The A, B, Cs of Money: Q&R

QUALITY OF LIFE: What we should all be striving for. Factors that play into quality of life include financial security, job satisfaction, family/work balance, health and safety. Many financial decisions involve a tradeoff where quality of life must be measured against other priorities.

QUANTITATIVE ANALYSIS: A way of measuring a stock's performance using everything from simple ratios like earnings per share to calculations that are complicated like discounted cash flow or option pricing. Quantitative analysis seeks to put the logic into stock selections, but seldom tells the whole story without it's cousin, qualitative analysis, which looks at things like the management of the company, how strong the R&D department may be, or the health of labour relations.

QUID PRO QUO: Latin for "something for something" in financial circles it's used to describe when one party provides a product or service in exchange for another party's product or service (instead of money changing hands.) This is the basis of "the underground economy" which seeks to skirt taxes because money never changes hands.

RANDOM WALK THEORY: This theory holds that stock price changes are independent of each other, so "past performance is no predictor or future performance." In other words, equity investments take a random path from where they are to where they're going next. It's in direct conflict with those who believe that stocks have price trends that can predicted.

REAL GDP: This is the value of final goods and services at prevailing prices, removing the discretionary effects of inflation.

RECESSION: The phase in the economic cycle where growth slows substantially. Marked by two consecutive quarters when GDP falls. Interest rates usually fall during a recession to stimulate the economy by offering cheap borrowing to fuel growth.

REIT. A Real Estate Investment Trust holds a package of real estate or mortgages and issues shares in that package, which are traded on a stock exchange like common stock. Mortgage REITS hold – you guessed it – mortgages. Equity REITs hold shopping centres, apartment buildings and industrial buildings. Some REITS are a hybrid of the two.

REVERSE MORTGAGE: A mortgage that lets you tap the equity in your home as a source of income. You get a lump sum or series of payment, and put your home up as collateral for that loan. You don't have to make any payments while you're in the home, but the amount you owe compounds at the interest rate in your reverse mortgage agreement. If you sell the home or if you die, the note becomes payable but is limited to the value of the home when it is sold.

REVOLVING CREDIT: Credit that you can use and repay at will. A line credit "revolves"; you pay it off and then you have access to the line again. A credit card is another form of revolving credit. This is the most dangerous kind of credit for a Debt Dummy!

RISK: The possibility that some of the money you invest will be lost because of a decline in the value of an investment. Also the degree of uncertainty in the return of an asset. There are all types of risks. Credit risk, for example, is the risk that a bond issuer will fail to repay. Currency risk is the chance that fluctuations in currency values will make your investments worth less. You should be well aware of the different types of risk associated with any investment you're thinking about buying.

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