Our glossary lists many of the terms commonly used in financial planning and some additional ones reflecting our ethical specialism. We add new terms over time, so please let us know if there’s anything else you’d like included.

Active Management

The traditional investment approach where fund managers actively build and change a portfolio of assets (e.g. stocks and shares) in order to take advantage of what they believe are the best opportunities.

Annual Allowance

The Annual Allowance is a limit to the amount of pension savings you can make, before you face a tax charge. You may be able to “carry forward” unused allowance from the last three years to increase your limit for the current year. Your annual allowance includes all the payments made into your pension by you, your employer, or any third party. It also includes most increases in benefits if you are an active member of a defined benefit scheme (also called final salary, or career average scheme).


An annuity guarantees to provide you with a regular income for the rest of your life, in return for you paying over a lump sum from your pension fund.

Asset Allocation

The proportion of investments in a fund or portfolio held in different asset classes such as equities, fixed interest and cash.

Asset Classes

The different types of assets available to investors. For example, equities, cash, fixed interest or property.

Base Rate

An interest rate set by the Bank of England which is used as a benchmark by UK lenders.


A tool with which to measure a fund’s performance – often a market Index or model portfolio.


This is someone who benefits from a will, trust, pension fund or a life assurance policy.


All the varieties of life on Earth, animals, plants, fungi, microorganisms – and entire ecosystems such as forests or coral reefs. Humans rely heavily on this ‘web of life” for our survival and prosperity and yet our activities, such as pollution and climate change, are putting biodiversity under huge threat. Protecting biodiversity and the natural world is a significant issue for many ethical investors.  You can read Phil’s blog on biodiversity here.


Loans to a government or company that pay you a fixed rate of interest.

Capital Gains Tax (CGT)

You make a ‘capital gain’ if you sell assets such as shares or property for more than they cost you. Each tax year you are allowed to make gains up to a certain amount without paying any tax.

Chartered Status

For Financial Planners, Chartered status is awarded by the Chartered Insurance Institute to those firms and individuals showing eminence in the profession. Here at Investing Ethically we’ve held corporate Chartered status since 2017. Our three Director advisers hold individual accreditation and our fourth, newest adviser is on route.  You can read more about our Chartered status in our blog.

Circular Economy

The circular economy is a model of production and consumption, which involves sharing, leasing, reusing, repairing, refurbishing and recycling existing materials and products as long as possible (EU definition). The life cycle of products is extended, waste is reduced to a minimum, and materials get recycled and re-used. The circular economy contrasts with ‘take-make-consume-throw away’ approach of the traditional linear economic model. The circular economy is an important theme for many ethical funds, in choosing and engaging with the companies they invest in.

Climate Change

A change of climate which is attributed directly or indirectly to human activity that alters the composition of the global atmosphere and which is in addition to natural climate variability (United Nations definition). Climate change is a major issue for many ethical investors.

Collective / Pooled Investments

Investments such as unit trusts, where a number of people put their money together to enable them to buy a wider range of investments, thereby spreading the risk of volatility.

Company Engagement

Activities by which fund managers engage with companies to improve their performance. Social and environmental issues represent significant financial, legal, and reputational risks to companies. Engagement is an important way for fund managers to assess these risks, to encourage change, and to improve quality and ‘shareholder value’. This works in a variety of ways including ongoing meetings, setting targets for improvement, filing resolutions, voting at company meetings and – potentially – divesting from (selling) companies unresponsive to change.

Consumer Prices Indices (CPI & CPIH)

Consumer price inflation is the rate at which the prices of goods and services bought by households rise and fall, based on a representative “basket”. CPIH is the UK’s lead inflation index as it includes owner occupiers’ housing costs and Council Tax. The older CPI and RPI (Retail Price Index) continue to be published.

Credit Rating

Formal evaluation of a company’s loan¬-repayment history and current ability to repay its financial liabilities. Awarded by agencies such as Standard & Poor’s and Moody’s. AAA grade is the highest.

Default Risk

This is the possibility that the issuer of a bond will be unable to make payments when they are due.

Defensive Stocks

Shares in companies whose business conditions are not particularly linked to the Business Cycle. They provide goods for which demand does not tend to be affected by Recession – utilities and basic food producers, for example.

