A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique contends that a portfolio of different kinds of investments will, on average, yield higher returns and pose a lower risk than any individual investment found within the portfolio. Diversification strives to smooth out unsystematic risk events in a portfolio so that the positive performance of some investments will neutralize the negative performance of others. Therefore, the benefits of diversification will hold only if the securities in the portfolio are not perfectly correlated. Studies and mathematical models have shown that maintaining a well-diversified portfolio of 25 to 30 stocks will yield the most cost-effective level of risk reduction. Investing in more securities will still yield further diversification benefits, albeit at a drastically smaller rate.Further diversification benefits can be gained by investing in foreign securities because they tend be less closely correlated with domestic investments. For example, an economic downturn in the U.S. economy may not affect Japan's economy in the same way; therefore, having Japanese investments would allow an investor to have a small cushion of protection against losses due to an American economic downturn.Most non-institutional investors have a limited investment budget, and may find it difficult to create an adequately diversified portfolio. This fact alone can explain why mutual funds have been increasing in popularity. Buying shares in a mutual fund can provide investors with an inexpensive source of diversification.
A U.S. government agency that protects the American public from products that may create a potential hazard to safety. The Consumer Product Safety Commission focuses on consumer products that pose an unreasonable risk of fire, chemical exposure, electrical malfunction, or mechanical failure. Products that expose children to danger and injury are also a high priority. The Consumer Product Safety Commission investigates complaints from consumers concerning unsafe products, and also issues recalls of products that may be defective or violate mandatory standards. |||This agency keeps a watchful eye over products such as power tools, cribs, toys, household chemicals and cigarette lighters. It is an independent federal regulatory agency whose charter includes the following tasks: - To work with industry to develop voluntary product standards- To issue mandatory standards when required, or ban specific products where no standard would provide adequate public protection- To enforce standards and issue recalls or repair orders whenever necessary- To conduct independent research on potential hazards- To respond to consumer inquiries and complaints regarding specific products- To inform and educate consumers through the media and government channels
A variation of the consumer price index, as complied by the Bureau of Labor Statistics in the United States, that measures the consumer prices certain workers are exposed to. The index is primarily used on an annual basis, to reflect changes in the costs of benefits paid to Social Security beneficiaries.The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is updated monthly - usually with a one-month lag. |||The CPI-W is calculated using the same data collected by the Bureau of Labor Statistics, but includes information from only certain demographics: those households with at least 50% of the household income coming from clerical or wage paying jobs, and at least one of the household's earners must have been employed for at least 70% of the year.The CPI-W is used as a benchmark for many benefit plans in order to reflect changes in the cost of benefits, but it can also be used in calculating future contract obligations.
An expression describing the act of a company using its own products for day-to-day operations. A company that eats its own dog food sends the message that it considers its own products the best on the market. This slang was popularized during the dotcom craze when some companies did not use their own products and thus could "not even eat their own dog food". An example would've been a software company that created operating systems but used its competitor's software on its corporate computers.
An unadjusted rate, value or change in value. This type of measure often reflects the current situation, such as the current price of a car, and doesn't make adjustments to reflect factors such as seasonality or inflation, which provide a more accurate measure in real terms. |||In most cases, value is measured in real terms rather than nominal terms, which make adjustments to give a more accurate measure.For example, if you buy a $900 bond and are paid $1,000 for it a year later, your rate of return is 11.1%. This is the nominal rate of return; it is unadjusted and reflects the return on your bond. However, to get a more accurate picture of the actual return, the rate needs to be adjusted for inflation because the purchasing power of the your money has likely changed over the one-year period. Therefore, if inflation for that year is 5%, the real rate of return is only 6.1% (11.1%-5%).
A visual representation of the principle investment characteristics of stocks and stock mutual funds. The style box was created by Morningstar and is a valuable tool for investors to use to determine the risk-return structures of their stocks/stock portfolios and/or how these investments fit into their investing criteriaAlso known as a "stock style box". An equity style box is comprised of nine squares, or categories, with the investment features of stocks/stock mutual funds presented along its vertical and horizontal axes.For stocks and stock funds, the horizontal axis is divided into three investment style (objective) categories: value, blend (a value/growth mix) and growth. The vertical axis is divided into three company-size (based on market capitalization) indicators: large, medium and small. A stock investor looking for relative safety would confine his or her stock or stock fund investments to the large category for company size, combined with selections in the value and blend in the investment style categories. For a risk taker, the category combination of small company (small-cap) and growth will provide a high-risk, high-return opportunity.
A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. The CPI is calculated by taking price changes for each item in the predetermined basket of goods and averaging them; the goods are weighted according to their importance. Changes in CPI are used to assess price changes associated with the cost of living.Sometimes referred to as "headline inflation". |||The U.S. Bureau of Labor Statistics measures two kinds of CPI statistics: CPI for urban wage earners and clerical workers (CPI-W), and the chained CPI for all urban consumers (C-CPI-U). Of the two types of CPI, the C-CPI-U is a better representation of the general public, because it accounts for about 87% of the population. CPI is one of the most frequently used statistics for identifying periods of inflation or deflation. This is because large rises in CPI during a short period of time typically denote periods of inflation and large drops in CPI during a short period of time usually mark periods of deflation.
An adage that, referring to the risk/return trade-off, says that the type of security an investor chooses depends on whether he or she wants to eat well or sleep well. Investing in high-risk, high-reward securities will offer you the potential to eat well, but the risky nature of these securities might prevent you from sleeping at night. By contrast, investing safely means that you will sleep well, but the low rate of return may keep you from eating well.
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