Understanding investment 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.
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.
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.
Usually, cash is considered the lowest-risk asset type as it provides modest and relatively stable return
- Company shares
Shares are essentially parts or a stake in a company. Funds can invest in individual company shares or they can track an index of companies, such as the FTSE 100 (the UK’s largest companies publicly listed on the stock market). With an index tracker you don’t just invest in one company, you track the performance of all of the companies that make up something like the FTSE 100. This means you have broader exposure without having to buy all ofthe underlying company shares individually. Company shares as also known as Equities.
Bonds are a sort of loan. Investors give their money to the bond issuer, suchas a company or government, and then they are paid a fixed amount in returnfor investing their money. As well as investing in funds that pick bonds toinvest in, you can also track bond indices.
Property can vary from residential property and commercial buildings to infrastructure like roads or wind turbines.