The Only Guide to Alternative Investments You'll Ever Need: The Good, the Flawed, the Bad, and the Ugly

Glossary

401(k).

A defined contribution plan offered by a corporation to its employees that allows employees to set aside tax-deferred income for retirement purposes.

403(b).

A retirement plan offered by nonprofit organizations, such as universities and charitable organizations, rather than corporations. It is similar to a 401(k) plan.

active management.

The attempt to uncover securities the market has either undervalued or overvalued. Also, the attempt to time investment decisions in order to be more heavily invested when the market is rising and less so when the market is falling.

agency risk.

A risk that only applies to investors in funds, or separate accounts. There is always the risk (the agency risk) that the manager will act in his or her own best interest and not in the best interest of investors. There is also the risk of fraud.

alpha.

A measure of performance against a predetermined benchmark. Positive alpha represents outperformance; negative alpha represents underperformance.

annuitization.

The conversion of part or all of the assets in a qualified retirement plan or nonqualified annuity contract into a stream of regular income payments.

arbitrage.

The process by which investors exploit the price difference between two securities that are exactly alike by simultaneously buying one at a lower price and selling the other at a higher price (thereby avoiding risk). This action locks in a risk-free profit for the arbitrageur (person engaging in the arbitrage) and, in an efficient market, ...