Financial Glossary

accumulating

ETF that automatically reinvests dividends in the fund. Favours compound interest, not subject to immediate dividend taxation.

asset allocation

Distribution of capital across different asset classes (stocks, bonds, gold, cash). Represents 80–90% of long-term performance.

asset segregation

Regulatory principle that separates client investments from the broker's own assets. Protects against broker bankruptcy.

bear market

Bearish phase of the market: prolonged decline of more than 20% from the recent high. On average, lasts 9-12 months.

blockchain

Decentralised technology for recording transactions in chained blocks, validated by a network of computers. The basis of Bitcoin and crypto.

bond

Debt instrument: you lend money to a state or company in exchange for regular interest (coupons) and principal repayment at maturity.

breakeven

Break-even point, number of years to recoup an investment via dividends/coupons. Useful indicator for valuing real estate and bonds.

broker

Intermediary that gives access to financial markets. Examples: Trade Republic, DEGIRO, Interactive Brokers, Bourse Direct, Fortuneo.

bull market

Bullish phase of the market: prolonged rise of more than 20% from the recent low. Historically lasts 3-9 years.

capital gain

Positive difference between the sale price and purchase price of an asset. Taxable in most jurisdictions.

capital loss

Negative difference between the sale price and purchase price of an asset. Sometimes deductible for tax purposes.

compound interest

Mechanism by which earned interest is reinvested and itself produces more interest. The snowball effect that drives long-term investing.

coupon

Periodic interest paid by a bond to its holder. Expressed as a percentage of par value.

CPI

Consumer Price Index, official inflation measurement index. Tracks the evolution of the price of a basket of common goods and services.

crowdfunding

Participatory financing, raising funds from a large number of individual investors to finance a project.

DALBAR

American firm that publishes annual studies showing that retail investors significantly underperform indexes due to behavioural biases.

DCA

Dollar Cost Averaging, strategy of investing a fixed amount regularly (e.g. €200/month) rather than all at once. Smooths the purchase price.

deemed disposal

Irish tax rule forcing the investor to pay tax on unrealised gains of their ETFs every 8 years. Penalising for long-term ETF holdings in Ireland.

DeFi

Decentralised Finance, financial services (loans, swaps, savings) operated by smart contracts on blockchain, without a central intermediary.

deflation

Sustained general fall in prices. Rare but problematic: consumers postpone purchases, economic activity slows down.

distributing

ETF that pays dividends directly into the account. Generates annual taxation of dividends. Useful for those seeking regular income.

diversification

Spreading capital across multiple assets, sectors or geographies to reduce overall risk.

dividend

Share of profits a company distributes to its shareholders, usually annually or quarterly.

drawdown

Maximum loss between a peak and the subsequent trough. Indicator of an asset's resilience.

duration

Measure of a bond's price sensitivity to interest rate changes. The longer the duration, the more sensitive the bond.

EBITDA

Earnings Before Interest, Taxes, Depreciation, Amortization. Operating profitability indicator widely used to value companies.

emergency fund

Cash reserve covering 3 to 6 months of expenses. Built before investing. Protects against contingencies without forcing asset sales.

ETF

Exchange Traded Fund, exchange-listed index fund that automatically bundles tens or thousands of stocks based on a benchmark index.

exposure

Share of the portfolio dedicated to an asset or asset class. A 20% exposure to US stocks means 20% of the portfolio is invested there.

face value

Borrowed amount of a bond, repaid at maturity. Generally €1,000.

fiat

Fiduciary currency issued by a central bank, with no intrinsic value (euro, dollar). Opposed to cryptocurrencies and gold.

flat tax

Single tax rate applied to all capital income. In France, 30% on gains from an ordinary brokerage account.

Forex / FX

Foreign Exchange, market where currencies are exchanged against one another. Largest financial market in the world (~$9.6 trillion/day).

hardware wallet

Physical wallet (secure USB key) to store cryptocurrencies offline. Ledger or Trezor are the most known. Maximum protection against hacks.

hedge

Strategy aimed at protecting a portfolio against a specific risk (market decline, currency, inflation). Often used for currency exposure.

