RebalancingPeriodically realigning a portfolio back to its target weights after prices drift them apart — trimming what has grown, topping up what has lagged, on a fixed rule.
- Sharpe ratioA measure of return earned per unit of risk (volatility) — a way to compare strategies on reward relative to the bumpiness of the ride.
- Systematic investingInvesting by explicit, pre-defined rules rather than discretion or gut feel — so decisions are repeatable, testable, and free of in-the-moment emotion.
- Tactical Asset Allocation (TAA)Adjusting a portfolio's mix of assets over time, within rules, in response to the market environment — as opposed to holding fixed weights regardless of conditions.
- Total returnThe full return of an investment including both price change and income (dividends or interest) reinvested — the honest measure of what an investor actually earned.
- Trend followingA rules-based approach that raises exposure to assets in sustained uptrends and reduces it in downtrends — following the move rather than predicting the turn.
- VolatilityHow much an asset's price fluctuates over time. High volatility means larger swings; it measures turbulence, not direction — and is not the same thing as risk.