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Baffled by financial jargon? Here are some commonly misunderstood investment concepts
Monte Carlo simulation: No, it does not mean losing your life savings at the roulette table. The term refers to an analysis that tells you how likely you are to reach your financial goals.
Open architecture: It does not mean ‘open to renegotiation.’ It means that investors are not locked into a few proprietary products offered by their financial company and can choose from a variety of outside products.
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Institutional-quality money management: ‘Why are prison inmates handling the money?’ (That response did come from an Invesco focus group.) It means that individual investors are given the same quality of service and advice as the biggest institutional investors, such as pension funds.
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Bottom-up analysis: This does not mean ‘going from losses to gains.’ The term bottom-up investing is based on analyzing the underlying strength of a company’s markets, prospects and finances.
Transparent fees: The common misconception is that this refers to invisible fees. Instead, it means full disclosure of investment management, service and other fees.
Alpha and beta: ‘Beta – like a VCR tape or something?’ Alpha means picking investments that outperform. Beta means getting extra return for taking on more risk.
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Large-cap value: No, it’s not extra warmth on a cold day. The term refers to ‘blue chip’ companies with stock prices that are low relative to the value of the company itself. (Sources: Invesco Van Kampen Consulting and Adrian Mastracci of KCM Wealth Management Inc.)
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