A rating refers to an evaluation of a security’s market and credit risk to determine the overall risk of a capital investment. (Individual companies, Countries, Offshore Jurisdictions etc) It is important to note the difference between ratings and performance rankings; rankings evaluate funds solely by their achieved returns (not including risk data). Moody’s and Standard & Poor’s are examples of some of the most renowned international rating agencies.

Return on a investment adjusted for inflation.

Reinvestment is a term for when a fund automatically adds the dividends earned by an investment to an investor’s principal. In this way, the investor receives new shares at a price based upon the redemption value at the time the dividends are declared. The reinvestment of dividends leads to a higher increase in value of the invested capital. (See compound interests).

The return refers to the performance or change in value of a capital investment over a certain time period. It is expressed in percent (positive or negative).

The ratio describing the relation between risk and return is the Sharpe Ratio.

Risk describes the deviation of returns from the expected average returns. Risk can be either a positive or negative coefficient. One can distinguish between systematic and unsystematic risk. Systematic risk, also called market risk, cannot be eliminated through diversification and affects the entire portfolio (inflation risk, currency risk, changes in government, natural disasters or other economic changes or events that impact large portions of the market). Unsystematic risk, on the other hand, can be minimized with diversification (credit risk, information and interpretation risk, errors made by the fund management, authorisation risk etc.)

Risk relative to return - the return achieved per unit of risk or the risk associated with a particular level of reward, typically represented by the Sharpe ratio [see Sharpe ratio]. Improving the risk-adjusted return depends either on increasing returns and maintaining the level of risk, or maintaining the level of returns and lowering the associated risk.