Library · 180 terms

Investing Glossary

Every term used in the course, defined in one plain sentence. Alphabetical.

0-9

10-year Treasury yield
The interest rate on a 10-year U.S. government bond; the benchmark for mortgages and stock valuations.
401(k)
An employer retirement plan funded from your paycheck, often with an employer match.

A

Active fund
A fund whose manager picks holdings in an attempt to beat the market.
Address (crypto)
A public identifier derived from a private key, where others send you coins; safe to share.
Agency bond
A bond issued by a government-linked entity; slightly more yield than a Treasury.
Altcoin
Any cryptocurrency other than Bitcoin.
APR
A loan's yearly interest rate; on credit cards, charged daily on any balance not paid in full.
Ask
The lowest price a seller will currently accept for a stock.
Asset allocation
The split of a portfolio between stocks, bonds, and cash; the decision that explains most of its return and risk.
Avalanche method
Paying off debts highest interest rate first; the cheapest order.

B

Backdoor Roth
Contributing to a traditional IRA and converting it to a Roth, used by people above the Roth income limit.
Bear market
A fall of 20% or more from a recent high.
Behaviour risk
The risk that your own decisions, such as panic selling or chasing a tip, lose you money.
Bid
The highest price a buyer will currently pay for a stock.
Bid-ask spread
The gap between buying and selling price of an ETF or stock; pennies on large ones, meaningful on tiny ones.
Billing cycle
The roughly 30-day period a credit card statement covers.
Bitcoin
The first and largest cryptocurrency, launched in 2009, with supply capped at 21 million coins.
Block
A batch of transactions added to a blockchain, linked to the previous block by a hash.
Blockchain
A shared ledger copied across thousands of computers that agree on each new entry by fixed rules, with no central party.
Bond
A loan to a government or company that pays interest on a schedule and returns the principal at maturity.
Bond index fund
One fund holding thousands of bonds; the simple way to own bonds.
Breakeven
For an option buyer, the stock price at which the trade neither gains nor loses: strike plus premium for a call.
Broker
A licensed firm that holds your account and sends your orders to the market.
Bull market
A period of rising prices lasting months or years; the market's usual state.

C

Call
An option giving the right to buy 100 shares at the strike price before expiration.
Capital gain
The profit from selling an investment for more than you paid.
Cash advance
Withdrawing cash on a credit card; no grace period, a fee, and a higher rate.
Cold wallet
A crypto wallet whose keys stay offline, usually a hardware device; safer and slower.
Collateral
Shares or cash a broker holds against an option you have sold.
Collectible (tax)
The IRS category for physical gold and gold-backed ETFs, taxed at up to 28% on long-term gains.
Commission
A charge per trade; $0 at nearly every major U.S. broker for stocks and ETFs.
Commodity
A raw good that is the same wherever it comes from, such as gold, oil, or wheat, priced globally by supply and demand.
Common stock
The ordinary share that carries a vote and a claim on profits; what almost everyone buys.
Compound growth
Growth on top of growth: returns that are reinvested and then earn returns of their own.
Consumer Price Index (CPI)
The U.S. government's measure of inflation, based on the cost of a fixed basket of everyday goods and services.
Contango
When a commodity's future price is above its current price, causing futures-based funds to lose a little on every contract roll.
Corporate bond
A bond issued by a company; higher yield than a Treasury, with real default risk.
Correction
A fall of 10% from a recent high; happens in most years.
Coupon
A bond's fixed interest rate, set when it is issued.
Covered call
Selling a call on shares you already own, turning some upside into premium income.
Credit rating
A grade from AAA down to junk that estimates how likely a bond issuer is to fail to pay.
Credit risk
The risk that a bond issuer does not pay; also called default risk.
Credit score
A number from 300 to 850 that predicts whether you will repay; 670+ is good.
Cryptocurrency
A digital token whose ownership is recorded on a blockchain.

D

Dividend
Cash a company pays to shareholders out of its profits, usually every three months.
Dividend yield
Yearly dividend divided by share price, shown as a percentage.
Dollar-cost averaging
Investing a fixed amount on a fixed schedule regardless of price.
Dow Jones Industrial Average
An index of 30 large U.S. companies, weighted by share price; quoted on the news, rarely used by investors.
Duration
How much a bond's price moves per 1% change in interest rates; roughly its years to maturity.

E

Earnings per share (EPS)
A company's profit divided by its number of shares.
Emergency fund
Cash set aside for surprises such as job loss, usually three to six months of essential expenses, kept out of the market.
Employer match
Money an employer adds to your 401(k) when you contribute; an instant return on the matched amount.
Equity
Another word for stock: ownership in a company.
ETF (exchange-traded fund)
A fund that trades on an exchange all day like a stock.
Ether (ETH)
The coin of the Ethereum blockchain.
Ethereum
A blockchain that runs programs (smart contracts), launched in 2015, using proof of stake since 2022.
Exercise
Using an option's right to buy or sell; most traders sell the option instead.
Expense ratio
A fund's yearly fee as a percentage of your money, deducted automatically.
Expiration
The last day an option can be used.

