A layman’s guide to managing your workplace retirement accounts. Part 1 Terms and Definitions.
UPDATE 3/22/17: I no longer move my money between a mutual fund and a money market account based on market conditions. It proved to not work as well as intended, and added more time to my already busy schedule. I intend, at some point, to find a better system for that strategy. I buy and hold the best fund available currently. I do monitor to make sure I am still in that fund, but I no longer rotate my money.
However, the rest of the guide which details how to choose a fund is still very relevent and useful.
I am going to list some terms that I will use when I talk about a basic retirement account strategy. I am attempting to write this guide for people at all levels of market knowledge so many of these terms will be very basic for advanced readers. The definitions come from Investopedia.com.
DEFINITION of ‘Index’
A statistical measure of change in an economy or a securities market. In the case of financial markets, an index is an imaginary portfolio of securities representing a particular market or a portion of it. Each index has its own calculation methodology and is usually expressed in terms of a change from a base value. Thus, the percentage change is more important than the actual numeric value. Stock and bond market indexes are used to construct index mutual funds and exchange-traded funds (ETFs) whose portfolios mirror the components of the index.
DEFINITION of ‘Market Capitalization’
The total dollar market value of all of a company’s outstanding shares. Market capitalization is calculated by multiplying a company’s shares outstanding by the current market price of one share. The investment community uses this figure to determine a company’s size, as opposed to sales or total asset figures.
Frequently referred to as “market cap.”
DEFINITION of ‘Candlestick’
A chart that displays the high, low, opening and closing prices for a security for a single day. The wide part of the candlestick is called the “real body” and tells investors whether the closing price was higher or lower than the opening price (black/red if the stock closed lower, white/green if the stock closed higher). The candlestick’s shadows show the day’s high and lows and how they compare to the open and close. A candlestick’s shape varies based on the relationship between the day’s high, low, opening and closing prices.
DEFINITION of ‘Moving Average — MA’
A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random price fluctuations. A moving average (MA) is a trend-following or lagging indicator because it is based on past prices. The two basic and commonly used MAs are the simple moving average (SMA), which is the simple average of a security over a defined number of time periods, and the exponential moving average (EMA), which gives bigger weight to more recent prices. The most common applications of MAs are to identify the trend direction and to determine support and resistance levels. While MAs are useful enough on their own, they also form the basis for other indicators such as the Moving Average Convergence Divergence (MACD).
DEFINITION of ‘Exponential Moving Average — EMA’
A type of moving average that is similar to a simple moving average, except that more weight is given to the latest data. The exponential moving average is also known as “exponentially weighted moving average”.
Other posts in the managing your workplace retirement accounts series:
Originally published at Speculate Freedom.