Saving & Investing

90 Saving & Investing terms, defined in plain English — part of the 1345-term Finicade finance glossary. Each one has its own page, and links to the free game that teaches it.

60/40 Portfolio: The 60/40 portfolio holds 60% equities and 40% bonds, the long-standing default for a balanced investor.
Active vs Passive Investing: Active investing tries to beat a benchmark by selecting securities; passive investing tries to match one as cheaply as possible.
Alternative Investments: Alternatives are investments outside listed stocks, bonds and cash: private equity, hedge funds, venture capital, property, infrastructure, commodities.
Annualized Return: Annualized return converts a return over any period into its yearly equivalent, so a three-month and a five-year result can be compared.
Annuity: A fixed series of payments over a set period — a mortgage, a pension, loan instalments.
Asset Allocation: How you split your money across broad buckets — stocks, bonds, cash, property.
Asset Class: An asset class is a group of investments that behave similarly and are driven by similar risks — equities, bonds, cash, property, commodities.
Behavioral Biases: The systematic mental shortcuts that lead investors astray — overconfidence, herding, loss aversion, anchoring.
Benchmark: A benchmark is the index a portfolio is measured against, and choosing it is half the argument about performance.
Bond: An IOU issued by a government or company: you lend them money, they pay you interest (the coupon) and return the principal at maturity.
Book Value: A company's net worth on paper — assets minus liabilities from the balance sheet.
Brokerage Account: A brokerage account holds investments and, unlike a retirement account, has no contribution limits, no age restrictions and no tax shelter.
Buy and Hold: Buy and hold means owning investments through volatility instead of trading around it.
CAGR (Compound Annual Growth Rate): CAGR is the constant annual growth rate that would take a starting value to an ending value over a period — the smoothed rate of a bumpy journey.
Capital Appreciation: Capital appreciation is the increase in an asset's price over time, as distinct from the income it pays.
Capital Budgeting: Capital budgeting is how firms decide which big, long-term investments to make, weighing each project's future cash flows against what it costs.
Capital Gain: The profit when you sell an asset for more than you paid.
Capital Loss: A capital loss is selling an asset for less than you paid — the mirror image of a capital gain, and in most tax systems a useful one.
Closed-End Fund: A closed-end fund issues a fixed number of shares and then trades on an exchange, so its price is set by supply and demand rather than by NAV.
Core-Satellite Strategy: Core-satellite puts the bulk of a portfolio — the core — in cheap broad index funds, then adds small active or thematic positions as satellites.
Cost Basis: Cost basis is what you paid for an asset including fees, and it's the number your taxable gain is measured against.
Cost of Equity: The return shareholders demand for the risk of owning a company's stock — often estimated with CAPM.
Diversification: Not putting all your eggs in one basket.
Dividend: A slice of a company's profit paid out to shareholders, usually in cash every quarter.
Dividend Aristocrat: A Dividend Aristocrat is an S&P 500 company that has raised its dividend every year for at least 25 consecutive years.
Dividend Discount Model: A way to value a stock as the present value of all the dividends it will ever pay.
Dividend Reinvestment (DRIP): Automatically using the dividends a stock or fund pays to buy more shares, instead of taking the cash.
Dividend Yield: A stock's annual dividend divided by its share price — the cash income it throws off as a percentage.
Dollar-Cost Averaging: Investing a fixed amount on a set schedule regardless of price.
EBITDA: Earnings before interest, taxes, depreciation and amortisation — a rough proxy for the cash a business's core operations throw off.
Emerging Markets: Emerging markets are economies with growing capital markets but weaker institutions, liquidity and disclosure than developed ones.
Enterprise Value: What it would cost to buy a whole company — its market cap plus debt, minus cash.
EPS (Earnings Per Share): A company's profit divided by the number of shares — how much of the earnings each share represents.
Equity Valuation: Estimating what a share is really worth, rather than what it's trading at — usually by discounting the future cash it will generate.
ETF (Exchange-Traded Fund): A fund that holds a whole basket of investments — often an entire index like the S&P 500 — and trades on the exchange like a single share.
Ex-Dividend Date: The ex-dividend date is the cutoff: buy on or after it and the seller, not you, receives the upcoming dividend.
Expected Return: The return you'd earn on average from an investment, weighting each possible outcome by how likely it is.
Expense Ratio: The expense ratio is the annual percentage a fund deducts from assets to cover its costs, taken silently from returns rather than billed.
Fractional Shares: Fractional shares let you buy a slice of a share, so a $50 contribution can go into a $600 stock.
Free Cash Flow: The cash a company has left after paying for its operations and investments — the money genuinely available to reward investors or pay down debt.
Future Value: What a sum today will grow into by some later date, given a rate of return.
Glide Path: A glide path is the pre-set schedule by which a portfolio shifts from growth assets to defensive ones as a goal approaches.
Gold: Gold is a commodity held mainly as a store of value rather than a productive asset — it pays no income and its return is entirely price change.
Growth Investing: Growth investing buys companies expected to expand revenue and earnings quickly, accepting high valuations because the future is assumed to justify them.
