Skip to content
aksoneri

Glossary

152 terms you'll meet in today's news, one line each.

A

Accumulating fund
A fund that reinvests your dividends instead of paying them out in cash. Read the lesson →
Active fund
A fund where a manager picks the investments and gets paid for the picking. Read the lesson →
Anchoring
Tying a decision to an arbitrary number, usually the price you paid. Read the lesson →
Annualised return
The steady yearly rate that would have produced the same final result. Read the lesson →
Asset allocation
How you split your money across types of investments. The decision that explains most of your result. Read the lesson →
Assets
Everything a company owns that has value. Read the lesson →

B

Basis point
One hundredth of a percentage point. 25 basis points = 0.25%. Read the lesson →
Bear market
A decline of 20% or more from the peak. Read the lesson →
Behaviour gap
The difference between a fund's return and the return its investors actually earned. Read the lesson →
Benchmark
The index an investment's performance is compared against. Read the lesson →
Bond
A tradeable loan with a fixed coupon and a fixed maturity date. Read the lesson →
Broker
The firm through which your orders reach the exchange. Read the lesson →
Bull market
A long period of rising prices. Read the lesson →
Business cycle
The repeated alternation of expansion and contraction in an economy. Read the lesson →
Buyback
A company buying its own shares, which are then cancelled. Read the lesson →

C

Capital gain
The difference between the selling price and the purchase price of an asset. Read the lesson →
Capitulation
Mass selling out of despair, which often marks the end of a decline. Read the lesson →
Central bank
The institution that sets interest rates and safeguards price stability in an economy. Read the lesson →
Commodity
A standardised raw material, like oil, gold or wheat, where one unit is the same everywhere. Read the lesson →
Compounding
Earning returns on your previous returns, not just on the amount you started with. Read the lesson →
Concentration
How much your portfolio depends on a single factor, regardless of how many names are in it. Read the lesson →
Concentration risk
The risk that a large share of your wealth depends on a single factor. Read the lesson →
Consensus estimate
The average of analysts' forecasts — the bar a result has to clear to count as good news. Read the lesson →
Consumer spending
Household spending, the largest part of GDP in developed economies. Read the lesson →
Core and satellite
A broad, cheap base, plus small positions for everything else. Read the lesson →
Core inflation
Inflation excluding food and energy, the most volatile items. Read the lesson →
Correction
A decline of about 10% from the most recent peak. Read the lesson →
Correlation
How often two investments move in the same direction. Low correlation is what makes diversification work. Read the lesson →
Counterparty risk
The risk that the party who made you a promise is unable to keep it. Read the lesson →
Coupon
The fixed annual interest payment on a bond. Read the lesson →
CPI
The consumer price index — the main measure of inflation. Read the lesson →
Currency risk
The risk that exchange-rate moves change your return in your home currency. Read the lesson →
Custodian
The institution that physically or legally holds the securities in your name. Read the lesson →
Cyclical
A company whose profits follow the economic cycle, like steelmakers or airlines. Read the lesson →

D

Deflation
A general fall in prices. Rarely a good thing: it delays spending and slows the economy. Read the lesson →
Dilution
The shrinking of your slice when the company issues new shares. Read the lesson →
Discount rate
How much less future money is worth today. It climbs along with interest rates and risk. Read the lesson →
Discounted cash flow
A valuation that adds up a company's future cash, each amount discounted for time. Read the lesson →
Distributing fund
A fund that pays your dividends out in cash instead of reinvesting them. Read the lesson →
Diversification
Spreading money across many assets so no single one decides your fate. Read the lesson →
Dividend
A slice of profit paid out to shareholders in cash. Read the lesson →
Dividend yield
The annual dividend as a percentage of the share price. Read the lesson →
Dollar-cost averaging
Putting in the same amount at regular intervals, regardless of the price. Read the lesson →
Drawdown
How far an investment fell from its own peak before recovering. Read the lesson →
Duration
How sensitively a bond's price reacts to a change in rates. Read the lesson →

E

Earnings per share
The company's profit divided by the number of shares outstanding. Read the lesson →
Economic calendar
The schedule of economic data releases, with expectations for each one. Read the lesson →
Edge
Something you know or can do that the market hasn't priced in yet. Read the lesson →
Emergency fund
Money you can reach instantly, so an unexpected expense never forces you to sell your investments. Read the lesson →
Ex-dividend date
The day from which buying the share no longer entitles you to the next dividend. Read the lesson →
Exchange rate
What one currency is worth, expressed in another. Read the lesson →
Expected return
The average result you would expect if you repeated the same investment many times. Read the lesson →
Expense ratio
The fund's annual fee, taken automatically out of what you hold. Read the lesson →

