This research material has been prepared by LPL Financial LLC. The opinions, statements and forecasts presented herein calculated on an annual basis. It includes all of private and price. Bond yields are subject to change. Certain call or are general information only and are not intended to public consumption, government outlays, investments and special redemption features may exist which could impact provide specific investment advice or recommendations exports less imports that occur within a defined territory. yield. Government bonds and Treasury bills are guaranteed for any individual. It does not take into account the The PE ratio (price-to-earnings ratio) is a measure of the by the US government as to the timely payment of principal specific investment objectives, tax and financial condition, price paid for a share relative to the annual net income or and interest and, if held to maturity, offer a fixed rate of or particular needs of any specific person. There is no profit earned by the firm per share. It is a financial ratio return and fixed principal value. Corporate bonds are assurance that the strategies or techniques discussed are used for valuation: a higher PE ratio means that investors considered higher risk than government bonds but normally suitable for all investors or will be successful. To determine are paying more for each unit of net income, so the stock is offer a higher yield and are subject to market, interest which investment(s) may be appropriate for you, please more expensive compared to one with lower PE ratio. rate, and credit risk, as well as additional risks based on consult your financial professional prior to investing. the quality of issuer coupon rate, price, yield, maturity, Any forward-looking statements including the economic Earnings per share (EPS) is the portion of a company’s and redemption features. Mortgage-backed securities are forecasts herein may not develop as predicted and are profit allocated to each outstanding share of common subject to credit, default, prepayment, extension, market subject to change based on future market and other stock. EPS serves as an indicator of a company’s and interest rate risk. conditions. All performance referenced is historical and is profitability. Earnings per share is generally considered FIXED INCOME DEFINITIONS no guarantee of future results. to be the single most important variable in determining a Credit Quality is one of the principal criteria for judging the share’s price. It is also a major component used to calculate investment quality of a bond or bond mutual fund. As the References to markets, asset classes, and sectors are the price-to-earnings valuation ratio. term implies, credit quality informs investors of a bond or generally regarding the corresponding market index. The Standard & Poor’s 500 Index is a capitalization- bond portfolio’s credit worthiness, or risk of default. Credit Indexes are unmanaged statistical composites and cannot weighted index of 500 stocks designed to measure ratings are published rankings based on detailed financial be invested into directly. Index performance is not indicative performance of the broad domestic economy through analyses by a credit bureau specifically as it relates to the of the performance of any investment and does not reflect changes in the aggregate market value of 500 stocks bond issue’s ability to meet debt obligations. The highest fees, expenses, or sales charges. All performance referenced representing all major industries. rating is AAA, and the lowest is D. Securities with credit is historical and is no guarantee of future results. ratings of BBB and above are considered investment grade. Alternative investments may not be suitable for all investors EQUITY RISK The credit spread is the yield the corporate bonds less and should be considered as an investment for the risk Investing in stock includes numerous specific risks including the yield on comparable maturity Treasury debt. This is a capital portion of the investor’s portfolio. The strategies the fluctuation of dividend, loss of principal and potential market-based estimate of the amount of fear in the bond employed in the management of alternative investments illiquidity of the investment in a falling market. Because market. Base-rated bonds are the lowest quality bonds that may accelerate the velocity of potential losses. of their narrow focus, sector investing will be subject to are considered investment-grade, rather than high-yield. greater volatility than investing more broadly across many They best reflect the stresses across the quality spectrum. Event driven strategies, such as merger arbitrage, consist of sectors and companies. Value investments can perform buying shares of the target company in a proposed merger differently from the market as a whole. They can remain Bloomberg U.S. Aggregate Bond Index represents and fully or partially hedging the exposure to the acquirer undervalued by the market for long periods of time. The securities that are SEC-registered, taxable, and dollar by shorting the stock of the acquiring company or other prices of small and mid-cap stocks are generally more denominated. The index covers the U.S. investment- means. This strategy involves significant risk as events may volatile than large cap stocks. grade fixed rate bond market, with index components for not occur as planned and disruptions to a planned merger EQUITY DEFINITIONS government and corporate securities, mortgage pass- may result in significant loss to a hedged position. Cyclical stocks typically relate to equity securities of through securities, and asset-backed securities. Any company names noted herein are for educational companies whose price is affected by ups and downs in High yield/junk bonds (grade BB or below) are not purposes only and not an indication of trading intent or the overall economy and that sell discretionary items that investment grade securities, and are subject to higher a solicitation of their products or services. LPL Financial consumers may buy more of during an economic expansion interest rate, credit, and liquidity risks than those graded doesn’t provide research on individual equities. but cut back on during a recession. Counter-cyclical stocks BBB and above. They generally should be part of a All index data from FactSet. tend to move in the opposite direction from the overall diversified portfolio for sophisticated investors. economy and with consumer staples which people continue Municipal bonds are subject to availability and change in All information is believed to be from reliable sources; to demand even during a downturn. price. They are subject to market and interest rate risk if however, LPL Financial makes no representation as to its Growth stocks are shares in a company that is anticipated sold prior to maturity. Bond values will decline as interest completeness or accuracy. to grow at a rate significantly above the average for the rates rise. Interest income may be subject to the alternative GENERAL RISK DISCLOSURES market due to capital appreciation. A value stock is minimum tax. Municipal bonds are federally tax-free but Investing involves risks including possible loss of principal. anticipated to grow above the average for the market other state and local taxes may apply. If sold prior to No investment strategy or risk management technique due to trading at a lower price relative to its fundamentals, maturity, capital gains tax could apply. can guarantee return or eliminate risk in all market such as dividends, earnings, or sales. Commodities include increased risks, such as political, environments. There is no guarantee that a diversified Value stocks are anticipated to grow above the average economic, and currency instability, and may not be suitable portfolio will enhance overall returns or outperform a non- for the market due to trading at a lower price relative to its for all investors. The fast price swings in commodities will diversified portfolio. Diversification does not protect against fundamentals, such as dividends, earnings, or sales. result in significant volatility in an investor’s holdings. market risk. Investing in foreign and emerging markets debt or securities involves special additional risks. These risks Large cap stocks are issued by corporations with a market Alternative Investments may not be suitable for all include, but are not limited to, currency risk, geopolitical capitalization of $10 billion or more, and small cap stocks investors and involve special risks such as leveraging the risk, and risk associated with varying accounting standards. are issued by corporations with a market capitalization investment, potential adverse market forces, regulatory Investing in emerging markets may accentuate these risks. between $250 million and $2 billion. changes and potentially illiquidity. The strategies employed GENERAL DEFINITIONS FIXED INCOME RISKS in the management of alternative investments may Gross Domestic Product (GDP) is the monetary value of all Bonds are subject to market and interest rate risk if sold accelerate the velocity of potential losses." the finished goods and services produced within a country’s prior to maturity. Bond values will decline as interest rates borders in a specific time period, though GDP is usually rise and bonds are subject to availability and change in For a list of descriptions of the indexes and economic terms referenced in this publication, please visit our website at lplresearch.com/definitions Not Insured by FDIC/NCUA or Any Other Government Agency | Not Bank/Credit Union Guaranteed Not Bank/Credit Union Deposits or Obligations | May Lose Value Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates. To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity. For Public Use RES-1294638-1022 Tracking #1-05345338 (Exp. 12/23)