Basic dictionary for your personal finances

Money has its own language. Reading about mutual funds, ETFs, stocks, or cryptocurrencies without knowing the terminology is like only half-listening to a conversation: you grasp the general idea, but the nuances that matter most escape you. And in finance, nuance matters.

This personal finance dictionary brings together the terms you will most frequently encounter in Bit2Me Academy and in Bit2Me We assume no prior knowledge: each definition starts from scratch. For blockchain ecosystem-specific terms—DeFi, NFTs, Layer 2, validators, oracles, consensus—consult the blockchain glossary of Bit2Me Academy.

A – C

• AGENDA Equity participation in a publicly traded company. When you buy shares of a company, you become a co-owner of a fraction of that business. If the company grows and generates profits, the value of your shares can increase; if it pays dividends, you will receive a proportional share of those profits.
• Financial asset Any asset that has value or can generate an economic return. In personal finance, the most common assets are stocks, bonds, mutual funds, ETFs, real estate, and cryptocurrencies. An asset is anything you can invest your capital in, expecting it to work for you.
• APY (Annual Percentage Yield) Annual compound yield expressed as a percentage, which takes into account the effect of compound interest. Unlike the nominal interest rate, the APY reflects how much your capital actually grows in a year if earnings are reinvested.
• Open architecture An investment fund distribution system that allows access to products from different asset managers without favoring its own. In an open architecture, there are no retrocessions: the platform does not charge asset managers a commission for placing their funds, so it has no incentive to recommend some over others. Bit2Me Invest operates under this model.
• Bond A bond is a debt security issued by a company or government. When you buy a bond, you are lending money to that entity in exchange for repayment on a predetermined date, plus pre-agreed interest. Bonds are the primary fixed-income investment.
• Investment portfolio A portfolio is a collection of financial assets held by an investor at a given time. A portfolio can include stocks, bonds, funds, ETFs, and cryptocurrencies in varying proportions. The portfolio's composition reflects the investor's risk profile and investment goals.
• Clean classrooms Investment fund shares that do not include retrocession fees in their TER (Total Expense Ratio). By not paying the distributor, the annual cost to the investor is lower and the net return is higher. They are called "clean" shares because the price does not include the intermediation surcharge. Bit2Me Invest distributes exclusively clean shares.
• Dirty Classes Shares in a fund that do include retrocessions in their TER. The investor pays more to cover the commission that the management company pays to the bank or broker that distributed the fund. The fund's gross return is identical to that of the clean share class, but the investor's net return is lower.
• Institutional classes Shares in a fund with the lowest TER in its category, historically reserved for large institutional investors —pension funds, insurance companies, family offices— with minimum entry amounts of €100.000 or more. Bit2Me Invest provides access to these classes from €1 by aggregating the assets of all its clients and operating as a collective institutional investor with the asset managers.
• Cryptoactive A digital asset based on cryptographic key technology and recorded on a blockchain. It includes cryptocurrencies such as Bitcoin and Ether, stablecoins, utility tokens, and other virtual assets.
• Custody Custodian services are the safekeeping and management of financial assets by a regulated entity. A custodian ensures that an investor's securities or assets are secure and properly registered. In traditional investments, the custodian is an entity regulated by the CNMV (Spanish National Securities Market Commission). In crypto, it can be a centralized custodian—such as a regulated exchange—or a self-custody wallet where the user controls their own private keys.

D – G

• DCA (Dollar-Cost Averaging) A strategy of buying periodically with a fixed amount, regardless of the asset's price at any given time. If you buy the same amount every month, sometimes you'll buy at a high price and sometimes at a low price, but the resulting average price will tend to be lower than the highest price during the period. This reduces the impact of volatility in the long term and eliminates the need to time your entry perfectly.
• International Distribute capital across different assets, sectors, or geographies to reduce overall portfolio risk. The logic is simple: if one part of your investments underperforms, others can compensate. “Don’t put all your eggs in one basket” is the everyday version of this concept.
• Dividend A portion of a company's profit that it decides to distribute to its shareholders periodically, usually quarterly or annually. Not all companies pay dividends: some prefer to reinvest profits for growth. Receiving dividends has tax implications that should be understood before planning a dividend-based strategy.
• Exchange Traded Fund (ETF) An investment fund that trades on the stock exchange like a stock, in real time during trading hours. It combines the diversification of a fund—by replicating an index or basket of assets—with the liquidity of stocks, because you can buy and sell it at any time of day. It typically has a low TER (Total Expense Ratio), especially with passive management.
• FOGAIN (Investment Guarantee Fund) A protection mechanism for retail investors that covers up to €100.000 per person in the event of the insolvency of an investment services firm regulated by the CNMV (Spanish National Securities Market Commission). It is the investment equivalent of the Deposit Guarantee Fund for banks. FOGAIN does not protect against market losses—if the fund falls, that is market risk—but only against the bankruptcy of the intermediary.
• Investment fund A collective investment vehicle managed by a professional manager. It pools the capital of multiple investors to purchase a diversified portfolio of assets—stocks, bonds, real estate, and more. Each investor owns shares proportional to their contribution. By joining forces, small investors gain access to conditions and assets they could not obtain individually.
• Active management An investment strategy in which a manager or team selects assets with the goal of outperforming the benchmark index. It requires continuous analysis and frequent decision-making, which typically results in a higher TER (Total Expense Ratio) than passive management.
• Passive management A strategy that replicates the performance of a market index—S&P 500, MSCI World, IBEX 35—without active stock selection. The manager does not attempt to beat the market, but rather to track it. Historically, most actively managed funds fail to outperform their benchmark index over the long term, while passively managed funds maintain a lower TER (Total Expense Ratio).

