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Investing glossary
Plain-English definitions of the words you’ll meet across Finisdom — each with where the number comes from, where it helps.
- Asset class
- A family of investments that behave alike — stocks, bonds, gold/commodities, crypto, or cash.
- Backtest
- A “what if” test that replays a mix through real past prices to see how it would have done.
- From: Uses each investment’s historical prices.
- Beta
- How much something moves compared to the whole stock market. 1 means it moves about the same; above 1 means bigger swings.
- From: Measured against the S&P 500’s price history.
- Bond
- A loan you make to a government or company that pays you steady interest. Usually calmer than stocks.
- Candlestick
- A chart shape for one slice of time. The body shows the open and close; the wicks show the high and low.
- CAPE
- A way to judge if stocks look cheap or expensive by comparing prices to many years of earnings.
- From: Based on long-run S&P 500 earnings data.
- Cash
- Money sitting on the side, not invested. Very safe, but it barely grows.
- Credit spread
- The extra yield a bond pays over a “safe” government bond, as payment for the risk it might not be repaid. Widens when investors get nervous, narrows when they’re calm.
- From: The ICE BofA high-yield OAS series, via FRED.
- Diversification
- Spreading money across different things so one bad day doesn’t sink you. “Don’t put all your eggs in one basket.”
- Drawdown
- The worst drop from a high point to a low point. “Max drawdown” is the deepest one.
- From: Measured from daily price history.
- Drift
- When your mix slowly slides away from your plan because some parts grew faster than others.
- Duration
- How sensitive a bond’s price is to interest-rate changes. Longer-dated bonds swing more when rates move.
- Efficient frontier
- A curve showing the best possible reward for each level of bumpiness. Mixes on the curve are well balanced.
- High-yield bond
- A bond from a riskier borrower, paying a higher interest rate (a wider spread) to compensate for the extra risk. Also called “junk” bonds.
- Implied probability
- A prediction-market contract’s price, read directly as a percentage chance of that outcome — a contract at 87 cents implies roughly 87%.
- Investment grade
- A bond from a safer, higher-rated borrower, paying a narrower spread over a government bond than a high-yield borrower would.
- Macro
- The big-picture view of the whole market and economy, rather than a single investment.
- Portfolio
- Everything you own as an investor, plus any cash, treated as one basket.
- Prediction market
- A market where people trade contracts that pay out based on whether a real-world event happens — its price behaves like a real-money-backed probability.
- Rebalancing
- Trimming the parts that grew too big and topping up the ones that shrank, to get back to your plan.
- Risk
- The chance your money goes down before it goes up. More possible reward usually means more risk.
- Risk-free rate
- What you could earn with almost no risk, like a short U.S. government bill. A baseline to compare against.
- From: The 3-month U.S. Treasury rate from FRED.
- Stock
- A tiny piece of ownership in a company. Can grow a lot over time, but bounces around.
- VIX
- The market’s “worry meter”. High means investors are nervous; low means calm.
- From: Published via FRED (U.S. Federal Reserve data).
- Volatility
- How bumpy something is — how much its value jumps around. Higher means a wilder ride.
- From: Calculated from daily price history.
- Yield curve
- A line of interest rates for different lengths of time. Its shape hints at where the economy may be heading.
- From: U.S. Treasury rates from FRED.
Education only — not investment advice.