Personal finance glossary
50 essential money terms — from APR to the J-curve — defined in plain English.
A
Accredited investor
A legal category of investor — defined by income, net worth or professional credentials, with thresholds that differ by country — permitted to buy certain private investments that are not registered for sale to the general public.
Amortization
Paying off a loan in scheduled instalments over time. Early payments are mostly interest; later payments are mostly principal.
Annual percentage rate (APR)
The yearly cost of borrowing including interest and most mandatory fees, which makes it the fairest way to compare loans.
Annual percentage yield (APY)
The effective yearly return on savings after compounding is included. Higher compounding frequency makes APY slightly higher than the stated rate.
Asset allocation
How a portfolio is divided among asset classes such as stocks, bonds, real estate and cash. It is the main driver of a portfolio's long-run risk and return.
Assets under management (AUM) fee
An advisor fee charged as a percentage of the money they manage, commonly on a sliding scale that falls as balances rise.
B
Balance transfer
Moving a credit-card balance to a new card, usually at a promotional low rate for a limited period and often for a one-time fee.
Bond
A loan you make to a government or company in exchange for regular interest payments and the return of principal at maturity.
Business development company (BDC)
A publicly regulated vehicle, common in the US, that lends to or invests in private mid-sized companies — one of the main ways individuals access private credit.
C
Capital call
A request from a private-equity or private-credit fund for investors to send part of the money they previously committed.
Capital gain
The profit when you sell an asset for more than you paid. Many countries tax gains differently depending on how long you held the asset.
Carried interest
The share of a private fund's profits (often around 20% above a hurdle) paid to the fund manager as a performance incentive.
Compound interest
Interest earned on both the original amount and on previously earned interest, causing growth to accelerate over time.
Credit freeze
A block that stops new creditors from accessing your credit file, making it much harder for someone to open accounts in your name.
Credit utilization
The share of your available revolving credit you are using. Keeping it low is one of the fastest ways to improve a credit score.
D
Debt avalanche
Paying minimums on all debts and putting every extra dollar toward the highest-interest debt first. It minimizes total interest.
Debt snowball
Paying minimums on all debts and putting extra money toward the smallest balance first, for quick motivational wins.
Debt-to-income ratio (DTI)
Monthly debt payments divided by gross monthly income. Lenders use it to judge how much more you can safely borrow.
Diversification
Spreading money across many investments so that a loss in any one has a limited effect on the whole portfolio.
Dollar-cost averaging
Investing a fixed amount at regular intervals regardless of price, which removes the pressure of timing the market.
Down payment
The portion of a home's price paid upfront in cash. In many markets, under 20% triggers mortgage insurance.
E
Emergency fund
Cash set aside for unexpected expenses or income loss — commonly three to six months of essential costs.
EMI (equated monthly instalment)
A fixed monthly loan payment covering both interest and principal, widely used in India and elsewhere.
Estate planning
Arranging how your assets pass on and who makes decisions if you cannot — through wills, beneficiary designations, trusts and powers of attorney.
ETF (exchange-traded fund)
A fund that trades on a stock exchange like a share. Many ETFs track an index at a very low cost.
Expense ratio
The annual fee a fund charges, expressed as a percentage of your investment. Small differences compound into large sums over decades.
F
Family office
A private firm that manages the investments, taxes, estate and often personal affairs of a single very wealthy family (or several, in a multi-family office).
Fee-only advisor
A financial advisor paid only by clients — through flat, hourly or asset-based fees — and not by commissions on products sold.
Fiduciary
Someone legally obligated to act in your best interest, not merely to recommend products that are 'suitable'.
FIRE
Financial Independence, Retire Early — a movement built around high savings rates and investing until passive income covers living costs.
I
Index fund
A fund that holds all (or a representative sample) of the securities in a market index, aiming to match its return at low cost.
Inflation
The general rise in prices over time, which reduces the purchasing power of money.
Interval fund
A type of fund that offers to buy back a portion of shares at set intervals, used to hold less-liquid assets such as private credit.
J
J-curve
The typical pattern in private-equity returns: negative early on due to fees and costs, then rising as investments mature and are sold.
L
Liquidity
How quickly an asset can be turned into cash without a significant loss of value.
Loan-to-value ratio (LTV)
A loan's balance divided by the property's value. Lower LTV usually means better rates and no mortgage insurance.
N
Net worth
Total assets minus total liabilities — the single best snapshot of your financial position.
P
Private bank
A division of a bank serving high-net-worth clients with a dedicated relationship manager, tailored lending and wealth services.
Private credit
Loans made directly to companies by non-bank lenders such as funds, rather than through banks or public bond markets.
Private equity
Investment in companies that are not publicly traded, typically through funds that buy, improve and later sell businesses.
Private mortgage insurance (PMI)
Insurance that protects a lender, not you, when a conventional home loan has less than 20% down. You pay for it until it can be removed.
R
Rebalancing
Periodically buying and selling to bring a portfolio back to its target allocation after markets move.
Robo-advisor
An automated investing service that builds and manages a diversified portfolio based on your answers to a questionnaire.
Rule of 72
A shortcut: divide 72 by the annual growth rate to estimate how many years it takes money to double.
S
Safe withdrawal rate
The percentage of a portfolio you can withdraw each year with a low risk of running out — 4% is a widely quoted starting point.
Sequence-of-returns risk
The danger that poor market returns early in retirement deplete a portfolio faster than the same returns later would.
Sinking fund
Money set aside gradually for a known future expense, such as car insurance, holidays or a new laptop.
T
Tax-advantaged account
An account with tax benefits for saving or investing — e.g. 401(k)/IRA (US), RRSP/TFSA (Canada), ISA/SIPP (UK), PPF/NPS (India) or superannuation (Australia).
Total return
An investment's full return including price changes plus dividends or interest, assuming they are reinvested.
W
Wealth management
Coordinated professional advice covering investments, tax, retirement, estate and insurance planning, usually for higher-net-worth clients.