Top 10 Financial Words of the Year that you Need to Know
“With instability in the EU, the continued disruption of traditional finance by fintech companies, and a retirement crisis looming, these terms are an incredibly strong reflection of the state of the financial industry this year,” says David Siegel, the CEO of the online finance dictionary Investopedia.
As technology continues to disrupt traditional finance, the average investor is picking up skills and strategies once relegated to professional fields. Investopedia singled out the following ten “buzzwords” as the most important to know in the year 2015 (we bet you don’t know all 10):
Backdoor Roth IRA: Too wealthy to add more money to a traditional Roth IRA? Check out the backdoor version, which allows the rich to contribute more money. Investors are looking for new ways to save as the country is threatened by a retirement crisis (more than 10,000 baby boomers retire every day).
Fintech: This word has become increasingly popular during recent years as mobile apps for finance purposes and robotic advisors threaten to do away with traditional finance. This trend is sure to continue as the Millennials look for ways to save money while using their cell phones for everything from dating to trading stocks.
Gamma Hedging: Once a strategy used by hedge fund managers only, this approach is aimed to hedge risk on options trades. Gamma hedging is being picked up by more and more investors as technology allows them to become sophisticated, knowledgeable active traders.
Tactical Trading: Another strategy once confined to the professional field, tactical trading is another alternative investing method being picked up by the average investor.
Intraday Momentum Index: An indicator utilized by day traders to signal when stocks are trending down or up. High volatility is a good thing for day traders and many of them have used this year’s fluctuations to their benefit.
Unicorn: No, we don’t mean the fairytale creature. A “Unicorn” in today’s financial terms refers to the outrageous success of tech startup companies like Uber and Snapchat. With values of over a billion and negative cash flows, can these companies truly be real?
Exchange-Traded Mutual Fund (ETMF): As fees increase and returns decrease for many mutual funds, investors look for new options, such as ETMFs, which combine the tax and performance efficiencies of a traditional ETF with the benefits of investment strategies of an actively managed mutual fund.
Negative Interest Rate Policy: Paying money to save money? This year, the European Central Bank experimented with this unconventional policy in an attempt to boost Europe’s economy. With American interest rates remaining stagnant and near zero, experts discussed negative interest rates as a possibility here in the US.
Grexit/Brexit: The word’s economy was shaken this year with the possibility of a default on sovereign debt by Greece and the failing of the Eurozone as a common currency state. The terms “Grexit” and “Brexit” surfaced after discussions of Greece and Great Britain possibly exiting the EU.
Smart Beta: This term was born as people look for new ways to make money in stagnant markets using new investment tactics. “Smart Beta” is Investopedia’s #1 term of the year and also the most searched term on the online dictionary. It is an elusive and often misused term in modern finance. While it lacks a strict definition, it refers to a popular, new financial product that tries to beat indices. The term is interchangeable with “advanced beta” and “alternative beta.”
