Chapter 7 Examining "The Total Market" in More Detail

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bond

A formal contract to repay borrowed money with interest at fixed intervals. A security issued by corporation or government in which money is borrowed with the promise to pay interest (typically every 6 months), with full repayment of the borrowed amount (the principal) at a future date (the maturity date).

Percent of world market cap of publicly traded companies which is represented by U.S. stocks

60% (this percentage has been as low as about 42%, but has risen recently)

private company

A company that is owned by a person, family, or small group of investors that does not sell shares of stock in the company to the public.

index

A group of similar stocks and bonds, usually representative of an asset class

mid cap stocks

firms that possess a market capitalization, in the U.S., between $2 billion to $10 billion

MSCI Emerging Markets Index

tracks the stocks of companies in developing economies, such as the BRICS (Brazil, Russia, China and India) and others.

Portfolio Turnover Rate

A measure of how frequently stocks within a stock fund are bought and sold by the managers. The higher the portfolio turnover rate, the higher the "transaction costs" within the fund.

Index Fund

A mutual fund that was designed to reduce fees by investing in the stocks and/or bonds that make up an index

stock

A share of ownership in a corporation.

Russell 2000 Index

A specialty index that uses 2000 stocks (or less) to measure the performance of the smallest US companies; the first index to track U.S. small cap stocks, it has been in existence since about 1977.

Total Stock Market Index

An index, such as CRSP 1-10, or Wilshire 5000, or Russell 3000, that comprises all of the publicly-traded stocks in the U.S. (or a sampling of most of them). The Vanguard Total Stock Market Index Fund, which contains 3,600 or so individual stocks, is a "cap-weighted" index. It holds much more of large companies (Apple, Alphabet, Facebook, Intel, Microsoft, Exxon, etc.) than it does the micro-cap stocks that are included in the fund. Total stock market index funds are typically very low-cost, and can be quite tax-efficient.

Foreign emerging markets stocks

Stocks in 23 countries, including China, India, Brazil, Greece, South Korea, South Africa, Malaysia, Taiwan, and others. These markets are characterized by one or more of the following factors, as the countries' economies transition to a developed markets: potential political instability, good but not great securities regulation and/or accounting standards, an economy still heavily reliant on commodities exports, and general enforcement of the rule of law.

Foreign developed markets stocks

Stocks in countries that high relatively high personal income levels, good regulation of accounting standards and securities markets, ease of foreign capital investment (and repatriation of foreign capital), and economies with a relatively strong manufacturing base (as opposed to agricultural or commodities being dominant), and where the rule of law is well-enforced.

large-cap stock

Stocks of very large companies, such as Walmart, General Electric, and IBM, that have a market capitalization of between $10 billion and larger.

small-cap stock

a stock issued by a company with a capitalization of $2 billion or less

S&P 500 Index

An index of 500 stocks chosen for market size, liquidity and industry grouping, among other factors; designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large cap universe. Represents about 80% of more of the total market cap of the publicly traded U.S. stock market.

US stocks

Generally, the set of stocks that are publicly traded on the major exchanges, that possess their corporate headquarters within the United States

MSCI EAFE Index

The EAFE Index stands for Europe, Australasia, and the Far East. It consists of companies of developed countries in these areas - so these are all companies outside of North America. Investing in an EAFE ETF would give the customer international exposure. The S&P 500 and Russell 2000 consist of U.S. companies. ADRs are American Depositary Receipts - the way in which foreign companies list their shares in the U.S. They are not Index Exchange Traded Funds.

Market Capitalization (Market Cap)

The market value (in dollars) of a company's outstanding shares. Calculated by multiplying a company's shares outstanding by the price per share.

annual expense ratio

percentage annually of total fund assets that will be withdrawn from the fund to pay for fund management and other expenses


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