Financial jargon sounds intimidating, but behind most technical terms sits a simple idea once someone explains it plainly. This glossary gathers the 40 terms that matter most for understanding investing and following a conversation with people who do it for a living.
A
Asset Allocation
How your wealth is split across asset classes (equities, bonds, real estate, cash, gold, crypto). It is the single most decisive investment decision for your long-term return. A common example is 70% equities, 20% bonds, 10% real estate.
Accumulating vs Distributing ETF
An accumulating (Acc) ETF reinvests dividends inside the fund, while a distributing (Dist) one pays them to your account. In a taxable account, accumulating is more tax-efficient, since there is no annual dividend tax.
B
Barista FIRE
A FIRE variant where you leave your main career but keep part-time work to cover some of your expenses. It needs less capital than pure FIRE and still buys a lot of freedom.
Benchmark
A reference index a fund is measured against. A global equity fund is usually compared to the MSCI World; if it returns 6% while the benchmark returns 8%, it is underperforming.
Bond
A debt security issued by governments or companies. Buying one means lending money to the issuer in exchange for regular interest (coupons) and repayment at maturity. Less risky than equities and less rewarding over the long run, so it is often used as a portfolio cushion.
C
Capital Gain
The profit from selling an asset for more than you paid. In most countries it is taxed as investment income, often at preferential rates compared with regular income.
Compound Interest
The mechanism by which your gains generate their own gains. At 7% a year, $10,000 becomes $19,672 in 10 years and $76,123 in 30, with no further effort on your part.
Correlation
A measure of how two assets move together. Plus one means they always move the same way, minus one means always opposite, zero means independent. It matters because a portfolio of low-correlation assets suffers fewer simultaneous losses in a crisis.
Copy Trading
A feature that replicates a professional trader's positions on your own account automatically. If they open a 5% position in Apple, yours does the same in proportion. The appeal is exposure without expertise and full transparency; the risk is depending on a third party's results and any leverage they use.
D
DCA (Dollar-Cost Averaging)
Investing a fixed amount on a regular schedule (say $200 a month) regardless of the market. You buy more units when prices are low and fewer when they are high, which smooths your average price automatically. It removes the risk of putting everything in at the wrong moment, which makes it ideal for non-experts.
Diversification
The principle of not putting all your eggs in one basket: spreading across assets, sectors, regions and currencies to cut overall risk without necessarily cutting return. A single MSCI World ETF already exposes you to more than 1,500 companies across 23 countries.
Dividend
A share of company profits paid to shareholders. Hold 10 shares of a company paying $2 per share and you receive $20. Dividends are taxed as income or at capital-gains rates depending on the country.
Drawdown
The maximum fall of a portfolio from a peak to the following trough, in percent. The S&P 500 had a 57% drawdown in the 2008 crisis, so a $100,000 portfolio bottomed near $43,000. See also Max Drawdown.
E
ETF (Exchange-Traded Fund)
An index fund that trades on an exchange and tracks an index (MSCI World, S&P 500 and so on). You buy and sell it like a share, with very low fees (0.05% to 0.50% a year). It gives instant diversification, low cost, transparency and liquidity, and comes in physical (holds the assets) or synthetic (replicates via a swap) form.
Equity (Stock)
A share is a fraction of ownership in a company. Buy an Apple share and you become a very small owner, entitled to a slice of profits (dividends) and to the rise in the company's value. Global equities have returned roughly 10% a year on average, gross and before inflation.
F
Fat FIRE
The most comfortable FIRE variant, targeting $60,000 or more a year with no restrictions. It needs $1,500,000 or more at the 4% rule, and allows regular travel and a comfortable life without compromise.
FIRE (Financial Independence, Retire Early)
A movement aimed at reaching financial independence before the traditional retirement age, by saving hard and investing well. The goal is to live off your investments rather than your work. See the 4% Rule and Safe Withdrawal Rate.
Flat Tax
A fixed-rate tax on investment income. In France the PFU is 30% (31.4% since 2026). In the US, long-term capital-gains rates run from 0 to 20%. The rate depends heavily on your country and your holding period.
I
Inflation
The general rise in prices, which erodes the purchasing power of money left uninvested. At 2% a year, $100 today is worth about $67 in 20 years, so any investment has to beat inflation just to hold its real value.
Index Fund
A fund that passively tracks the make-up and performance of a market index. Index funds, ETFs included, are usually far cheaper than actively managed funds and beat most of them over long periods.
L
Lean FIRE
The most frugal FIRE variant, living on under $20,000 a year, which needs about $500,000 at the 4% rule. It works through simple living, a low-cost area or moving abroad, with little room for surprises.
Leverage
Borrowing to invest more than your own capital. It amplifies gains and losses alike: 2x leverage doubles your exposure, so a 10% market move becomes 20% for you in either direction. The main danger is a margin call, where the broker forces a sale once losses cross a threshold.
