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What risks are there when I invest my money?

The investment industry is highly regulated and so you can be confident that your money will be managed to high professional standards.

However, all investments come with some general risks:

  • Their value: The value of any investment you make – and any income you receive from it – can go down as well as up. This means you could get back less than the amount you invest. The exact level of risk will depend on each individual investment.
  • How long you hold them for: All the investments we offer should be considered as medium to long-term investments – we recommend five years or more. You shouldn’t rely on them for any money you might need in the short term (to pay off a loan, for example).
  • What you might get back: The return on any investment isn’t guaranteed. It depends on how it performs and any necessary or applicable charges you pay.
  • The effect of inflation: Inflation will reduce the real value of an investment as the years go by. If the return is less than the rate of inflation, your money will have less buying power in the future. Equally, money kept in cash, bonds and gilts will also reduce in value if the return is less than the rate of inflation.
  • Tax and tax relief: Tax rates can change over time and the tax relief given on some types of investment can also change. This may affect the overall return from your investment.
  • Market level risks: Economic, political and other external factors can mean that a whole asset class (shares or bonds, for example), or even the whole market, can fall in value at the same time.
  • The effect of withdrawals and deductions: If your investment growth is less than the money you wish to withdraw or need to pay for fees, then the value of your investment will reduce over time. So, if you withdraw 5% from your investment each year and it only grows by 3%, your investment will fall in value.
  • When assets are hard to buy and sell: Fund managers sometimes find it difficult to buy and sell certain assets, such as commercial property, investments in emerging markets and corporate bonds. This can be due to market conditions. When this happens, they may restrict new investment into their funds or you may experience delays if you’re trying to sell units or shares. Similarly, if you invest in exchange traded instruments, such as company shares or bonds, it may not be possible to sell these immediately due to insufficient market demand. This is known as ‘liquidity risk’.
  • The effect of an interest rate change: If interest rates rise, it is positive for savers. Other types of assets can seem less attractive by comparison. Investors holding shares in companies with high levels of debt could be hit hard, as could mortgage holders with variable rate mortgages. The value of a bond, for example, tends to fall when interest rates go up.
  • The effect of exchange rate changes: Investing in foreign shares, bonds or property either directly or within a fund, carries the added risk of exchange rate changes. If sterling strengthens against the currency in question, the investment will buy fewer pounds meaning any gain could be reduced. On the other hand, a weaker pound would enhance foreign returns in sterling terms. Some funds are now hedged to offset this risk.
  • The risk of default: Default risk is the chance that companies or individuals will be unable to meet the required payments on their debts. A default could result in a 100% loss on investment. For corporate bonds and gilts, a default may also mean that investors lose out on periodic interest payments and the value of their investment in the bond.