Stakeholder
pension
Your Pension @ Norwich Union - Our Funds
The risks associated with different investments
Risk is one of the most important factors when it comes to investing your money for the future. The key to a good investment is finding the right balance between the amount of risk you're willing to take and the potential for return, over your investment period.
What do we mean by risk? All funds carry the risk of losing money - some more than others. This risk can be measured by the 'volatility' of the fund, or the amount of 'ups and downs' in its value. Typically, the more the value of an investment fund fluctuates, the higher the potential may be for gains or losses.
Everyone is different. Some people may have a long time before they retire which means they might wish to take bigger risks. While others, closer to retirement might want to limit the amount of risk.
Understanding your attitude to risk is vital to ensure your future is taken care of. We've listed our funds from the lowest risk to the highest so you can clearly see which funds are right for your circumstances.
The key risk ratings are:
1. High risk
Where your aim is to maximise returns over the longer term, you should be prepared to accept significant day-to-day fluctuations in the value of your money and the resulting risk of a possible loss arising at any stage.
To achieve this you should consider funds that invest in a narrow range of assets, for example, shares within particular markets or sectors that are expected to be very volatile in value.
2. Medium to high risk
Where your aim is to achieve better returns over the longer term than are available on less speculative investments, you should be prepared to accept wide day-to-day fluctuations in the value of your money and the resulting risk of a possible loss arising at any stage.
To achieve this you should consider funds that invest in a narrow range of assets, for example, shares mainly within the UK or European markets.
3. Medium risk
Where your aim is to achieve better returns over the longer term than are available on more cautious investments, you should be prepared to accept some day-to-day fluctuations in the value of your money and the resulting risk of a possible loss arising at any stage.
To achieve this you should consider funds that invest in a wide range of assets, or funds which invest in a range of fixed interest securities.
4. Medium to low risk
Where your aim is to achieve greater returns over the longer term than interest paying accounts, you should be prepared to see low-level day-to-day fluctuations in the value of your money and the resulting risk of a possible loss arising at any stage.
To achieve this you should consider funds that invest in a wide range of assets, including shares, but which aim to follow a relatively cautious approach to risk.
5. Low risk
Where you are not prepared to take any risk with your capital you should realise it may not safeguard your investments against inflation. Risk is an unavoidable part of investing. Even the cautious investor saving in a bank or building society account is exposed to the risk that the interest they receive may not be enough to match the increase in the cost of living.
The amount an investor could buy with their savings would be reduced year on year. But a bank or building society customer does know that their capital is secure and any interest, once earned, is guaranteed.
With the help of your Financial Adviser, careful investment planning can manage risk effectively.
WC03009 07/2007