High Yield

Bonds rated below BBB-. Higher default risk, more generous coupon. Also called 'junk bonds'.

inflation

Sustained general rise in the prices of goods and services. Erodes purchasing power over time. In Europe, it averages around 2% per year.

Investment Grade

Bonds rated BBB- or above by rating agencies. Low default risk, modest coupon.

ISA

Individual Savings Account, UK tax wrapper. No tax on gains, for life. Annual limit of £20,000.

ISIN

International Securities Identification Number, unique 12-character code that precisely identifies a financial product worldwide.

KYC

Know Your Customer, mandatory identity verification when opening an investment account. Anti-money-laundering safeguard.

limit order

Buy order with a fixed maximum price. Execution only takes place if the market reaches that price or below. Avoids price slippage on illiquid stocks.

liquidity

Ease with which an asset can be sold quickly without loss of value. A listed stock is liquid, real estate is not.

LTV

Loan To Value, ratio of the borrowed amount to the property's value. An LTV below 70% indicates a comfortable margin of safety for the bank.

lump sum

Investing all your capital at once, as opposed to DCA. Historically more profitable but psychologically harder.

market order

Buy order executed at the best price currently available. Simple and fast, suited for liquid ETFs.

mortgage / real-estate loan

Bank loan to finance the purchase of a real-estate property. Leverage amplifies both gains and losses.

P/E ratio

Price/Earnings ratio, price-to-earnings multiple. P/E of 20 means it would take 20 years of profits to recoup the purchase. Average for the S&P 500: 18-20.

PEA

Plan d'Épargne en Actions, French tax wrapper. After 5 years, gains are taxed at 17.2% instead of 30%.

PEG

Price/Earnings to Growth, P/E divided by the earnings growth rate. A PEG below 1 may indicate an undervalued stock relative to its growth.

Pillar 3a

Private retirement savings scheme in Switzerland. Contributions deductible from taxable income, tax-free growth.

PMI

Purchasing Managers Index, monthly survey of purchasing directors. Above 50 = expansion, below 50 = contraction. Leading economic indicator.

private equity

Investment in non-listed companies. Generally riskier but potentially more profitable.

rebalancing

Annual restoration of the original asset allocation. If stocks have performed well, partially sell to buy bonds and stay on target.

ROE

Return On Equity, return on shareholders' equity. ROE > 15% is generally considered excellent.

secondary market

Market where already-issued securities are traded between investors. To be distinguished from the primary market (initial issuance).

short / short-selling

Bearish bet on an asset, selling an asset you don't own, hoping to buy it back cheaper. Risky strategy reserved for professionals.

smart contract

Computer program executed on the blockchain, that triggers automatically if certain conditions are met. Foundation of DeFi.

SPIVA

Annual study comparing the performance of actively-managed funds to their benchmark index. Over 15 years, 90% of active funds underperform.

spread

Bid-ask spread : Difference between the buying price and the selling price of an asset. Represents the implicit transaction cost.

Credit spread : Extra yield a bond pays over the risk-free rate. Compensates the investor for the default risk taken. The riskier the issuer, the wider the spread.

stagflation

Combination of weak economic growth and high inflation. The worst of both worlds for investors.

stock / share

Ownership unit representing a fraction of a company's capital. Entitles the holder to dividends and a share of the company's value.

stop-loss

Automatic sell order for an asset if its price falls below a certain threshold. Used to limit losses, but can trigger panic selling.

TER

Total Expense Ratio, annual fees of a fund or ETF, expressed as a percentage. A TER below 0.5% is ideal for an index ETF.

ticker

Short code that identifies a financial product on an exchange. Example: AAPL for Apple, SWDA for the iShares Core MSCI World ETF.

volatility

Magnitude of price variations of an asset. High volatility means large short-term swings.

yield curve

Graphical representation of interest rates by maturity. An inverted curve (2-year above 10-year) historically signals an upcoming recession.

YTM

Yield to Maturity, total yield received by holding a bond to maturity. Includes coupons and any premium/discount on the price.