Defined Benefit Pension Scheme

A company pension scheme where the pension an employee receives is linked to their length of scheme service and size of their salary as defined in the scheme rules. They are often referred to as final salary schemes.


Fall in the general level of prices of goods and services in the economy.

Deposit Account

A savings account from a bank or building society that pays interest on the amount of money held in it.


A payment made by a company to its shareholders. The size of the payment is usually determined by the size of the company’s profits, although a company does not have to pay a dividend at all.

Dividend Yield

The Dividend per share expressed as a percentage of the share’s market price.


A measure of the sensitivity of the price of a Bond to changes to interest rates. Similarly, the Duration of a Bond fund measures the sensitivity of all the Bonds in that fund to movements in interest rates. It is a widely used measure of how risky a Bond or a portfolio of Bonds is.

Emergency Fund

Cash set aside in a dedicated interest account to cover unanticipated financial emergencies such as property repairs, medical expenses and car repairs.


Also known as shares or stocks, these represent a share of the ownership of a company. Shares can provide regular payments, known as dividends, and share price changes as the value of the company changes.
Over the longer term, equities can offer greater growth potential than many other asset types. But the value of the equities can go up and down a lot and tend to carry a higher risk than corporate or government bonds or money market instruments.


When an annuity payment is automatically increased at regular intervals by a fixed percentage rate.


Assets owned by an individual at death.

Ethical Funds

A broad term for funds where fund managers consider ethical issues – such as social and environmental impacts – when deciding which companies to invest in. Approaches can include ‘negative screening’ to avoid certain sectors – such as tobacco or the arms trade, or ‘positive screening’ to favour, for example, renewable energy or social housing. There are now many hundreds of funds making claims to be ethical, sustainable, responsible, green… A big part of our work at Investing Ethically is working closely with individual fund managers, to really understand and scrutinise what they are (or are not) doing, on behalf of our clients.

European Central Bank (ECB)

The central bank of the member countries of the Eurozone. It sets interest rates throughout the Eurozone.


Individual(s) who are appointed in a will to deal with the wishes of the deceased, in administering their estate.

Federal Reserve Board (Fed)

The US central bank.

Financial Conduct Authority (FCA)

The FCA is an independent body that regulates the financial services industry in the UK. The FCA has been given a wide range of rule-making, investigatory and enforcement powers in order to meet its four statutory objectives. In meeting these, they are also obliged to have regard to the Principles of Good Regulation. The 4 statutory objectives are:
• Market confidence – maintaining confidence in the UK financial system;
• Financial stability – contributing to the protection and enhancement of stability of the UK financial system;
• Consumer protection – securing the appropriate degree of protection for consumers; and
• The reduction of financial crime – reducing the extent to which it is possible for a regulated business to be used for a purpose connected with financial crime.

Financial Services Compensation scheme

The Financial Services Compensation Scheme (FSCS) is the UK’s statutory compensation scheme for customers of authorised financial services firms. This means that FSCS can pay compensation if a firm is unable, or likely to be unable, to pay claims against it.

Fiscal Policy

A government’s spending and taxation policy.

GDP (Gross Domestic Product)

A measure of the value of all goods and services produced in an economy in a year.


A bond issued by the British Government.

Guaranteed Annuity Rate

A guaranteed annuity rate guarantees that the annuity rate the provider offers will always be at a certain minimum level. If your pension includes a guaranteed annuity rate, it means you could get a higher income than normal.

Guarantee period (annuity)

This is the minimum number of years from the start of an annuity in which income will continue to be paid, even if the policyholder dies during that period.


A strategy employed in order to reduce or mitigate risk. Hedging involves making an offsetting transaction in one market in order to protect against possible losses in another. Currency hedging is a specific example of hedging where the fund manager tries to protect an existing or anticipated position from an unwanted move in exchange rates.

High Yield Bond

This is a bond that generally has a low (or “non-investment grade”) credit rating and which offers higher interest payments than a bond with a higher credit rating due to the increased risk of default by the company issuing the bond. It can also be known as a “junk” bond.


