Glossary

Glossary

This is a page where readers, especially newcomers, can familiarize themselves with the terminology used in this blog and in fields such as FIRE, investing, or personal finance. Have in mind that this is not a complete list and it is usually updated when a new term appears in a post. CTRL+F might come in handy if you’re looking for something specific.

Terminology

Accumulation Phase – The period of time when an investor builds up the value of their investment through savings1

Angel Investing – Providing capital to a start-up in exchange for ownership equity2

Asset – A resource owned (extended: and expected to bring future benefit)

Asset Allocation – A wealth-distribution strategy based on one’s risk tolerance, goals, and/or investment horizon34

Arbitrage – Simultaneous buying and selling of a security, profiting of tiny discrepancies in its price in different exchanges or markets

ATH – All Time High

Bear Market – A condition of a market whose value fell from recent highs, is falling, and is expected to keep falling (or not rising)5

Beating the Market – Achieving better portfolio performance than that of an index representing the market (such as the S&P 500)

Benchmark – A measure against which a portfolio’s performance is tracked.

Bond – Securities issued by corporate or government entities to raise capital by loaning money from investors6

Book Value – The company’s assets minus its liabilities, divided by the outstanding shares

Bull Market – A condition of a market whose value rises and is expected to rise7

Cash Flow – The amount of cash flowing in and out of a certain account

Capital Gains – A return on investment generated from an asset’s raise in value

Capital Gains Tax – Tax on the gains realized from an asset that appreciated in value

COL – Cost Of Living

Consumer Price Index – A measure for changes in the price levels of consumer goods and services purchased by households89

Cost of Living – The amount of money needed to cover basic expenses to sustain a certain standard of living, relative to the salaries

Correction – A decline in prices that has a duration of fewer than two months

Coupon – The interest rate paid on bonds

CPI – Consumer Price Index

D/E Ratio – Debt to equity ratio

Day Trading – Executing buy and sell trades to capitalize on intraday market price action resulting from temporary supply and demand inefficiencies10

DCA – Dollar Cost Averaging

DD – Due Diligence

Dead Cat Bounce – A temporary recovery in a declining or bear market

Debt to Equity Ratio – The ratio between the company’s liabilities and the shareholders’ equity

Derivative – A contract / financial security which value is derived from its underlying assets (such as stocks, commodities, currencies, etc.)11

Diversification – Allocating capital in a way that reduces the exposure to a single asset or risk12

Dividend – A distribution of the company’s earnings and it’s paid per share13

Dividend Yield – The ratio between the dividend per share and the price of a share

Dollar Cost Averaging – An investment strategy of investing a fixed amount of money on regular schedule (e.g. monthly), regardless of share prices

Early Retirement – Stop working before the traditional retirement age by having sufficient means to live on

Emergency Fund – An amount of money set aside to cover unexpected expenses

ETF – Exchange Traded Fund14

Exchange Traded Fund – An investment fund traded on exchanges, just like stocks, usually tracking, but not limited to, a market index15

Face Value / Par Value – The principal amount of a bond that will be repaid by the issuer on the maturity date

Falling Knife – A rapid drop in the value of a security (at which point you can hurt yourself if you try to buy low and it continues falling)

FIAT – A government regulated currency – money (example: USD, EUR, etc.)

Financial Independence – A state in which a person has sufficient means to live on without having to work or depend on anyone

FIRE – Financial Independence / Retire Early

FOMO – Fear Of Missing Out (as in: letting emotions dictate financial decisions)

Forex – The currency trading and most liquid market

Frugality – The quality of being prudent and economical while spending16

FUD – Fear, uncertainty, doubt

HCOL – High Cost Of Living (usually referencing an area / city / country)

Hedging – An investment used to reduce the risk of another investment, (e.g. buying derivatives, such as options, to hedge against price drops in their underlying asset)

Hodl – A term used in cryptocurrency communities referring to holding the coins (rather than selling them)

Index Fund – A mutual fund that tracks the performance of a market index by holding the underlying securities17

Inflation – The sustained increase in the price of goods and services over a period of time1819

Interest – A payment from a borrower to a lender of an amount above the principal at a particular rate20

Investing – Allocating resources into something and expecting some form of returns in the future. Read about becoming an investor here

LCOL – Low Cost Of Living (usually referencing an area / city / country)

Liability – An obligation towards something created by past events, for example debt

Liquidity – The degree to which an asset or security can be quickly bought or sold without affecting its price21

Margin Trading – Borrowing money from a broker to buy more financial assets22

Market Cap – Market Capitalization

Market Capitalization – The number of outstanding shares multiplied by the price of a share

Market Crash – A sudden, not insignificant, and usually (but not always) unexpected drop in the market value23

Market Index – An indicator and a measure of the performance of a hypothetical portfolio representing some market (or part of it)24

Maturity Date – The date when a contract expires

Mutual Fund – An investment vehicle that invests its investors money into securities25

NAV – Net Asset Value

Net Asset Value – A fund’s price, calculated by the last quoted price of all the fund’s holdings minus its expenses, divided by the number of outstanding shares

Net Worth – (Assets – Liabilities)