F

Face value
The amount a bond repays at maturity, usually $1,000; also called par.
FDIC
Federal insurance on bank deposits up to $250,000 per depositor per bank.
Fed funds rate
The short-term interest rate set by the Federal Reserve, from which other rates flow.
Federal Reserve
The U.S. central bank, which sets short-term interest rates and controls the money supply.
Fractional share
Less than one whole share, which most brokers now sell so small amounts can buy expensive stocks or funds.
Fund
A pool of many investors' money used to buy many investments; each investor owns a proportional slice.
Futures
Contracts to buy or sell a set amount of something on a future date; leveraged and not for beginners.

G

Gas
The network fee paid for a transaction on Ethereum.
Grace period
The days between a credit card statement and its due date during which paying in full means no interest.

H

Halving
The event every 210,000 blocks (about four years) when Bitcoin's reward per block is cut in half.
Hard commodity
A commodity that is mined or drilled: gold, oil, copper.
Hard inquiry
A lender's check of your credit when you apply, which lowers your score slightly for a year.
Hash
A fingerprint of data; each block contains the previous block's hash, linking the chain.
High-frequency trading
Computer trading in microseconds on tiny price gaps; adds volume and occasional flash crashes.
High-yield bond
A bond rated below investment grade; higher coupon, real chance of loss; also called junk.
Holdings
The list of what a fund owns.
Hot wallet
A crypto wallet on an internet-connected device; convenient and exposed.
HSA (health savings account)
An account for people with high-deductible health plans that is tax-free going in, growing, and coming out for medical costs.

I

I bond
A U.S. savings bond paying a fixed rate plus an inflation rate, sold only at TreasuryDirect, $10,000 per person per year.
In the money
A call with the stock above its strike, or a put with the stock below it.
Index
A list of stocks tracked as one number, such as the S&P 500; a rule for picking them plus a formula for combining their prices.
Index fund
A fund that copies an index instead of picking investments, at very low cost.
Inflation
The general rise in prices over time, which means each dollar buys a little less than it did.
Inflation risk
The risk that cash or fixed payments lose buying power as prices rise.
Interest-rate risk
The risk that rising rates lower the price of a bond you already own.
Intrinsic value
How far an option is in the money; the part of its price that is not time value.
Investment grade
Bonds rated BBB or higher; considered low risk of default.
IPO (initial public offering)
A private company's first sale of shares to the public; the one time the company receives the money.
IRA (individual retirement account)
A retirement account you open yourself at any broker.
Issuer
The government or company that borrows by selling a bond.

L

Large cap
A company valued at more than about $10 billion.
Limit order
An order to buy only at or below a price you set, or sell only at or above it.
Load
A sales charge on some mutual funds of up to 5%; never worth paying.
Long-term capital gains
Profit on an investment held more than a year, taxed at a lower rate than ordinary income.

M

Market capitalization
Share price multiplied by number of shares: what the whole company is valued at.
Market maker
A firm that constantly quotes a bid and an ask so there is always someone to trade with.
Market order
An order to buy or sell immediately at the current price.
Market risk
The risk that the whole market falls at once, which diversification cannot remove.
Maturity
The date a bond repays its face value.
Medium of exchange
Money's job of letting people trade work for money and money for goods instead of bartering.
Miner
A computer that confirms Bitcoin transactions by solving a puzzle and is paid in new coins and fees.
Minimum payment
The smallest payment a card allows, usually 1% to 3% of the balance; designed to keep you paying interest for years.
Money market fund
A fund of very short-term bills and similar that keeps a $1 price and pays a rate near the Fed's.
Municipal bond
A bond issued by a state or city, usually free of federal income tax.
Mutual fund
A fund bought and sold directly with the fund company once a day at the closing value.

N

Nasdaq Composite
An index of every stock on the Nasdaq exchange, over 3,000, heavy in technology.
Nominal return
An investment's return before subtracting inflation.

O

Option
A contract giving the right, not the obligation, to buy or sell 100 shares at a set price before a date.
Out of the money
An option with no intrinsic value; worth only its time value and nothing at expiration.

P

P/E ratio
Share price divided by earnings per share; the S&P 500's long-run average is about 16 to 17.
Passive fund
A fund that copies an index and makes no investment decisions.
Portfolio
Everything you own as investments, considered together.
Preferred stock
A share that receives fixed dividends before common stock but usually has no vote.
Premium
The price of an option, quoted per share; one contract covers 100 shares.
Primary market
Where new shares are sold by the company, as in an IPO.
Private key
The secret number that controls coins at an address; whoever has it has the coins.
Proof of stake
A way of confirming transactions where validators lock up coins as collateral instead of spending electricity.
Proof of work
A way of confirming transactions where miners compete to solve a puzzle, using large amounts of electricity.
Protective put
Buying a put on shares you own to cap your loss; insurance on a stock position.
Pump and dump
A scheme where a group hypes a small coin, sells into the buying, and the price collapses.
Put
An option giving the right to sell 100 shares at the strike price before expiration.

