Terms

Real Wealth Items — Food, clothing, houses, roads, cars, ships, planes, factories, schools, theaters, instruments, books, etc. (see Fundamental Wealth)

Correlation — the extent to which an investment reacts similarly to others

Diversification (Diversify) — investment strategy where multiple investments with low correlation are chosen to smooth out overall portfolio volatility

Portfolio — a group of investments

Volatility — a measure that shows the severity of an investment or portfolio move (i.e. high volatility = large gain or loss over a period of time; low volatility = low gain or loss over a period of time)

Treasury Bills — government debt with a timeframe of less than 1 year

Long-Term Treasury Bonds — government debt with a long timeframe (ex. U.S. 30-year Treasury bonds)

Inflation — your currency purchases less real wealth items; aggregate prices are higher, items are more expensive

Deflation — your currency purchases more real wealth items (deflation could also be considered “negative inflation”); aggregate prices are lower, items are less expensive

Disinflation — falling inflation

Hyperinflation — extremely high (and usually accelerating) inflation

  • example: Germany after WWI — increased currency creation and loss of confidence in the debt-taken-on-to-create-the-currency caused its value to drop drastically, thus the currency purchases a drastically lower amount of real wealth items

 




 

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