Investing glossary

Accumulating vs Distributing (Acc/Dist)

An accumulating share class (Acc) automatically reinvests dividends inside the fund; a distributing class (Dist) pays them out periodically in cash to the holder.

Active vs indexed management

Indexed management replicates a market index at low cost; active management tries to beat it by picking specific assets, with higher fees and no guarantee of success.

Annualized return (CAGR)

The annualized return (CAGR, compound annual growth rate) expresses the gain of a multi-year investment as if it had grown at a constant rate every year, so periods of different lengths can be compared.

Benchmark index

A benchmark index is the basket of assets that an index fund tries to replicate, or the yardstick against which an actively managed fund's performance is measured.

Compound interest

Compound interest is the interest earned on both your initial capital and the interest already accumulated, producing exponential growth the longer it runs.

Currency hedging (hedged)

A currency-hedged fund neutralizes, through financial instruments, the exchange-rate effect between the fund's currency and the currency of the assets it buys.

DCA (dollar-cost averaging)

DCA (dollar-cost averaging, or periodic investing) means investing a fixed amount regularly — for example, every month — instead of investing all your capital at once.

DGSFP

The DGSFP (Directorate General of Insurance and Pension Funds) is the Spanish public body that supervises and registers pension plans, assigning each one a unique registration number.

Diversification

Diversifying means spreading your money across assets that do not all move the same way in response to the same event, so a bad outcome in one of them does not drag down your entire wealth.

ETF vs investment fund

An ETF trades on an exchange and is bought or sold in real time like a share; an investment fund (FI) is subscribed or redeemed once a day at its net asset value.

Individual pension plan (PPI)

PPI stands for Individual Pension Plan: a retirement savings product with tax advantages under the Spanish IRPF, but with liquidity restricted until retirement except for legal exceptions.

ISIN

The ISIN (International Securities Identification Number) is the international 12-character code that uniquely identifies a specific financial instrument: a fund, ETF, bond or share.

Management fee

The management fee pays the fund manager for running the fund's portfolio; it is the main component of the TER, but not the only one.

Physical vs synthetic replication

Physical replication buys the actual underlying assets of the index; synthetic replication uses a swap with a financial institution to replicate its return without owning the assets directly.

Portfolio rebalancing

Rebalancing a portfolio means returning each asset's weight to its target proportion after the market has thrown it off, to keep the risk level you chose when you designed it.

PRIIPs risk scale

The PRIIPs scale (Summary Risk Indicator) rates the risk of an investment product from 1 (lowest) to 7 (highest), required by EU regulation in each product's KID.

Prospectus / KID

The KID (Key Information Document, formerly known as the KIID) is the standardized 2-3 page summary that every fund or pension plan must publish, covering its objective, risk, fees and historical performance.

Robo-advisor

A robo-advisor is an automated investment manager that builds and rebalances a diversified portfolio of index funds according to your risk profile, at a lower cost than traditional active management.

Savings tax base (IRPF)

The savings tax base is the part of the Spanish tax return where capital gains (selling funds, shares, etc.) and investment income are taxed, with increasing brackets depending on the amount.

Tax-free fund switch

A tax-free fund switch moves your money from one investment fund to another without being taxed on the gain generated — a benefit exclusive to investment funds versus ETFs in Spain.

TER

The TER (Total Expense Ratio) is the total annual fee a fund or ETF charges, expressed as a percentage of your invested assets.

The 4% rule

The 4% rule estimates you can withdraw 4% of your invested wealth in the first year of retirement (adjusting that amount for inflation in later years) with a low probability of running out of money over 30 years.

UCITS

UCITS is the European regulatory framework that harmonizes investment funds and ETFs sold to retail investors across the EU, with common rules on diversification, liquidity and disclosure.

Volatility

Volatility measures how much and how often an asset's price swings: a highly volatile asset can rise or fall a lot in a short time, while a low-volatility one moves more smoothly.