Find another term. Follow an explanation link; use Back to return here. These optional structures are not requirements for a long-term plan.
All Weather
Bridgewater-associated approach balancing exposure to growth/inflation surprises relative to expectations, potentially using unequal capital weights. The idea promises neither gains in every environment nor equivalence among similarly named funds.
Barbell
Here, defensive and distinctly risky allocations combined. A loss boundary requires defensive value retention and no further liabilities from the risky side. This entry uses the defensive/risky meaning; other uses of the label require their own definitions.
Cash-backed futures exposure
Futures exposure supported by retained cash within investor capital, not a separate spending reserve. Even matching initial notional to capital leaves changing margin, settlement deadlines and no contractual loss cap.
Capital and exposure separately
Collateral
Eligible assets committed to financial obligations. Eligibility, valuation and additional requirements depend on terms. It creates no extra capital; restricted cash cannot simultaneously fund another goal as freely spendable savings.
Daily settlement
Cash payment of futures gains/losses on marking to market, also called settlement variation/variation margin. A paid loss already reduces cash; subtracting it again understates capital. Funding must arrive on time.
Derivative
A contract valued by reference to an asset, index, rate or other measure. Futures/options have different rights/obligations. Read terms and whole-portfolio role: the category alone specifies neither strategy nor maximum loss.
Futures contract
A standardised exchange-traded delivery/cash-settlement agreement. Unlike buying an option, it creates obligations rather than just an exercisable right. Index futures give contractual exposure, not share ownership; margin is neither full exposure nor loss limit.
Exposure without share ownership
Initial margin
Amount required to establish a futures position under exchange/broker rules. It supports obligations, buying neither that amount of the market nor a loss limit. Requirements can change; brokers may exceed exchange minima.
Maintenance margin
Minimum account equity required to maintain a futures position. Breach can trigger funding demands/liquidation. Check restoration amount/deadline; the threshold prevents no losses and guarantees no transfer time.
Managed futures
Managed strategies using futures/forwards across markets. Trend following is one prominent approach, not the entire category. Direction, holdings, leverage and costs depend on mandate; crisis gains are not promised.
Margin call
Demand for more funds/collateral following losses or higher requirements. Failure can force reductions/liquidation. Assets owned elsewhere may not supply acceptable collateral by the deadline.
Notional exposure
Derivative reference size used to express scale/price sensitivity, distinct from deposit and current contract value. Do not add it as owned wealth. Equal notionals can have very different risks.
Overlay
Positions layered on an existing portfolio to change exposure, adding a strategy or hedging risk. Total exposure need not increase. Assess purpose, financing, collateral and whole-portfolio effects.
Permanent Portfolio
Harry Browne-associated model with equal shares/bonds/cash/gold, intended to respond differently to economic conditions. These are descriptive, not recommended weights. Named funds can differ; the model guarantees neither purchasing power nor protection.
Return stacking
Multiple exposures on the same capital, commonly via derivatives, exceeding an unlevered allocation’s combined scale. Leverage, financing and obligations increase; no second pot is created and no extra return guaranteed. Added exposures can lose together.
One capital base, joint losses
Risk contribution
A model estimate of a holding’s contribution to specified portfolio risk, depending on size, behaviour and relationships with other holdings. It differs from capital weight, changes with inputs/model and captures no complete loss range.
Risk parity
Balancing estimated risk contributions across assets/groups rather than equalising capital. Measure/implementation matter; leverage scaling is separate. Model balance establishes neither affordable household losses nor future diversification.
Roll
Replacing expiring/nearer futures exposure with a later contract. Continuing an allocation requires contract maintenance, involving transaction costs and different prices even when intended market allocation stays unchanged.
Trend following
Responding to each market’s own past price direction to participate in persistent moves, sometimes switching long/short. It differs from relative ranking. Reversals/directionless markets can lose; share declines trigger no contractual payoff.
The limits of crisis diversification
Volatility targeting
Changing overall exposure towards estimated target volatility, distinct from balancing risks across assets. It may increase/reduce exposure and turnover. Actual volatility can exceed target after sudden changes; target is no maximum loss.
Whipsaw
Losses from exposure changes following apparent trends that reverse, possibly repeatedly. Directionless/fast-changing markets can therefore hurt trend following. Diversification intent promises no gain during every share-market decline.
Related materials
- Additional assets and factor strategies: investing glossary
- Bonds and interest-rate risk: investing glossary
- Compare portfolio families by the job they do
- What a barbell does and does not protect
- Index exposure through cash-backed futures
- What risk parity balances
- What return stacking adds to the same capital
- What managed futures funds are trying to do
- Owning a fund instead of running the construction