Glossary
Plain-English definitions of the metrics and concepts used throughout this site.
Sharpe Ratio
A measure of risk-adjusted return: how much extra return a portfolio earned per unit of total volatility.
Sortino Ratio
Like the Sharpe Ratio, but it only penalizes downside volatility instead of all volatility.
Max Drawdown
The largest peak-to-trough decline a portfolio experienced before it recovered to a new high.
CAGR (Compound Annual Growth Rate)
The single steady annual growth rate that would take a starting value to its ending value over a period.
Volatility
How much an investment's returns swing up and down over time, usually measured as annualized standard deviation.
Rebalancing
Periodically buying and selling holdings to bring a portfolio back to its original target weights.
Correlation
A measure from -1 to +1 of how closely two assets' returns move together.
Asset Allocation
How a portfolio is divided among asset classes like stocks, bonds, and gold — the single biggest driver of long-run results.
Standard Deviation
A statistic describing how widely a set of returns spreads around its average — the raw ingredient of volatility.
Beta
How much an investment tends to move relative to the overall market — the market-related portion of its risk.
Alpha
Return above or below what an investment's market exposure alone would predict — the value added by skill.
Expense Ratio
The annual percentage a fund charges to run itself, deducted automatically from your returns.
Index Fund
A fund that mechanically tracks a market index rather than trying to beat it, usually at very low cost.
ETF vs. Mutual Fund
Two wrappers for the same underlying portfolio; ETFs trade like stocks and are often more tax-efficient.
Tracking Error
How closely a fund follows its target index — the small gap between fund and benchmark returns.
Real Return
An investment's return after subtracting inflation — the growth in actual purchasing power.
Nominal Return
An investment's raw return before adjusting for inflation — the headline number most quotes use.
TIPS (Treasury Inflation-Protected Securities)
US government bonds whose principal rises with inflation, directly protecting real purchasing power.
Duration
A bond's sensitivity to interest-rate changes — roughly how much its price moves when rates move 1%.
Dollar-Cost Averaging
Investing a fixed amount at regular intervals, buying more shares when prices are low and fewer when high.
Sequence-of-Returns Risk
The danger that poor returns early in retirement, combined with withdrawals, permanently damage a portfolio.
Safe Withdrawal Rate
The percentage of a portfolio you can withdraw yearly, adjusted for inflation, with low risk of running out.
The 4% Rule
A retirement guideline: withdraw 4% of your portfolio in year one, then adjust for inflation annually.
Drawdown Recovery
How long it takes a portfolio to climb back to its previous peak after a decline.
Risk Parity
Allocating so each asset contributes equal risk, rather than equal dollars — the idea behind All Weather.
Lazy Portfolio
A simple, fixed mix of a few low-cost index funds, rebalanced occasionally and otherwise left alone.
Glide Path
A planned shift in asset allocation over time, typically reducing stock exposure as retirement nears.