Alpha. Beta. Gamma. Phi.
The letters could be the name of a college honor society or maybe a fraternity or sorority. But in finance, they represent the progression of thinking about investments and how to judge them. Phi is the newest one.
Alpha measures an investment's performance against a market index. If the Standard & Poor's 500-stock index is up 10 percent and a mutual fund is up 15 percent, for example, that 5 percentage point difference is alpha.
Beta is the return of any given market. And charting beta is what a passive index fund does. Comparing different indexes' beta — say domestic equities and international bonds — helps investors in deciding how to allocate their investments.
Gamma, introduced in 2013 by Morningstar, the investment research firm, is used to assess the impact on returns of more intelligent financial planning decisions.
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