Understanding risk

Over the longer term, investments could offer better returns than cash savings, but in trying to achieve higher returns this does mean more risk. When deciding how to invest your money, it's vital to understand the risk levels involved in different investments, and work out how much risk you're comfortable with. It's also important to consider how long you want to hold your investment; it's a good idea to invest for at least the medium to long-term (at least 5 to 10 years).

What is risk?

When you’re considering investing, you'll need to think about both your attitude to risk and your ability to absorb losses. Some people would be very unsettled by the prospect of the value of their investments falling, while others would be happy to take the risk of ups and downs in the stock market.

Your attitude to risk

There are a number of factors that’ll affect your capacity to accept the risk of losses, including how long you plan to invest, your age and health, your income level, your investment goals, the source of your funds, and how much of your total assets the investment represents. All of these will have an impact on the level of risk you should take when investing. For example, if your investment is funded by an unexpected windfall, you may be more willing to accept a higher level of risk than if you were using your life savings.

Understand the risks

Please remember that the value of an investment and the income from it can go down as well as up and you may get back less than you invested.

If you are in any doubt about making your own investment decisions we recommend you seek advice from a suitably qualified financial adviser.

Types of risk

Information about the types of risk you should bear in mind when investing.

Spreading your risk

What is diversification and how might it affect your investment strategy?