Cited & Contested · Free printable
A plain-English money glossary
Thirty-five words that money books use as though everybody already knows them, defined in ordinary language, each with the trap that usually goes with it. Definitions are general. Specific products, accounts and rules differ by country and change over time.
The money you have
- Asset
- Something you own that has value. The famous argument is whether a thing that costs you money every month counts.
- Liability
- Something you owe. A debt, a loan, an obligation to pay in future.
- Net worth
- What you own minus what you owe. A snapshot, not a score, and it says nothing about this month’s bills.
- Cash flow
- Money actually moving in and out over a period. A healthy net worth and a difficult cash flow are different problems with different solutions.
- Liquidity
- How quickly something turns into spendable money without losing value. Cash is liquid. A house is not.
- Emergency fund
- Money kept accessible for the unplanned. Everyone agrees it helps. Nobody agrees on the size.
- Inflation
- A general rise in prices, so the same money buys less. The reason keeping money still is not the same as keeping money.
- Real and nominal
- Nominal is before inflation, real is after. A book quoting long-run returns without saying which has told you very little.
- Opportunity cost
- What you gave up by choosing this instead of that. Invisible on any statement, often the biggest number in the decision.
Borrowing
- Principal
- The amount actually borrowed or invested, before interest.
- Interest rate
- The price of borrowing, or the reward for lending, as a percentage over a period.
- Annual percentage rate
- A standardised yearly cost of borrowing meant to include certain fees so offers can be compared. What is included varies by country.
- Simple and compound interest
- Simple is charged on the original amount only. Compound is charged on the original plus interest already added. It is why debt accelerates.
- Amortisation
- Paying a loan down in scheduled instalments. Early payments are mostly interest, later ones mostly principal.
- Secured and unsecured debt
- Secured is attached to something the lender can take. Unsecured is not, which is one reason it costs more.
- Minimum payment
- The smallest amount that keeps the account in good standing. Designed to keep the account open, not to clear the debt.
- Refinancing
- Replacing a debt with a different debt. Lower monthly payments over longer can still mean paying more in total.
Investing
- Share, stock, equity
- A small ownership stake in a company.
- Bond
- A loan you make to a government or company, usually paying interest on a schedule and returning the principal at the end.
- Fund
- A pooled basket of investments many people buy into together, run by a manager for a fee.
- Index and index fund
- An index measures a defined slice of a market. An index fund tries to match it rather than beat it, which is why it usually costs less.
- Actively managed fund
- Somebody chooses the holdings, aiming to beat a benchmark. Costs more. Whether the cost is repaid on average is one of the most examined questions in finance.
- Benchmark
- The yardstick a fund is measured against. Always ask which one.
- Expense ratio, or ongoing charge
- The yearly cost of holding a fund, taken whether it rises or falls. Small percentages compound exactly as returns do.
- Diversification
- Spreading money so no single failure is decisive. It reduces the damage of being wrong and caps the reward for being right.
- Volatility
- How much a price moves around. Often used as a synonym for risk, which is a substitution worth noticing.
- Risk tolerance and risk capacity
- Tolerance is what you can stand emotionally. Capacity is what you can absorb financially. Books that discuss only the first do half the job.
- Total return
- Price change plus income such as dividends or interest. Comparing one thing’s price change to another’s total return misleads without lying.
- Rebalancing
- Returning a portfolio to its intended proportions, which means selling some of what went up.
Evidence
- Average
- One number standing in for a spread. Ask what the range was.
- Survivorship bias
- Studying only what made it to the end. The funds that closed and the people who quit are missing from most impressive charts.
- Correlation and causation
- Two things moving together is not proof one causes the other.
- Base rate
- How common something is in general, before your specific case. Ignoring it is how a rare outcome starts to feel like a plan.
- Backtest
- Applying a strategy to past data. Useful, and easy to tune until the past looks obedient.
- Fiduciary duty
- An obligation to act in your interest rather than merely to sell you something suitable. Whether it applies depends on your country and the arrangement. Fair to ask outright.
Free to print, copy and hand out with attribution. From citedandcontested.com. Educational commentary only, not financial advice.