The average amount of money earned by an investment each year over a given time period. An annualized total return provides only a snapshot of an investment’s performance and does not give investors any indication of its volatility. Annualized total return merely provides a geometric average, rather than an arithmetic average. Taobiz explains Annualized Total Return A mutual fund could earn returns varying from 3 to 5% each year and have an annualized total return of 3.995%. On the other hand, a fund could also be much more volatile, losing 3% in one year, earning 12% in another and have an annualized total return of 4.23%. The difference is the first fund would offer steady returns while the second would offer widely fluctuating returns. Annualized Return = [(1+R1)*(1+R2)...*(1+Rn)] ^ (1/n) Where R = annual return for a given year
The return an investment provides over a period of time, expressed as a time-weighted annual percentage. Sources of returns can include dividends, returns of capital and capital appreciation. The rate of annual return is measured against the initial amount of the investment and represents a geometric mean rather than a simple arithmetic mean. Annual return is the de facto method for comparing the performance of investments with liquidity, which includes stocks, bonds, funds, commodities and some types of derivatives. Different asset classes are considered to have different strata of annual returns. Taobiz explains Annual Return For example, consider an investor that purchases a stock on January 1, 2000, for $20. The investor then sells it on January 1, 2005, for $35 – a $15 profit. The investor also received a total of $2 in dividends over the five-year holding period. In this example, the investor’s total return over five years would be $17, or (17/20) 85% of the initial investment. The annual return required to achieve 85% over five years follows the formula for the compound annual growth rate (CAGR): (37/20) ^(1/5 (yr)) – 1 = 13.1% annual return Annual-return statistics are commonly quoted in promotional materials for mutual funds, ETFs and other individual securities.
A list of pre-selected securities that are deemed fit for purchase by a mutual fund or the clients of a brokerage firm. In both cases, the intent is to limit the account managers' or brokers' array of choices to investments available on the brokerage's approved list. From a brokerage firm's perspective, the approved list will usually be somewhat larger than the selected holdings in any one client's portfolio, so that there are ample choices for constructing a portfolio, or changing it over time as needed. The approved list will also frequently show buy and sell target prices for the securities, and will be updated by the firm's research team and then transmitted to the brokers or account managers. Taobiz explains Approved List The "approved list model", where brokers with limited investment knowledge choose stocks from a pre-approved list, is sometimes regarded as not suited to the individual investor, as it tries to group everyone's needs together without taking any one person's wishes or risk profile in account.
The right of shareholders to demand the fair payment of securities undergoing a merger by a third party valuator. Taobiz explains Appraisal Right It's a protection policy for shareholders, preventing corporations involved in the merger from paying less than the company is worth to the shareholders.
A business's ability to take productive resources and manage them within its operations to produce subsequent returns. Asset performance is typically used to compare one company's performance over time or against its competition. Possessing strong asset performance is one of the criteria for determining whether a company is considered a good investment. Taobiz explains Asset Performance Analysts use metrics like the cash conversion cycle, the return on assets ratio and the fixed asset turnover ratio to compare and assess a company's annual asset performance. Typically, an improvement in asset performance means that a company can either earn a higher return using the same amount of assets or is efficient enough to create the same amount of return using less assets.
The classification of all assets within a fund or portfolio. Assets are assigned to one of the core asset classes: stocks (equities), bonds (fixed income), cash and real estate. Other categories that are sometimes considered asset classes are commodities, international investments, hedge funds and limited partnership interests. The asset mix is usually shown as the set of percentages every asset class contributes to the total market value of the portfolio. It is a key determinant of the risk/reward profile of the fund, which in turn is largely determinant of long-term performance results. Taobiz explains Asset Mix Investors can expect the asset mixes of funds within a given strategy – such as capital-appreciation funds, “balanced” funds, income funds and life-cycle funds – to be similar to each other. Portfolio managers use the historical averages for different asset classes’ returns to determine the right mix of asset classes for the fund, whether the right mix is to hold a very high percentage of bonds (income-seeking investors, retirees) or to invest primarily in small-cap equities (capital-appreciation/aggressive-growth funds). This applies to individual investors as well – the right asset mix will depend on the unique circumstances of the investor, including risk tolerance, desire for income, time horizon, tax liabilities and liquidity needs.
The underlying assets giving value to a company, investment or loan. The asset base is not fixed, it will appreciate or depreciate according to market forces. Lenders use physical assets as a guarantee that at least a portion of money lent can be recouped through the sale of the backed asset in the case that the loan itself cannot be repaid. Taobiz explains Asset base The value of a home might increase or decrease over time, affecting the underlying collateral in a mortgage. Similarly, the price of a commodity used as the asset base of derivative can also increase or decrease rapidly, changing the price that investors are willing to pay for it. Examples of asset bases include a home (for a mortgage) and factory equipment (business loan). A derivative would "derive" its value from an underlying asset.
A class of stock in which the issuing company is allowed to impose levies on stockholders for more funds. In the past, there was no restriction on how much additional money a company could demand or on how often a company could impose a levy on its stocks. These are the opposite of non-assessable stocks. Taobiz explains Assessable Stock Before the twentieth century, assessable stocks were the prevalent type of equity that companies would issue. In order to entice investors into buying this potentially expensive stock, issuers would initially sell the stock at a discount. For example, an assessable stock has an initial capitalization of $20, but the issuer would sell the stock with a 75% discount ($5). Naturally, seeing how the issuer only received a small fraction of the capitalization, companies would almost always come back to investors for more money. In some cases, companies would eventually take more money than the value of the stock. However, because all stocks issued today are non-assessable stocks, investors should not have to worry about a company making demands for more money.
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