What is investment risk?
When you invest in one of our portfolios, you’re taking on some investment risk. Each portfolio contains a selection of funds. The value of the funds (and therefore the money you’ve invested) can rise and fall, depending on market conditions and investment performance. Higher risk portfolios and funds tend to have bigger peaks and troughs than lower risk investments.
Why do you need to think about investment risk?
Investors choose to take on investment risk because they want to give their money more opportunity to grow. In the past, over the long term, investing is likely to have provided you with better returns. But this could be different going forward, as past performance is not an indicator for future performance.
Because of that, it’s good to keep money you need in the short term, for example for everyday spending or emergencies, in a cash account. But for long-term savings, such as when you’re saving for retirement, investing could give you better returns.
If you’re prepared for bigger ups and downs in the value of your investment, you may see higher returns in the long term.
How much risk should you take?
The level of risk you choose to take will depend on many factors. It can be based on your capacity for rises and falls in the value of your investment, your time horizon and your goals. Your attitude, experience and knowledge could also play a part.
How does risk affect the products we offer?
The range of products and portfolios is designed to be appropriate for retail investors, who may not have much experience of making financial decisions. Like all investments, money you invest through the Self-Invested Personal Pension (SIPP), Stocks & Shares ISA or General Investment Account (GIA) can go up and down in value. You might get back less than you invested, and you may even lose all your investment.
Our investment portfolios
We offer a choice of four ready-made investment portfolios that mainly invest in ‘passive’ funds. These funds aim to track the performance of different stock markets and asset types. They will therefore be exposed to stock market and interest rate ups and downs.
Each of our four portfolios come with a different level of investment risk. Our higher risk portfolios contain more equity investments. Equities tend to experience more ups and downs in their value in the short term (although in the past they’ve tended to provide better outcomes over the longer term). Our lower risk portfolios have more bond investments which tend to be more stable, although nothing can be guaranteed.
When choosing your investment portfolio, you need to find a balance between your investment goals and how comfortable you feel about ups and downs in the value of your investment. You should also consider how much time you have before you want to retire. And how flexible you can be about the timing of your retirement.
You should also keep in mind that the costs and charges associated with investment could have an impact on your investment returns.
Tax considerations for investment products
ISAs and SIPPs have tax advantages put in place by the UK government. For example, you can get tax relief on money you put in a SIPP – the government will top up your payment by an additional 20% to 45%, depending on what your tax rate and income is. And you generally don’t pay income or capital gains tax when you take money out of an ISA.
You may need to pay income tax on dividends and cash interest, depending on your personal circumstances. You may have to pay capital gains tax on returns from a General Investment Account (GIA).
Keep in mind that tax incentives, rates and thresholds could change at any time.
Are you unsure about which of our investments are suitable for you?
Our Savings Specialists are here to help with questions you may have about our products and portfolios. If you can’t decide what to choose and you want advice tailored to your situation, our Savings Specialists can put you in touch with one of our regulated financial advisers. Our advisers can help you choose which products and portfolios could best suit to your needs. You’ll have to pay a one-off fee for this advice.
What types of investment risk could affect your portfolio?
To build a portfolio, the managers choose a range of funds. The individual investments within our portfolios’ funds could be affected by a variety of risks. For example:
- Currency risk – exchange rate fluctuations could affect the investments within the fund
- Market risk – changes in how investors feel about a specific market or sector of a market
- Geopolitical risk – changing prospects in a region for growth, affected by politics, economic and social risks
Each of our portfolios (cautious, balanced, growth or adventurous) is designed with a different level of investment risk in mind so you can choose one to suit your situation.
If you want to find out more about specific risks that apply to the individual funds within the portfolios please read the portfolio factsheets:
Within these factsheets you can link to the relevant Key Investor Information Documents (KIIDs), which have even more detail.
How do we manage the risks?
Risk management is built into the way we construct our portfolios and how the funds are managed. It influences everything we do.
Our risk-reducing strategies include: building diverse portfolios that invest in different asset classes (like equities and bonds), and different geographies (established markets such as UK, US, Europe and Japan). We keep a disciplined focus on due diligence.
We invest in UK domiciled funds so the Financial Services Compensation Scheme (FSCS) protection is applied. We, and all the companies who work with us to provide the service, are covered by this scheme. This protects customers against the failure of financial services firms. You can find out more about the FSCS in Destination Retirement Save – Our Service Explained.
Are there any risks associated with not investing?
Money you keep in a bank account in cash is unlikely to go down. But its buying power could be eroded by inflation. Over the long term, investing money tends to provide higher returns than keeping it in cash. With these factors in mind, not investing over the long term means you could risk losing out on the possible benefits.
Any questions?
If you have any questions about different risks, levels of risk, and the reasons investors choose to tolerate risk – you can speak with one of our Savings Specialists.
The information provided on this website should not be taken as a recommendation, advice or a forecast.
This information is intended for use by customers of Destination Retirement only. You can find out more about your investment in Destination Retirement Save - Our Service Explained, and the relevant Key Investor Information Document (KIID)/ Key Information Document (KID) for each fund, which you can find in the relevant portfolio factsheets linked above.