Money & Work
Own assets that compound
Novice
Subdomain
Risk is not just volatility; it is the chance of needing money during a drawdown. Allocation across equity, debt, and cash decides how you sleep at night.
Margin of safety
Buying an asset at a price comfortably below your honest estimate of its underlying value, so being wrong still leaves you whole.
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Rebalancing
Periodically selling assets that have grown above your target weights and buying those that have fallen below, to return the portfolio to its planned allocation.
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Risk premium
The extra return investors demand above a safe rate to hold a riskier asset.
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Sharpe and Sortino ratios
Metrics of risk adjusted return. Sharpe divides excess return by total volatility; Sortino divides only by downside volatility.
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Sequence of returns risk
The risk that the order of investment returns in early retirement deplete capital faster than the same returns in a different order would have.
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Modern portfolio theory
A framework that builds portfolios by combining assets to maximise expected return for a given level of risk, where risk is measured as the variance of returns.
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Bond duration
A measure of how sensitive a bond's price is to changes in interest rates, expressed in years.
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Index fund
Fund that tracks a market index. Low fee, no stock-picking.
ETF
Exchange-Traded Fund, index-style fund that trades like a stock.
Expense ratio
Annual % a fund deducts. Lower = better, all else equal.
Asset allocation
Mix of asset classes (stocks/bonds/cash/etc.) in your portfolio.
Diversification
Spreading risk across uncorrelated assets.
Drawdown
Peak-to-trough loss before recovery.
DCA
Dollar-Cost Averaging, investing the same amount on a fixed schedule.
Rebalancing
Periodically returning your portfolio to its target allocation.