Liquidity
How easily an asset converts to cash quickly without losing value. Exchange-traded ETFs are very liquid, sellable in seconds, while direct real estate is illiquid and takes months to sell.
M
Market Timing
Trying to predict highs and lows to buy cheap and sell dear. Even professionals fail at it consistently over the long run, which is why regular investing (DCA) tends to win.
Max Drawdown (MDD)
The worst loss an investment has gone through from a historical high to its low, and a key gauge of true risk.
| Asset | Historical Max Drawdown |
|---|---|
| MSCI World | -57% (2008 crisis) |
| S&P 500 | -57% (2008 crisis) |
| Bitcoin | -83% (2018), -65% (2022) |
| Gold | -43% (1980-2001) |
| Bonds | -25% (2022 rate crisis) |
A useful question: if your portfolio fell by that much tomorrow, would you still sleep? If not, the allocation is too aggressive.
MSCI World
A global reference index of around 1,600 companies across 23 developed countries. It covers roughly 85% of world market capitalisation (excluding emerging markets) and is about 70% weighted to the United States.
N
Net Worth
The total value of your assets minus your debts. It is the number to track to see your financial progress. Net worth = assets (real estate, investments, cash) minus liabilities (loans, debts).
P
Passive vs Active Management
Active management has a manager picking securities to beat the market, with high fees around 1 to 2% a year, and most underperform their benchmark over the long run. Passive management replicates an index through ETFs at minimal fees of 0.1 to 0.5% a year, and over the long run it beats 80 to 90% of active funds.
Portfolio
The whole of your financial assets: equities, ETFs, bonds, REITs, crypto and so on. Its composition sets your expected return and your risk.
R
Rebalancing
Periodically restoring your target allocation by trimming what has grown past its weight and adding to what has fallen below. It keeps your risk level where you wanted it as markets move. Target 80/20 equities to bonds, watch a rally push it to 90/10, and rebalancing sells equities and buys bonds to bring it back.
REIT (Real Estate Investment Trust)
A listed company that owns income-producing property. REITs let you invest in real estate without buying a building, with the liquidity of a share and dividends drawn from rental income.
Risk
In finance, risk is usually measured by volatility: the more an asset swings, the riskier it is. It also covers default risk (the issuer cannot repay), liquidity risk (you cannot sell quickly), currency risk (exposure to other currencies) and sequence risk (bad timing at entry or exit).
S
Safe Withdrawal Rate (SWR)
The percentage of your wealth you can take out each year without running the capital down. The classic 4% rule is the standard for 30 years; for longer early retirements (FIRE at 40, so 50 years or more), 3.5% is often recommended.
Sharpe Ratio
A measure of risk-adjusted return, comparing the excess return above the risk-free rate to volatility. The formula is (return minus risk-free rate) divided by volatility. Below 0 is worse than risk-free, 0 to 1 is acceptable for the risk taken, above 1 is good, and above 2 is excellent and rare. An MSCI World ETF at 10% return, a 3% risk-free rate and 15% volatility gives (10 minus 3) over 15, or 0.47.
T
Total Expense Ratio (TER)
The annual cost of holding an ETF or fund, as a percentage of assets, covering management and administration. Passive ETFs run a low TER of 0.05 to 0.30%, against 0.80 to 2.00% for active funds. Over 20 years, a 1% annual fee difference on $100,000 costs you roughly $75,000.
Tracking Error
The gap between an ETF's performance and its index. A good ETF keeps it low, under 0.5%. Management costs, uninvested dividends and transaction fees all create that gap.
V
Volatility
A measure of how widely an asset swings, expressed as an annualised percentage (the standard deviation of daily returns).
| Asset | Typical Annual Volatility |
|---|---|
| Money market / stable | ~0% |
| Government bonds | ~5-8% |
| MSCI World ETF | ~15-18% |
| Individual stocks | ~20-40% |
| Bitcoin | ~60-80% |
How much volatility you accept depends on your horizon and your capacity to watch your portfolio fall for a while without flinching.
VIX (Volatility Index)
The market's fear gauge. The VIX measures the implied volatility expected in the S&P 500 over the next 30 days. Above 30 signals serious uncertainty or crisis, below 15 a calm stretch.
Going further
This glossary gives you the foundations, but personal finance is a skill you build over time. A few extras worth a look: IgniFI to track your wealth, work out your FIRE date and simulate past crises; the rest of the blog to go deeper on each idea; and a few reference books, The Intelligent Investor by Benjamin Graham, Rich Dad Poor Dad by Robert Kiyosaki, and A Random Walk Down Wall Street by Burton Malkiel.
One bit of advice: take a single concept, apply it, then move to the next. Knowledge without action does not get you very far.