Growth Stock: A growth stock is priced for rapid future expansion, typically trading at a high multiple of current earnings and paying little or no dividend.
Hedge Fund: A lightly regulated fund that chases returns with tools ordinary funds avoid — short selling, leverage, derivatives.
Holding-Period Return: The total return over the time you actually held an investment — price change plus any income — as a percentage of what you put in.
Index Fund: A fund that doesn't try to beat the market — it simply buys everything in an index and rides along.
IRR (Internal Rate of Return): The discount rate at which a project's NPV is exactly zero — effectively its built-in annualised return.
Large-Cap Stock: A large-cap stock is a company worth roughly $10bn or more — the household names that dominate cap-weighted indexes.
Liquidity: How quickly something converts to cash without losing value.
Load (Sales Charge): A load is a sales commission charged on a mutual fund — front-end when you buy, back-end when you sell within a set period.
Lump-Sum Investing: Lump-sum investing puts the whole amount to work immediately rather than spreading it over months.
Market Efficiency: The idea that prices already reflect all available information, so consistently beating the market is very hard.
Market Index: A market index is a rules-based basket of securities used to represent a market's performance.
Market Timing: Market timing is moving in and out of markets to capture rises and dodge falls.
Money-Weighted Return: Money-weighted return is the internal rate of return on your actual cash flows — what you personally earned, including the timing of every contribution.
Mutual Fund: A pooled investment where many people's money is managed together in one basket.
Net Asset Value (NAV): NAV is a fund's assets minus liabilities divided by shares outstanding — the per-share value of what it actually owns.
NPV (Net Present Value): The value today of a project's future cash flows minus its upfront cost, all discounted for the time value of money.
P/E Ratio: A stock's price divided by its earnings per share — how many dollars investors pay for each dollar of profit.
Payout Ratio: The payout ratio is the share of earnings paid out as dividends, and it's the fastest test of whether a dividend is safe.
Perpetuity: A stream of equal payments that continues forever.
Portfolio: Everything you own as an investor, viewed as one thing: your stocks, bonds, funds and cash together.
Portfolio Turnover: Portfolio turnover is the share of a fund's holdings traded in a year — 100% means the equivalent of the whole portfolio changed hands.
Present Value: What a future sum of money is worth today, once you discount it for the return you could have earned in the meantime.
Private Equity: Investing in companies that aren't listed on a public exchange — buying, improving and later selling them.
Prospectus: A prospectus is the legally required document describing an investment's objective, strategy, risks, fees and past performance.
Real Estate: Property as an investment — homes, offices, land — held for rental income, price gains, or both.
Rebalancing: Periodically trimming what's grown and topping up what's lagged to restore your target mix.
Return on Equity (ROE): Net profit as a percentage of shareholders' equity — how efficiently a company turns owners' money into earnings.
Risk Tolerance: How much ups-and-downs you can stomach — financially and emotionally — before you'd panic-sell.
Robo-Advisor: A robo-advisor is software that builds and maintains a diversified portfolio for you, handling allocation, rebalancing and often tax-loss harvesting.
Rule of 72: A mental-math shortcut: divide 72 by an annual growth rate to get the rough number of years for money to double.
S&P 500: The S&P 500 tracks roughly 500 large US companies weighted by market value, and it is the default meaning of 'the market' in American finance.
Small-Cap Stock: A small-cap stock is a company with a relatively small market value — roughly $300m to $2bn under common US definitions.
Stock (Equity): A slice of ownership in a company.
Stock Split: A stock split divides existing shares into more shares at a proportionally lower price — a 2-for-1 split turns one $600 share into two $300 shares.
Target-Date Fund: A target-date fund is a single fund that holds a whole portfolio and automatically shifts from stocks to bonds as a chosen retirement year approaches.
Three-Fund Portfolio: The three-fund portfolio holds a total domestic stock fund, a total international stock fund and a total bond fund — that's the whole strategy.
Time Value of Money: A dollar today is worth more than a dollar next year, because today's dollar can be invested to earn a return.
Time-Weighted Return: Time-weighted return measures performance with deposits and withdrawals stripped out, so it reflects the manager decisions rather than client cash flows.
Total Return: Total return is price change plus income, which is the only honest measure of what an investment made you.
Unrealized Gain: An unrealized gain is profit that exists on screen but not in your pocket, because you still hold the asset.
Value Investing: Value investing buys assets trading below an estimate of their intrinsic worth, on the premise that price and value diverge and eventually reconverge.
Value Stock: A value stock trades at a low price relative to fundamentals — earnings, book value, cash flow — often in mature or unloved industries.
WACC: The weighted average cost of capital — the blended return a company must earn to satisfy both its lenders and its shareholders.
Working Capital: The short-term money running a business day to day — current assets minus current liabilities.
Yield: What an investment pays you per year as a percentage of its price: a bond's interest, a stock's dividends, a savings account's rate.
Yield on Cost: Yield on cost is the current dividend divided by what you originally paid, not by today's price.

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