An example of the potential growth you may expect to receive from an investment. The growth rates used are set by the industry regulator, the Financial Conduct Authority (FCA). It is important to remember that the actual return received could be higher or lower than that shown on the illustration.


Money received by an individual for example as a salary or from investments which is usually subject to income tax. Cash deposits and bonds will provide income in the form of interest. Most shares will provide income in the form of dividends.

Income Drawdown

Enables people with a certain type of pension to draw an income and/or cash lump sums from their pension fund, rather than buying an annuity and to take income direct from their pension fund.


In the stock market, an index is a device that measures changes in the prices of a basket of shares, and represents the changes using a single figure. The purpose is to give investors an easy way to see the general direction of shares in the index. Examples of stock market indices are the FTSE 100, FTSE All-Share, Nikkei and Dow Jones.

Index Fund

A fund that is managed so as to generate the same returns as a specified Index (also known as “Passive” or “Tracker” funds).

Inheritance Tax (IHT)

Inheritance Tax is paid if a person’s estate (their property, money and possessions) is worth more than a certain amount when they die. This is called the ‘Inheritance Tax threshold’.

ISA (Individual Savings Account)

A savings vehicle that allows customers to invest in equities (stocks and shares) or save cash without having to pay any income or capital gains tax.

Joint-Life Annuity

An annuity that pays you a regular income for life and then when you die usually pays your dependant a regular income for life too.

Life Assurance

An assurance policy that pays out a lump sum or instalments on the death of the life assured.


This is how quickly an asset, such as equities, corporate bonds or property, can be traded within a market and turned into cash.

Listed Company

A company that satisfies the listings rules of a stock exchange, and whose shares are quoted and traded on a stock exchange.

Monetary Policy

A way of influencing the economy by controlling the availability and cost of money (mainly through changing interest rates).

PAYE (Pay As You Earn)

HM Revenue & Customs’ system for collecting income tax from the pay of employees as they earn it.

Personal Allowance

The Personal Allowance is the amount of income you can earn before paying tax.

Potentially Exempt Transfer

Gifts on which inheritance tax will not be payable unless the donor dies within seven years.

Paris Agreement

A legally binding international treaty on climate change with the overarching goal to hold “the increase in the global average temperature to well below 2°C above pre-industrial levels” and to pursue efforts to limit any increase to 1.5°C (UN definition).

Real Return

The Return from an investment adjusted to take into account the effect of inflation.


A fall in economic activity. Technically, for an economy to be in Recession, it must have endured two successive quarters of falling GDP.

Retail Prices Index (RPI)

A monthly indication of the average price changes to a particular ‘basket’ of consumer goods, and used as a general indicator of price inflation.

Small Gifts Allowance

An annual inheritance tax (IHT) allowance, enabling a donor to give up to £250 per year to any number of separate individuals (donees).

State Pension Age

The State Pension Age is the date when you are eligible to receive a State Pension.

Sum Assured

The guaranteed amount paid on death under a life assurance policy. Depending on the policy held, this sum might be increased through the addition of bonuses.

Sustainable Development Goals (SDG)

The set of goals adopted by all UN Member States providing a “shared blueprint for peace and prosperity for people and the planet, now and into the future”. There are 17 goals covering areas such as poverty, hunger, education, energy, climate, biodiversity and justice. Many ethical funds refer to the SDGs when reporting on their investment activities.

Sustainability Disclosure Requirements (SDR)

Rules governing the labelling and management of UK funds that make sustainability claims, including a general ‘anti-greenwashing’ rule applying to all firms regulated by the FCA (Financial Conduct Authority).  You can read Donna’s blog on greenwashing and the SDR here.

Tax Year

A period of time used for tax calculations. In the UK this starts on 6 April each year and finishes on 5 April the following year.


An arrangement whereby one person or persons (trustees) agree to take care of assets and to use those assets in particular ways for particular people (beneficiaries).


A person appointed to manage and safeguard the assets of a trust.


A measure of how much an investment’s price is likely to fluctuate during a set period of time.


A document drawn up to administer an estate on death.

Women in Finance Charter

An initiative supporting gender diversity within the financial services industry.  Investing Ethically has been a signatory since 2018.  You can read more about Women in Finance in Lisa’s blog.

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