Encyclopedia of financial terms
Every term explained in plain language: the intuition and a real world example first, the formula after.
34 terms
A
- AmortisationPaying off a debt gradually through regular instalments. Each instalment covers the interest first and reduces the principal with what is left, and the balance between the two shifts over time.Loans and mortgages
- AnnuityA series of regular payments of the same size at equal intervals. On a loan it is the instalment that never changes for the whole of the repayment.Financial mathematics
- APRCThe annual percentage rate of charge. A single figure expressing the total cost of a loan including fees, which is why loans compare better by it than by the interest rate.Loans and mortgages
C
D
- DCA: regular investingA strategy of investing the same amount at regular intervals regardless of what the market is doing. It removes the need to pick the right moment.Investing
- Discount factorA number between zero and one that converts a future payment into its value today. It expresses what fraction of its face amount the payment is worth now.Financial mathematics
- DiscountingConverting a future sum into its value today: the opposite of compounding. It shows how much you would need to have now to reach a given future amount in a given time.Financial mathematics
- DiversificationSpreading money across several investments so that the failure of one does not threaten the whole. It only works when those investments do not behave alike.Investing
- Down paymentThe part of the price you pay up front, from your own money, when buying on credit or leasing. The rest is financed by a loan and repaid in instalments.Loans and mortgages
E
F
- FIREAn approach in which someone saves and invests heavily to reach financial independence and stop working before the usual retirement age.Investing
- Fixed-rate periodThe period during which your interest rate cannot change. It has nothing to do with the length of repayment: once it ends the mortgage carries on, just at a new rate.Loans and mortgages
- Future value (FV)What a sum of money held today will be worth in the future once it has earned interest. It answers the question "how much will this grow into".Financial mathematics
I
- Implied volatilityThe volatility the market expects in the future, read from option prices. The best-known example is the VIX index for US stocks.Investing
- InflationThe general rise in prices across an economy, which gradually erodes the purchasing power of money: the same sum buys less in a few years than it does today.Macroeconomics
- Interest rateThe price of borrowed money expressed as a percentage per year. It says how much extra you pay if you borrow or how much extra you receive if you are the one lending.Financial mathematics
- Investment portfolioThe whole set of one investor's investments. What decides is the composition of the whole, not the result of individual positions.Investing
L
M
- MomentumThe tendency of a price to keep moving in the direction it has moved recently. In practice it is measured as the return over a chosen period, often adjusted for volatility.Investing
- MortgageA long-term loan secured on a property. The bank lends most of the purchase price and the debt is repaid in regular instalments, usually over 20 to 30 years.Loans and mortgages
O
P
- Passive incomeIncome that requires no direct involvement once the money or work has been put in. Typically it is a return on assets: dividends, interest or rent.Investing
- Payback periodThe time it takes an investment to return the amount put into it from the money it brings in. The discounted payback period also accounts for a later euro being worth less today.Investing
- Personal tax-free allowanceThe amount by which your income tax base is reduced, so no tax is paid on it. In 2026 it is €5,966.73 a year, or €497.23 a month, and it is reduced at higher incomes.Osobné financie
- Present value (PV)What a future sum of money is worth today. It answers the question "how much would I have to have now for it to grow into that".Financial mathematics
- PrincipalThe amount you actually borrowed and have to return. Interest is the price of borrowing it, and it is always calculated on whatever of the principal is still outstanding.Loans and mortgages
R
- Real vs. nominal returnThe nominal return is the figure you see on the statement. The real return is what is left of it after inflation: that is, how much more you can actually buy.Macroeconomics
- RefinancingMoving an existing loan to another bank on better terms. The new loan pays off the old one and from then on you repay only the new bank.Loans and mortgages
- ReturnThe amount or the percentage by which an investment has earned. It can be expressed in euro or in percent and only after deducting inflation does it tell you how much more you can buy.Investing
- RiskThe degree of uncertainty about how an investment will turn out. A higher possible return usually comes with higher risk, but that is a possibility, not a promise.Investing
S
- Safe withdrawal rateThe percentage of a portfolio that can be withdrawn each year so that the money will probably last the whole planned horizon. Four percent is the figure most often quoted.Investing
- Simple interestA way of charging interest in which it is always calculated on the original amount. Interest earned does not itself earn interest, so the value grows evenly.Financial mathematics