H – N

• Temporal horizon The period during which an investor plans to hold their investment before needing the money. It is one of the most important factors when designing a portfolio: the longer the time horizon, the greater the capacity to tolerate short-term volatility, because there is time to recover if the market falls.
• Stock index An index that measures the performance of a representative group of companies or assets in a market. The S&P 500 comprises the 500 largest companies in the US; the IBEX 35, the 35 largest in Spain; and the MSCI World, the largest in the developed world. Investing in index-tracking ETFs is the most common way to replicate an index at low cost.
• Inflation A general increase in the price level that reduces the purchasing power of money over time. If inflation is 3% annually and your savings don't generate any returns, you can buy less with the same amount of money each year. Investing aims, among other objectives, to preserve and increase purchasing power against inflation.
• Compound interest This is the mechanism by which the interest generated is reinvested and, in turn, generates new interest on the accumulated capital. It's the principle that explains why long-term investing has such a significant impact: by reinvesting profits, growth is exponential, not linear.
• KYC (Know Your Customer) KYC is the identity verification process that regulated financial institutions are required to perform before providing their services. It includes customer identification, document verification, and assessment of the source of funds. KYC is part of anti-money laundering (AML) regulations and applies to both traditional investments and cryptocurrency services.
• management Liquidity refers to the ease and speed with which an asset can be converted into cash without significant loss of value. Shares of large, publicly traded companies are highly liquid—they can be sold in seconds. Real estate, on the other hand, is illiquid—it can take weeks or months to find a buyer. Investment funds have varying levels of liquidity depending on their type and underlying asset.
• MiCA (Markets in Crypto-Assets Regulation) The European Regulation on Markets in Crypto-Assets, in force since December 2024, establishes the regulatory framework for crypto-asset service providers in the European Union. It requires registration with the authorities, transparency in communication, and effective customer protection. Bit2Me It operates as a Crypto Asset Service Provider (CAP) authorized by the CNMV under MiCA.
• MiFID II (Markets in Financial Instruments Directive II) The European Markets in Financial Instruments Directive, in force in Spain since 2018, regulates investment in stocks, bonds, funds, and ETFs, and protects retail investors by requiring distributors to disclose any conflicts of interest—including retrocessions. MiFID II was a significant regulatory step forward: it made visible what was previously hidden, although it did not eliminate the root of the problem.

O – R

• Risk profile Investor classification is based on their tolerance for potential losses, their time horizon, and their financial goals. A young person with a stable income and a 20-year horizon has a very different risk profile than someone who needs the money in three years. The risk profile determines the appropriate proportion of equities and fixed income in your portfolio and is one of the elements assessed in the suitability test.
• Rebalancing Periodic adjustment of the asset allocation in a portfolio to return to the original target allocation. If your portfolio was 70% in stocks and 30% in bonds, and stocks have risen significantly, they might now represent 80%. Rebalancing means selling some of the assets that have performed best and buying some of the assets that have underperformed, to restore the desired risk balance.
• Fixed rate Financial assets that pay a predictable income stream—bonds, Treasury bills, promissory notes. They are called “fixed income” because the interest payment is predetermined. They have less potential risk than equities, but also less potential for long-term growth.
• Variable rate Assets whose return is not predetermined and fluctuates with the market. Stocks are the prime example: their price rises and falls according to company performance, market expectations, and the global economic climate. In exchange for accepting greater volatility, they have historically offered higher long-term returns than fixed income.
• Rental income Return on investment, expressed as a percentage of the invested capital. If you invest €1.000 and one year later you have €1.080, your return has been 8%.
• Retrocession A commission that a fund manager pays to the bank or broker that distributes its funds to its clients. This commission is added to the fund's TER (Total Expense Ratio)—making it higher—and is paid by the investor. Retrocessions are the mechanism that explains why many banks recommend their own funds: they are the ones that generate the most commission for them. MiFID II requires disclosure of these retrocessions, but does not eliminate them.

S – Z

• Staking A mechanism by which you lock crypto assets on a blockchain network to participate in transaction validation and contribute to network security. In exchange for your participation, the network rewards you with crypto assets proportional to the amount you have locked.
• TER (Total Expense Ratio) Total Expense Ratio (TER) of an investment fund or ETF, expressed as an annual percentage of assets under management. This includes the management fee, custody fee, and other operating expenses of the fund. A low TER means the fund is more cost-efficient and the investor retains a larger share of the gross return. The average TER of funds marketed by traditional banks in Spain is around 2,5%*, while the catalog of Bit2Me Invest has an average TER of ~0,8% in Phase 1.
• Suitability test / Convenience test Mandatory assessment under MiFID II that the intermediary must conduct before providing investment services. The suitability test—for advice or discretionary management—assesses the investor's knowledge, experience, financial situation, and objectives. The appropriateness test—for order execution without advice—assesses only knowledge and experience. Its purpose is to ensure that the product you choose is suitable for your profile.
• Volatility A measure of an asset's price fluctuations over time. High volatility means the price can rise and fall sharply in short periods. Cryptocurrencies have historically been more volatile than index funds or bonds. Volatility does not equate to the risk of permanent loss, but it does mean the value can fall significantly in the short term if you need to cash out your investment early.
• Wallet En Bit2MeThe name of the product where you store your crypto assets. In general terms, a wallet or digital wallet is the interface that allows you to access your assets on the blockchain: it stores your private keys, not the assets themselves, which always remain recorded on the blockchain.

With this vocabulary you have the foundation to understand most of what you will read in Bit2Me Academy about funds, ETFs, stocks, and crypto assets. For blockchain ecosystem terms—blockchain, DeFi, NFTs, Layer 2, oracles, consensus—see the blockchain glossary of Bit2Me Academy [link pending]. And when you've mastered the vocabulary and are ready to move on to practice, Bit2Me Invest is available from €1.