Glossary
Money words, explained simply.
- Compound interest
- The process by which earned interest is added to the principal and then earns interest itself. Over the long run it is the main engine of growth for invested savings.
- Inflation
- A general, sustained rise in prices that erodes the purchasing power of money: the same amount buys fewer goods and services over time.
- ETF (exchange-traded fund)
- A stock-exchange-listed fund that tracks an index (such as the MSCI World), offering broad diversification at low cost and tradable like a single share.
- PEA (French equity savings plan)
- A French investment account dedicated to European equities whose gains are exempt from income tax after five years (social-security levies still apply).
- Livret A
- A French government-regulated savings account that is risk-free and instantly available, with a state-set rate and tax-free interest. A natural home for an emergency fund.
- Budget
- A plan that allocates your income across spending, saving and investing over a given period, so you stay in control of your money and can plan ahead.
- Emergency fund
- Money kept instantly available, typically three to six months of expenses, to absorb unexpected events without taking on debt or selling investments.
- Diversification
- The strategy of spreading savings across several assets, sectors or regions to reduce a portfolio's overall risk.
- Volatility
- A measure of how much an asset's price swings over a given period. High volatility means large moves, both up and down.
- Yield / Return
- The gain produced by an investment relative to the capital invested, expressed as a percentage. It lets you compare the performance of different investments.
- DCA (dollar-cost averaging)
- Investing a fixed amount at regular intervals regardless of price, to smooth out the average purchase price and reduce the impact of market timing.
- Dividend
- A share of a company's profits paid out to its shareholders, usually each year. It is one of the two ways a stock pays off, alongside capital gains.
- Stock / Share
- A security representing a fraction of a company's capital. Owning a share entitles you to a portion of the profits (dividends) and to voting rights.
- Bond
- A debt security issued by a government or company: by lending your money you receive interest, then repayment of the principal at maturity. Less risky than a stock, but usually lower-yielding.
- Interest
- The cost of borrowing or the reward for saving, expressed as a percentage of the capital. You pay it on a loan and earn it on a savings account.
- Credit / Loan
- Money lent by a bank that you repay over time with interest. A loan at a reasonable rate can fund a project; an unmanaged revolving credit quickly leads to over-indebtedness.
- Overdraft
- A negative current-account balance, allowed up to a limit set by the bank. Beyond it, overdraft fees and interest apply and can become expensive.
- Over-indebtedness
- A situation where a person can no longer meet their personal (non-business) debts. In France, a case can be filed with the Banque de France's over-indebtedness commission.
- Flat tax (PFU)
- A French flat levy of 30% (12.8% income tax + 17.2% social levies) that applies by default to investment income: dividends, interest and capital gains.
- Capital gain
- The profit made when you sell an asset for more than you paid. On financial investments it is usually taxed (in France, via the flat tax).
- Taxation
- The set of tax rules that apply to your income and assets. Choosing the right wrapper (PEA, life insurance) often lets you legally reduce the tax due.
- Brokerage account
- An investment account with no cap or geographic restriction, letting you buy stocks, ETFs and bonds worldwide. More flexible than the PEA, but without its tax advantage.
- Life insurance (French wrapper)
- A flexible French savings wrapper letting you invest in guaranteed funds (fonds euros) or market-linked units, with favourable taxation after eight years.
- SCPI (French real-estate fund)
- A company that buys and manages rental property and pays the rent to investors in proportion to their shares. A way to invest in real estate without managing a property directly.
- LDDS (sustainable savings account)
- A French government-regulated savings account, risk-free and tax-free, working much like the Livret A, with its own ceiling.
- LEP (savings account for modest incomes)
- A French regulated savings account reserved for lower-income households, paying a higher rate than the Livret A and protecting better against inflation.
- 50/30/20 rule
- A simple budgeting method: split net income into 50% essential needs, 30% wants, and 20% savings or debt repayment.