HOW TO INVEST

The amount by which the ask price exceeds the bid price for an asset in the market. The bid-ask spread is essentially the difference between the highest price a buyer is willing to pay for an asset and the lowest price a seller is willing to accept.

Investment gains (including interest, dividends, bond coupons) earned from assets that were themselves bought with previous investment income. The principle of compound interest is often considered a major driver of long-term wealth creation.

Investing against popular opinions or trends. Contrarian investors often believe their alternative perspective is correct, and that this perspective will eventually become the prevailing mainstream opinion.

A measure of the extent to which assets tend to move in the same direction, or relative to each other. The lower the correlation, the greater the diversification benefits of holding those two investments.

The annual interest rate paid on a bond, expressed as a percentage of the face value and paid from the issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a year divided by the face value of the bond in question).

Spreading an overall investment across different assets to reduce the risk of loss should any one of them fail. Diversification also reduces the volatility of the overall return.

The efficient frontier is the set of optimal portfolios that offer the highest expected return for a defined level of risk, or the lowest risk for a given level of expected return.

ESG stands for environmental, social, and governance. ESG investors use non-financial considerations from these three topics to help them pick investments. Some investors analyse ESG matters to complement a broader review of investment risks and opportunities, while for others, ESG issues are the main concern.

An investment approach derived from a particular theory, applied using consistent principles or guidelines.

Market timers believe they can correctly anticipate the highs and lows of asset prices or stock markets and rely on their judgment to buy and sell opportunistically, rather than remaining fully invested.

A theory that asset price volatility and historical returns will eventually revert to the long-run mean or average level of the entire dataset.

The collective term for a group of investments. Can be an umbrella term for all the assets or might describe a distinct segment within a bigger portfolio. For example, an equity or bond portfolio within a larger portfolio.

The process of buying or selling certain assets to redress an imbalance between asset weights in a portfolio. The weights are rebalanced to a target benchmark or allocation, usually agreed when the portfolio was set up.

The ability and tolerance to take investment risks. Commonly divided into four levels – low, moderate, considerable, high – that determine how willing and able investors are to balance the potential for capital losses with the potential for positive returns.

A Julius Baer publication that highlights significant long-term political and economic trends.

A negotiable, interchangeable financial instrument that holds some type of monetary value. It represents an ownership position in a publicly traded corporation via stock; a creditor relationship with a governmental body or a corporation represented by owning that entity’s bond; or rights to ownership as represented by an option.

The term used at Julius Baer to describe the client’s ideal long-term investment parameters. A client’s optimal portfolio will comprise assets that fall within the strategic asset allocation, tactical adjustments to this core and, optionally, the tactical asset allocation with its focus on prevailing investment themes.

The current investment view of Julius Baer’s Investment Committee for a given investment strategy. The tactical asset allocation might also be used to accentuate a client’s personal investment preferences.

A client’s ideal benchmark weight for an individual asset or asset class within a portfolio, considering their risk/return preferences.

The degree of variation of a trading price series over time as measured by the standard deviation of logarithmic returns.