Understanding risk

All investing has risks attached to any potential reward, but this can vary from investment to investment. You need to ensure you're happy with the risks involved with whatever you choose to invest in.

The higher the risk of an investment the higher the potential returns it will make, however you increase the potential to lose some or all of you your money and investment will most likely be more volatile.

The funds we offer contain different asset types and the variance in those asset types influences the amount of risk the fund has. For example a fund with greater proportion of its investment in company shares compared to cash or company bonds will have a higher level of risk than the other way round.

Below we explain what are the different factors you need to consider to evaluate how much risk you are willing to take and how to evaluate the risk of each fund explaining the assets used and how to find the proportion of those in each fund.

 

How to approach risk

 

Time horizon
Investing is best when you think long term. It means your investments may be able to recover any short-term losses, as well as benefit from compound returns essentially returns on any investment returns you make.

 
Diversification
Owning different types of investments through something like an investment fund (or having multiple investment funds) means if one doesn't perform well, you could still receive the potential returns of others.
 
Combining different asset classes
Multi-asset funds essentially blend different types of investments together. This is so you’re not putting all your eggs in one basket and can benefit from the performance of different asset classes at once. Spreading your money across a variety of investments is known as diversification and is one way of managing risk.