Glossary

Equal weight

Holding the same amount of money in every stock of a portfolio or index.

An equal-weighted portfolio puts the same amount into each stock, so a small company counts as much as a giant. A market-cap-weighted index, like the standard S&P 500, puts more into the largest companies.

The two can give very different results. When the largest companies lead the market, the cap-weighted index does better; when smaller companies lead, the equal-weighted one does.

When you compare a strategy with a benchmark, check that both are weighted the same way.

  • Backtest: A test of an investment rule on past data, to see how it would have done.
  • CAGR (compound annual growth rate): The steady yearly rate that would turn a starting value into an ending value over a period.

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