Opportunity Cost – The cost associated with foregone opportunities when choosing an alternative26

P/E Ratio – Price to earnings ratio

P/B Ratio – Price to book ratio

P2P Lending – Peer-to-peer lending

Passive Income – An income stream that requires minimal to no management

PEG Ratio – Price to earnings to growth ratio

Peer-to-peer Lending – Lending money (and earning interest) through P2P platforms that match lenders with borrowers27

Per-share earnings – The company’s profits divided by the common outstanding shares

Personal Finance – An individual’s money management28

Paying Yourself First – The act of saving a portion of a salary before even starting to spend it

Portfolio – A collection of all financial assets owned by an investor (or a company)

Price to Book Ratio – The ratio between the price of the share and the company’s book value

Price to Earnings to Growth Ratio – The ratio between the P/E ratio and the growth of the company’s earnings over a period

Price to Earnings Ratio – The ratio between the company’s share price and its per-share earnings

Principal – The amount owed by the issuer of a bond, or more generally: the unpaid borrowed amount

Pullback – Falling back of a security’s price from its peak29

QE – Quantitative Easing

Quantitative Easing – Increasing money supply by central banks by purchasing long-term securities in the open market. You may know it as “printing money”.

Rebalancing – Buying and selling of assets in a portfolio to maintain the original asset allocation (usually done quarterly, semi-annually, or yearly)

Recession – A period in which there is a general economic decline for two quarters or more30

Real Estate Investment Trust – A company that owns and manages income-producing real estate31

REIT – Real Estate Investment Trust

ROI – Return On Investment

S&P 500 – An American stock market index indicating the performance of 500 large cap companies

Safe Withdrawal Rate – The rate with which an investor can safely withdraw from his portfolio without the risk of exhausting it completely32

Security – A tradeable financial asset

Speculation – Conducting a financial transaction that has substantial risk of losing all value but with the expectation of a significant gain33

Stock – A security that represents an ownership in a corporation34

SWR – Safe Withdrawal Rate

Tax – Don’t get me started…

Ticker Symbol – An arrangement of characters representing a publicly traded security (AAPL for Apple stock)

Timing the Market – Making a trade at the right moment, unlikely to be done constantly or continuously

Tracking Error – The difference between the performance of an index fund or ETF and the performance of their benchmark

Underlying Asset – A financial instrument from which a derivative’s price is derived

Weak Hands – Investors and traders who can’t stick to a strategy or panic sell due to FUD etc.

Wealth Accumulation – The action going on in the accumulation phase

WR – Withdrawal Rate

YTD – Year To Date

 

In progress forever.

Make sure to follow the referenced material if you want to learn more, as a sentence of explanation usually means scratching the surface.

 

Share and Enjoy !

Footnotes

  1. https://www.investopedia.com/terms/a/accumulationphase.asp
  2. https://en.wikipedia.org/wiki/Angel_investor
  3. https://monkwealth.com/asset-allocation/
  4. https://www.investopedia.com/terms/a/assetallocation.asp
  5. https://monkwealth.com/become-an-investor-part-6-bulls-bears-market-cycles-and-recessions
  6. https://monkwealth.com/introduction-to-stocks-and-bonds/
  7. https://monkwealth.com/become-an-investor-part-6-bulls-bears-market-cycles-and-recessions
  8. https://www.investopedia.com/terms/c/consumerpriceindex.asp
  9. https://en.wikipedia.org/wiki/Consumer_price_index
  10. https://www.investopedia.com/terms/d/daytrader.asp
  11. https://www.investopedia.com/terms/d/derivative.asp
  12. https://en.wikipedia.org/wiki/Diversification_(finance)
  13. https://monkwealth.com/introduction-to-stocks-and-bonds/
  14. https://monkwealth.com/etfs/
  15. https://monkwealth.com/etfs/
  16. https://en.wikipedia.org/wiki/Frugality
  17. https://monkwealth.com/become-an-investor-part-4-mutual-funds-index-funds
  18. https://monkwealth.com/inflation-explained/
  19. https://en.wikipedia.org/wiki/Inflation
  20. https://en.wikipedia.org/wiki/Interest
  21. https://www.investopedia.com/terms/l/liquidity.asp
  22. https://en.wikipedia.org/wiki/Margin_(finance)#Margin_buying
  23. https://monkwealth.com/bulls-bears-market-cycles-and-recessions/
  24. https://monkwealth.com/introduction-to-index-investing/
  25. https://monkwealth.com/mutual-funds-index-funds/
  26. https://monkwealth.com/opportunity-cost-with-a-twist/
  27. https://en.wikipedia.org/wiki/Peer-to-peer_lending
  28. https://en.wikipedia.org/wiki/Personal_finance
  29. https://www.investopedia.com/terms/p/pullback.asp
  30. https://monkwealth.com/become-an-investor-part-6-bulls-bears-market-cycles-and-recessions
  31. https://www.investopedia.com/terms/r/reit.asp
  32. https://monkwealth.com/the-4-rule-how-to-find-your-fire-number/
  33. https://www.investopedia.com/terms/s/speculation.asp
  34. https://monkwealth.com/introduction-to-stocks-and-bonds/

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