valuation: the process of determining the value of an asset or company. Stock analysts determine the value of a company based on current and future earnings, the market value of the company’s assets and the balance sheet. A company with a high price-to-earnings ratio is said to have a high valuation or be highly valued. Bond analysts determine the value of a bond based on projections of future interest rates, and they use their valuation to determine whether a bond should be bought or sold at its current price.
value investing: an investment style that favors buying stocks with lower price-to-earnings ratios and relatively high dividend yields, such as cyclical companies and mature industries. Different from growth investing, which emphasizes stocks with strong earnings and/or revenue growth or growth potential.
variable annuity: a contract underwritten by life insurance companies that pays different amounts based on the performance of the underlying investments. This is opposed to a fixed annuity, which pays out a fixed amount for the duration of the contract. Annuities offer tax deferral and, if elected, guaranteed payments to the annuitant — the beneficiary of these payments — for a specified period of time. Annuities are sold in units, not shares. The account value of an annuity is often at least partially guaranteed by the issuer.
volatility: the size and frequency of fluctuations in the price of a security or mutual fund. Funds that hold stocks are generally more volatile than bond funds, since stocks generally have more frequent and pronounced price movements than bonds. Volatility is a key measure of the risk of a security or mutual fund. The more volatile the security, the greater the risk of losing money, though the greater risk is generally compensated by the potential for higher returns.