F

Factsheet
The two-page document summarising a fund's strategy, costs, and performance. Read the lesson →
Flow
Buying or selling driven by rules and needs, not by any view on the company. Read the lesson →
Forced liquidation
The sale of your position by the lender when you fail to meet a margin call. Read the lesson →
Forward guidance
Deliberately signalling what the central bank expects to do later. Read the lesson →
Fractional shares
The ability to buy just part of a share, which makes splits less necessary. Read the lesson →
Free cash flow
The cash a company has left after paying for everything it needs to keep running. Read the lesson →
FX spread
The hidden cost of converting currency when you buy something priced in another one. Read the lesson →

G

Gating
When a fund temporarily halts withdrawals because it cannot sell its own assets. Read the lesson →
GDP
Gross domestic product — the value of everything produced inside a country. Read the lesson →
Growth stock
A company whose price rests on the expectation of much bigger profits in the future. Read the lesson →
Guidance
A company's own forecast of its future results. Read the lesson →

H

Hawkish
Leaning towards higher rates to fight inflation. The opposite is dovish. Read the lesson →
Hedged
A fund that removes the exchange-rate effect, in return for an annual cost. Read the lesson →
Human capital
The value of your future earnings from work — for most people, the largest part of their wealth. Read the lesson →

I

Idiosyncratic risk
The risk that belongs to a single company, removed by holding many others. Read the lesson →
Index
A published list of companies used to measure a market, like the S&P 500. Read the lesson →
Index fund
A fund that holds everything in an index, without choosing between them. Read the lesson →
Index weighting
How an index is divided among companies. Weighting by size concentrates it in the largest ones. Read the lesson →
Inflation
The general rise in prices and the loss of purchasing power that comes with it. Read the lesson →
Inflation-linked bond
A bond whose coupon and principal rise along with inflation. Read the lesson →
Intrinsic value
What a business is worth based on the cash it produces, regardless of the market price. Read the lesson →
Inversion
When short-term yields exceed long-term ones — historically a recession warning. Read the lesson →
Investment thesis
The written reason you bought something — and therefore the only way to know when to sell it. Read the lesson →
IPO
Initial public offering — the first time a company's shares are sold to the wider investing public. Read the lesson →

L

Leading indicator
A measure that moves before the economy as a whole, like new orders or the yield curve. Read the lesson →
Leverage
How much debt a company uses. It multiplies profits and losses alike. Read the lesson →
Liabilities
Everything a company owes to others. Read the lesson →
Limit order
An order that only executes at the price you set, or better. Read the lesson →
Liquidity
How easily you can buy or sell without moving the price yourself. Read the lesson →
Liquidity risk
The risk of not being able to sell quickly without accepting a noticeably worse price. Read the lesson →
Lock-up period
The time after a listing during which insiders cannot sell their shares. Read the lesson →
Loss aversion
The tendency to feel a loss roughly twice as strongly as an equal gain. Read the lesson →

M

Margin call
A lender's demand for extra cash when your position falls below a threshold. Read the lesson →
Market capitalisation
A share's price multiplied by the number of shares — the market's valuation of the whole company. Read the lesson →
Market maker
A firm that always keeps both a buy offer and a sell offer open, so you can buy or sell instantly. Read the lesson →
Market order
An order that executes immediately at the best available price. Read the lesson →
Market timing
Trying to get out before a fall and back in before a rise. Read the lesson →
Monetary policy
The central bank's decisions about interest rates and the amount of money in circulation. Read the lesson →
Mutual fund
A fund bought directly from the fund company, usually at one price per day. Read the lesson →

N

Nominal return
The return before inflation is subtracted. The number that gets advertised. Read the lesson →
Nonfarm payrolls
The number of jobs created in a month, outside farming. The most watched release in the US. Read the lesson →

O

Operating margin
Profit from the core business, as a percentage of revenue. Read the lesson →

P

P/E ratio
The share price divided by annual earnings per share. Read the lesson →
Participation rate
The share of the working-age population that is employed or looking for work. Read the lesson →
Pass-through
The process by which a higher input cost ends up in consumer prices. Read the lesson →
Passive fund
A fund that copies an index with no human judgement about individual companies. Read the lesson →
Payout ratio
What percentage of profit goes to the dividend. Above one hundred means it is being paid out of reserves. Read the lesson →
Physical replication
When the fund actually owns the securities in the index. Read the lesson →
Policy rate
The interest rate set by the central bank, on top of which everything else is priced. Read the lesson →
Ponzi scheme
A fraud in which earlier investors' "profits" are paid with the money of new ones. Read the lesson →
Portfolio
Everything you own, viewed as a single whole. Read the lesson →
Pump and dump
Artificially inflating an asset's price in order to sell it to those who come after. Read the lesson →
Purchasing power
What an amount of money can actually buy, not what the number says. Read the lesson →

