Glossary

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Arithmetic return

The simple average of periodic returns. It describes an average period, not the compounded growth of one dollar.

Related: Geometric return; Volatility drag.

Geometric return

The constant annual rate that links a starting value to an ending value. It reflects compounding and volatility drag.

Real and nominal dollars

Nominal dollars are the amounts shown at the time. Real dollars remove assumed inflation so purchasing power is comparable across years.

Total return

Price change plus distributions, before or after costs and taxes as stated. A cash payment is only one component.

Related: Distribution and income; Real and nominal dollars.

Terminal wealth

Portfolio value at the end of the modeled horizon. It depends on cash-flow timing, returns, costs, taxes, and the unit used.

Related: Sequence risk; Real and nominal dollars.

Volatility drag

The gap between arithmetic and compounded return created by fluctuating returns. Larger swings generally widen the gap.

Sequence risk

The risk that poor returns arrive when withdrawals make recovery difficult, even if the long-run average return is unchanged.

Idiosyncratic risk

Company-specific risk that broad diversification can largely remove without requiring a lower market exposure.

Monte Carlo simulation

A set of model-generated paths used to examine a range of outcomes under stated assumptions. It is not a probability forecast unless the model is calibrated for that purpose.

Distribution and income

A distribution is cash paid to an owner. Its source may be income, realized gain, borrowed money, principal, or a mixture.

Related: Total return; Net asset value.

Net asset value

The per-share value of a fund’s assets minus liabilities. A closed-end fund can trade above or below that value.

Tax-loss harvesting

Realizing a loss to offset taxable gains or income while maintaining an intended exposure. Wash-sale rules and later realization can reduce the benefit.

Separately managed account

A portfolio of securities owned directly by a client and managed under a mandate. Personalization and tax-lot control come with fees and implementation constraints.

Vig

The share of turnover a two-way posted price extracts if the book is balanced: 1 − 1/overround. On −110/−110 it is 4.545 cents per dollar. It is not the same quantity as hold.

Related: Hold; Overround.

Hold

Gross gaming revenue divided by handle over a period. It moves with mix, limits, and one-sided action. A year’s hold is a measured mix, not the juice on one moneyline.

Overround

The sum of implied probabilities on a complete market. A fair two-way book sums to 1. Everything above 1 is the house.

Implied probability

The win rate baked into American or decimal odds, including juice. It is the break-even hurdle for that side, not a forecast of the event.

Related: Break-even win rate.

Break-even win rate

The true win probability at which expected value is zero after the posted price or fee. Below it, more activity loses more money.

Favorite–longshot bias

The regular finding that long shots are overbet relative to their win frequency. Calibration of a price and profitability of buying the long shot are different sentences.

Kelly criterion

The bankroll fraction that maximizes long-run geometric growth for a known edge. It is zero when expected value is not positive, and it is usually smaller than a recreational stake.

Statistical power

The chance a test detects an effect of a stated size. A two-point betting edge needs thousands of independent trials before a winning season is evidence rather than weather.

Taker fee

A charge paid by the side that crosses the spread on a prediction market. Common schedules are of the form C · r · p · (1 − p) and peak near a 50-cent contract. Makers are often uncharged.

Intrinsic value

A framework-dependent estimate of value from future cash flows, use, or other fundamentals. Bitcoin has no contractual owner cash flow, so a monetary-premium scenario is not a discounted-cash-flow valuation.

Bearer control

The practical ability to authorize a transfer with valid signing authority. It can reduce reliance on a custodian while adding key, recovery, physical-security, and estate responsibilities.

Spot crypto ETP

An exchange-traded security whose vehicle holds a crypto asset through service providers. The shareholder owns the security and generally cannot use or individually redeem the vehicle’s on-chain asset.

Payment stablecoin

A token intended to be redeemed for a fixed monetary value. Its stability depends on the issuer, reserves, redemption rights, contract controls, banking access, law, and the network carrying it.

Liquid wealth

Assets available to meet spending without a lengthy sale, plan restriction, or material transaction penalty. A large net worth does not necessarily provide a large cash buffer.

Buffer-stock saving

Saving motivated partly by uncertain income, spending needs, and borrowing constraints. The appropriate buffer depends on household circumstances rather than one universal dollar target.

Behavioral value of advice

The value of improved decisions or implementation relative to what the same household would otherwise have done, after fees. It is not a guaranteed annual return or the entire measured investor-return gap.

Taxable bridge

Accessible assets used to fund spending or conversion taxes while other assets remain restricted or are waiting to qualify for a particular withdrawal treatment.

Roth conversion ladder

A sequence of taxable conversions to a Roth IRA, coordinated with later withdrawals and applicable ordering and five-tax-year rules. Each conversion has its own early-distribution clock; earnings follow separate rules.

Substantially equal periodic payments

A series of payments meeting section 72(t) requirements that may avoid the early-distribution additional tax. The commitment generally lasts until the later of five years or age 59½, and disallowed modifications can trigger recapture tax and interest.