For this reason, it is important to understand what level of risk you are comfortable with compared to the potential reward.
As with all things in life, investing your money always comes with some level of risk.
Balancing investment risk with growth potential
Generally speaking, the higher the level of risk associated with an investment, the higher the potential gains. However, this goes two ways: a higher level of risk can also mean greater losses when an investment doesn’t pay off.
So, when you invest, it’s important that you are comfortable with the level of risk being taken with your money in exchange for the potential return you could make from good investments. If you’ve ever heard the term ‘risk versus reward’, that’s really what it means.
You’ll want to keep this in mind as you explore your investment choices, such as:
- Default Investment Strategy – Leaving it to us
- Ethical Investing – Investing for good
- Shariah Investing – Investing for faith
- Risk-Rated Investing – Investing for attitude to risk (available on selected plans)
- Target Date Funds – Investing for future flexibility (available on selected plans)
- Specialist Investment Funds – Investing for individual interests (available on selected plans)
Want to know how we invest your money when you pay in? Watch this video to learn more about our Default Investment Strategy, which we will use to invest your money unless you decide to make your own choice of investment fund:
Risk versus Reward
Because your money with us is invested into a portfolio of different investments, all of which carry their own levels of risk versus reward, understanding the overall level of risk we are taking in order to grow your retirement nest egg is also important.
Unless you have made specific investment choices of your own, you’ll be invested into our Default Investment Strategy. You can see the overall risk profile taken when investing your money below and how this compares to other less risky and more risky profiles.
A very cautious investor is not willing to take any stock market risk.
They understand that this will almost certainly erode the purchasing value of their investment after taking account of the effects of inflation. Preservation of the value of their investment is more important to them than investment growth. Examples of this type of investment would be cash deposit accounts.
Cautious investors are risk averse and typically have very limited experience and understanding of investments. They often take a long time to make investment decisions and tend to be anxious about any investment decisions they have made. They tend to associate risk with potential loss rather than opportunity.
They typically look for investments with lower investment risk rather than seeking higher returns. They generally prefer bank accounts and are less willing to invest in stocks, shares and investment funds. Some cautious investors will be unwilling to take any investment risk at all. Cautious investors are more risk averse than about 90% of the investing population (i.e. compared to 9 people out of 10).
Moderately Cautious investors have fairly limited experience and understanding of investments. They often take a long time to make investment decisions and tend to be anxious about any investment decisions they have made. They are inclined to associate risk with potential loss rather than opportunity. They may prefer bank accounts or lower risk investments to higher returning but riskier investments (such as stocks, shares and investment funds).
However, they may be willing to take some risk, once the relationship between risk and higher returns has been explained to them. Moderately Cautious investors are more risk averse than about 70% of the investing population (i.e. compared to 7 people out of 10).
Our selected approach for our Default Investment Strategy
Average investors have an attitude to risk in the middle 50% of the investing population and are neither very risk averse nor inclined actively to seek riskier investments. They often have some experience and understanding of investments. They can usually make investment decisions without too much hesitation or anxiety.
They may find more comfort in bank accounts and lower risk investments than stocks, shares and investment funds, but understand that investment risk may be required to meet their investment goals.
Moderately Adventurous investors usually have some experience and understanding of investments. They tend to make investment decisions fairly quickly and are not generally anxious about the investment decisions they have made.
They normally view risk as a source of opportunity rather than a threat and will understand how taking investment risk can help meet their investment goals. The potentially higher returns from higher investment risk will make investing in stocks, shares and investment funds more appealing than lower risk investments and bank deposits.
Moderately adventurous investors are more tolerant of risk than about 80% of the investing population (i.e. compared to 8 people in 10).
Adventurous investors often have substantial experience and understanding of investments. They usually make investment decisions quickly and are not likely to be anxious about the investment decisions they have made.
They typically view risk as a source of opportunity rather than a threat and will understand how taking investment risk can help meet their investment goals. They are comfortable investing in stocks, shares and investment funds and prefer riskier, but potentially higher returning, investments to keeping money in bank deposits.
Adventurous investors are more risk tolerant than about 95% of the investing population (i.e. compared to 95 people out of 100).