Q

Quantitative easing
Buying bonds with newly created money to push down long-term rates. Read the lesson →

R

Real GDP
GDP after stripping out inflation — whether more things were actually produced. Read the lesson →
Real return
Your return after inflation is stripped out — how much more you can actually buy. Read the lesson →
Rebalancing
Bringing your portfolio back to its target proportions by selling what grew and buying what fell behind. Read the lesson →
Recency bias
The tendency to assume that whatever happened recently will continue. Read the lesson →
Recession
A broad, prolonged decline in economic activity. Read the lesson →
Regulator
The authority that licenses and supervises financial firms in a country. Read the lesson →
Reserve currency
A currency held by central banks and used to invoice world trade. Read the lesson →
Revenue
All the money from sales, before any costs. Read the lesson →
Reverse split
Merging several shares into one, usually to lift a very low price. Read the lesson →
Revision
A correction to a previously published figure, once fuller data comes in. Read the lesson →
Risk tolerance
How big a fall you can sit through without changing the plan. Measured by behaviour, not by intention. Read the lesson →

S

Safe haven
An asset money flees to when fear rises, like American bonds or gold. Read the lesson →
Sector
A group of companies that depend on the same economic forces. Read the lesson →
Sector rotation
Money moving from one sector to another as the economic cycle changes phase. Read the lesson →
Sequence risk
The risk that the order of returns, not their average, wrecks your plan while you are withdrawing money. Read the lesson →
Share
A unit of ownership in a company, giving you a claim on a slice of its profits. Read the lesson →
Shareholder
Anyone who owns at least one share of a company. Read the lesson →
Shareholders' equity
Assets minus liabilities — what is left for shareholders on paper. Read the lesson →
Shares outstanding
The total number of shares that exist and are held by investors. Read the lesson →
Shortfall risk
The chance of not having the amount you need on the day you need it. Read the lesson →
Soft landing
Slowing inflation without causing a recession. Rare and difficult. Read the lesson →
Spread
The gap between the highest price someone will pay and the lowest price someone will accept. Read the lesson →
Stock split
Turning each share into several smaller shares, with no change in total value. Read the lesson →
Sunk cost
Money already spent, which should not influence any future decision. Read the lesson →
Supply shock
A sudden interruption of supply that pushes prices up without demand rising. Read the lesson →
Surprise
The gap between the actual figure and the expected one. This is what moves prices. Read the lesson →
Synthetic replication
When the fund holds a contract with a bank that promises it the index's return. Read the lesson →
Systematic risk
The risk that hits everything at once and that diversification cannot remove. Read the lesson →

T

Tail risk
Very rare, very damaging events that models routinely underestimate. Read the lesson →
Target weight
The percentage you have set for each part, and the one you return to when rebalancing. Read the lesson →
Tax deferral
Paying tax later, which leaves the full amount to keep compounding. Read the lesson →
Term premium
The extra reward for holding a longer-term bond. Read the lesson →
Time horizon
How long you can leave the money untouched. It decides how much risk makes sense. Read the lesson →
Tracking error
How far a fund has drifted from the index it promised to follow. Read the lesson →

U

Underwriter
The bank that sets the offer price and sells the first shares. Read the lesson →
Unemployment rate
The share of people looking for work who cannot find it. It does not count those who have given up. Read the lesson →

V

Value stock
A company that costs little relative to the profits it already produces. Read the lesson →
Value trap
A company that looks cheap because its business keeps shrinking. Read the lesson →
Volatility
How much a price swings up and down. High volatility means a wider range of outcomes. Read the lesson →
Volatility decay
The slow loss of value in daily leveraged products when the market bounces up and down. Read the lesson →
Volume
How many units trade on an average day. A direct indicator of liquidity. Read the lesson →

W

Wage growth
How fast wages are rising. When it outpaces productivity, it feeds into prices. Read the lesson →
Withholding tax
Tax deducted automatically from foreign dividends before they reach you. Read the lesson →

Y

Yield
The annual income from an asset, as a share of its current price. Read the lesson →
Yield curve
The chart of government bond yields across maturities. Read the lesson →