Glossary

This chapter defines the terms, concepts, and jargon used throughout the Compounding track. When you encounter an unfamiliar term or want to refresh your understanding of a concept, this is your reference. It's organized for speed: find a term, understand it, move on.

Financial terminology can be a barrier to understanding. Banks and fund managers sometimes use jargon deliberately to obscure how much they're charging you or how much risk you're taking. They'll say "basis points" instead of "percent" because 50 basis points sounds smaller than 0.5%. They'll say "expense ratio" instead of "the cut we're taking from your returns each year." They'll say "alpha" and "beta" instead of "outperformance" and "market sensitivity," because jargon confers authority and makes people feel they need professional help to decode it. This glossary cuts through that obfuscation. Every term is defined in clear language, with examples where relevant. We focus on what matters for long-term compounding, not on obscure academic precision or insider lingo that doesn't serve your interests. If a term is in here, it's because it actually affects your wealth or your ability to make good decisions about money.

The entries are organized alphabetically for easy lookup and cross-referenced where concepts relate. Terms are defined in the context of compounding and long-term investing, not in the abstract academic sense. We care about understanding, not memorization. If a term appears in the track and might be unfamiliar, you'll find it here. If you see a term used in a financial document that confuses you, search this glossary first. You'll find that most of the confusion dissolves once a term is clearly defined without the obscuring jargon.

How to use this glossary

Each term includes a brief, practical definition followed by a longer explanation where needed. When a term is closely related to another—like APR and APY, or time-weighted return and money-weighted return—you'll see cross-references pointing you to the related entry. Use your browser's search function to jump to specific terms, or browse the full alphabetical list if you're building your vocabulary in the area. Don't try to memorize the glossary; use it as a reference tool as you read the track.

Some terms in this glossary describe tools: Excel functions, online calculators, brokerage features, tax-advantaged account types like 401(k)s and Roth IRAs. Others describe concepts: volatility, sequence risk, ergodicity, leverage decay, and mathematical phenomena that affect your wealth. Still others are financial jargon that you need to understand to read prospectuses, statements, and investment literature without being misled. Some are historical examples or case studies mentioned in the track. All of them matter for competent long-term investing, and all of them are defined here in language that serves you, not the financial industry. The tone throughout is practical and jargon-free; we assume no prior financial knowledge.

Articles in this chapter

📄️ Glossary

Compounding glossary — APR, APY, CAGR, IRR, Rule of 72, drawdown, drag, ergodicity and 30+ more terms defined for investors.