R

Real interest rate
The interest rate minus inflation; the main driver of the gold price.
Real return
An investment's return after subtracting inflation; the number that measures buying power actually gained.
Rebalancing
Restoring a portfolio to its target mix by selling what grew and buying what lagged.
Reinvestment risk
The risk that a bond matures when rates are low and its income cannot be replaced.
Required minimum distribution (RMD)
The withdrawal the IRS forces from traditional retirement accounts each year from age 73 (75 if born 1960 or later).
Risk
Uncertainty about what an investment will be worth when you need it.
Roth
A retirement account funded with after-tax money whose withdrawals are tax-free after 59½ and five years.
Roth conversion
Moving money from a traditional account to a Roth, paying income tax on it now so it grows tax-free after.
Rug pull
A scam where developers launch a token, collect money, and disappear.
Rule of 72
A shortcut for doubling time: divide 72 by the yearly growth rate to get the number of years.
Russell 2000
An index of 2,000 small U.S. companies; the standard small-cap gauge.

S

S&P 500
An index of about 500 of the largest U.S. companies, weighted by size; the standard meaning of "the market."
Secondary market
Where existing shares trade between investors on an exchange; the company is not involved.
Secured card
A credit card backed by a refundable deposit that sets the limit; used to build credit from nothing.
Seed phrase
12 or 24 words that generate all of a wallet's private keys; the master key to everything.
Settlement
The official transfer of shares and cash after a trade, one business day later in the U.S. (T+1).
Share
One unit of ownership in a company.
Short selling
Borrowing shares to sell them, hoping to buy them back cheaper; a bet that a price will fall.
SIPC
Insurance covering up to $500,000 per customer if a broker fails; does not cover investment losses.
Small cap
A company valued at less than about $2 billion.
Smart contract
A program on a blockchain that moves coins automatically when conditions are met.
Snowball method
Paying off debts smallest balance first for quick wins; slightly more interest than avalanche.
Soft commodity
A commodity that is grown: wheat, corn, coffee, cotton.
Soft inquiry
A credit check that does not affect your score, such as checking your own report.
Specific risk
The risk that one particular company, coin, or bond fails; reduced by owning many instead of one.
Spot Bitcoin ETF
A fund traded on a stock exchange that holds actual Bitcoin, giving price exposure in a normal brokerage account.
Spread
The gap between the bid and the ask; a hidden cost of trading.
Stablecoin
A token pegged to $1, backed by dollars and Treasuries held by its issuer.
Statement balance
The amount owed on a credit card when the billing cycle closed; pay it in full to avoid interest.
Stock
Ownership in a company, divided into shares.
Store of value
Money's job of carrying value into the future, which inflation makes it do poorly.
Street name
Shares held by your broker in its name on your behalf; the normal arrangement.
Strike price
The fixed price in an option contract.

T

Target-date fund
One fund holding stock and bond index funds in a mix that shifts safer as a chosen retirement year approaches.
Tax-loss harvesting
Selling a fund at a loss to offset taxable gains, then buying a similar fund.
Taxable brokerage account
An ordinary investment account with no tax shelter and no withdrawal rules.
Theta
The rate at which an option loses time value each day.
Three-fund portfolio
A complete portfolio of a total U.S. stock fund, a total international stock fund, and a total bond fund.
Ticker
The short code for a stock or fund, such as AAPL or VTI.
Time horizon
How long your money can stay invested before you need to spend it.
Time value
The part of an option's price paid for the chance it moves into the money before expiration; decays to zero.
TIPS
Treasury Inflation-Protected Securities: Treasuries whose face value rises with CPI.
Total return
Dividends plus price gains, together.
Tracking error
The small gap between a fund's return and its index's, from fees and copying mechanics.
Traditional (IRA or 401(k))
A retirement account funded with pre-tax money whose withdrawals are taxed as income.
Treasury bill
A U.S. government bond maturing in a year or less, sold below face value.
Treasury bond
A U.S. government bond maturing in 20 or 30 years.
Treasury note
A U.S. government bond maturing in 2 to 10 years; the 10-year is the benchmark quoted in the news.
TreasuryDirect
The U.S. Treasury's website for buying Treasuries and I bonds with no fee.

U

Underlying
The stock, ETF, or index an option is about.
Unit of account
Money's job of measuring prices, the way a metre measures length.
Unrealized gain
A profit on paper, on an investment you have not sold; no tax is due yet.
Utilization
The share of your credit limits in use; keep it under 30%, ideally under 10%.

V

Validator
A participant who confirms transactions on a proof-of-stake blockchain by locking up coins.
Vesting
The schedule on which employer contributions become yours to keep if you leave.
Volatility
How much and how fast a price moves up and down; not the same thing as permanent loss.
Volume
The number of shares traded in a period; high volume means prices are reliable.

W

Writer
The seller of an option, who collects the premium and takes on the obligation.

Y

Yield
The yearly return from buying a bond at today's price and holding it to maturity.