Before you start investing, it's important to understand the levels of risk associated and make sure you select the funds that will work best for you and suit your savings needs and goals.
While investing in an ISA gives your money the potential to grow, it's important to be aware that investment always comes with risk and the value of your investment and any income from it may fall as well as rise and is not guaranteed. If you’re not sure, it may be best to speak to a financial adviser before making an investment decision.
Explaining investment risk
The higher the risk of an investment usually means it will have a higher potential return. However, high risk investments also increase the potential to lose some of your money. And the value of the investment will most likely be more volatile. On the other hand, low risk investments may mean you’re less likely to lose money, but it usually means you reduce the opportunity for it to grow.
The investment funds we offer for our ISA are diversified and contain different asset types. 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.
What else to consider before investing
- Time horizon
The longer you invest the more chance you have of recovering any potential losses, as well as more opportunity to benefitting from compound returns. If you plan to invest for the long term you may be able to consider a higher risk fund. You should regularly review the risk you are taking as the time you have left to invest reduces.
- Capacity and reaction to losses
Before investing you should consider how much of the money you could afford to lose. If you're relying on the money for immediate needs, a higher risk investment may not be for you. You should also consider if you're comfortable with seeing the value of your investment going down in the short term, you may be able to consider higher risk investments. A fund that is higher risk will tend to be more volatile than a lower risk fund and could lose you some or all of your money.
It's essential you read the Key Investor Information Document (KIID) and the Fund fact sheet of the specific fund to understand more about it and its risk profile before you invest. Your attitude towards risk may change over time and you will need to reassess if the funds are right for you.