Managing Savings in a World of Zero Interest Rates

Glossary of Key Terms

  • T-Bill or Treasury Bill is a short-term loan to the U.S. government with a maturity of one year or less, so similar to a cash deposit.
  • Real Returns are the returns earned on an investment after accounting for inflation.
  • Purchasing Power is the amount of goods or services that can be purchased with your cash or investments.
  • Risk Premium can be thought of as additional return an investor receives for holding risky assets instead of the safety of cash.
  • Risk Neutral Position is the asset or set of assets an investor could hold to counteract the risks of achieving their goal e.g., if an investor’s goal was to protect against inflation, this would be holding inflation-linked bonds (which pay out inflation).
  • Beta is the return from holding assets e.g., buying and holding an index.
  • Alpha is the return from taking tactical views on assets e.g., picking individual stocks.

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