As a broker with investor clients, it is important to keep up with the current financial trends and terminology. To give sound real estate investment advice, brokers need to be aware of the newest terminology circling the investment world.
Investopedia recently made a top ten list (A shout-out to Letterman?) of the most trending financial terms. Read through the list and note which you already knew and which are new to you. You may be surprised.
10. Backdoor Roth IRA
Coming in at number 10, Backdoor Roth IRA may offer anecdotal evidence that older savers are looking to build a bigger nest egg. A “backdoor” Roth IRA allows wealthy individuals who have reached their contribution limit for a regular Roth IRA to contribute more to retirement. As more than 10,000 boomers retire every day and the threat of a retirement crisis looms, investors are looking for new ways to save for retirement.
Fintech has been a buzzword for a few years now and has taken center stage as robo-advisors and mobile apps for trading stocks threaten to bring down “legacy” financial companies. The rise of fintech will continue as Millennials, tethered to their mobile devices, look for new ways to “hack” the investing world.
8. Gamma Hedging
Gamma Hedging is an active trading strategy meant to hedge risk on options trades. Gamma hedging, tactical trading and intraday momentum used to be for hedge fund managers exclusively, but as technology disrupts many professions that had high bars of entry, more retail investors are becoming sophisticated active traders.
7. Tactical Trading
Tactical trading describes the strategy of active traders, particularly hedge fund traders. As technology disrupts investing – as it has done in so many seemingly permanent domains of life – many investors are becoming more actively involved with alternative investing strategies.
6. Intraday Momentum Index
The Intraday Momentum Index is a technical indicator used by day traders to signal when a stock is trending up or down. High volatility is good for day traders, and many traders were looking for ways to capitalize on markets’ high volatility this year, in particular over the summer when stock market gyrations gave many investors whiplash.
The high-profile success of tech startups like Snapchat and Uber, with their valuations at over one-billion dollars and negative cash flows, prompted skeptical investors to label them “unicorns”: mythical creatures that can’t be real.
4. Exchange-Traded Mutual Fund
As fees increase and returns languish for traditional mutual funds, investors are researching new products, like ETMFs, that combine the advantages of investment strategies of an actively managed mutual fund and the performance and tax efficiencies of an ETF.
3. Negative Interest Rate Policy
The European Central Bank experimented with unconventional monetary policy in 2015 to fight off deflation and pull Europe’s economy out of the doldrums. Negative interest rates penalize savers by making them pay to save. For example, in a regular savings account that offers 5% interest, when you deposit $100, the bank pays you $5 at the end of the year. With a negative interest rate of 5%, if you deposit $100, at the end of the year your bank account only has $95 in it.
2. Grexit / Brexit
In 2015, the global economy was shaken by the possibility of a Greek default on sovereign debt and the failure of the Eurozone as a common currency union. The discussion of Great Britain and Greece exiting the EU prompted us to create these terms.
1. Smart Beta
Smart Beta is a new, popular financial product that attempts to beat indexed funds, but many investors are still not familiar with it. The popularity of smart beta in the industry this year led it to being Investopedia's top term of the year. Because the term is so new and asset management firms don’t always mean the same thing when they use it, investors looked for a second opinion on Investopedia.