Risk is another way of talking about uncertainty. Most customers are concerned that they may lose some of their money. Some people prefer to take little or no risk with their money while others are prepared to accept some risk with the potential higher return they may achieve.

Most people don’t take a different attitude to risk with regard to their money as they do to risk in general. For example, the answers to the following questions may help you to gauge your general attitude to risk:

Is job security important to you?

Do you have private medical insurance? Do you always check the details on your bank statement? Is your house fitted with an alarm? Do you try to pay off your credit card each month? Do you have your car serviced regularly? If you have gas fires or central heating, do you have it checked every year? When buying a car are safety and reliability your main priority?

What risk are you willing to take with your money?

Risk exists whenever you invest your money. Even when investing with a bank or building society there is a risk that your money won’t keep up with inflation and may ultimately be worth less in real terms in the future. Banks and building societies are in competition with each other so the interest rate you get today may change in the future making your account less competitive than others on the market.

You need to be prepared to take some risk with your money where you are aiming to beat inflation and have the potential to achieve higher growth on your money than you would in a bank or building society. You should be aware that the value of the investments you will need to choose to achieve this will rise and fall and you cannot be certain what the value of your investment will be at any future point.

Saving or investing successfully is about balancing the risk you are prepared to take with your money to try and achieve the return you want, whilst at the same time feeling comfortable with what you are doing.

What types of savings/investments are there?

Most investments are made into one (or more) of four types of asset classes.

These are:

• Cash – normally into a bank or building society type of account

• Fixed interest – these are loans to companies or governments.

You typically access these by investing into a ‘corporate bond’ or a ‘gilt’ investment fund

• Property – residential and commercial property are often used for investment purposes. Some individuals own the investment property outright (the so called ‘buy to let’ market) others invest via ‘investment funds’

• Equities – more commonly known as ‘shares’. You might own shares directly by buying them through a stockbroker, inheriting them or through various schemes run by employers. Alternatively, many people invest into shares through investment funds’ that contain shares.

The following table illustrates the different types of savings/investment you can make and the capital risk attached to each type of savings/investment. Investments above the red line are where you could lose some (even all) of your money. The amount of money you may lose increases with the risk of the type of investment, which is shown by the arrow on the left. You may not recognise all of the different types of investment. If you want an explanation of these investments, your Financial Adviser will be happy to do this and help assess whether they might be suitable for you.

Higher Risk

Hedge Funds, Commodities, Futures, Emerging Markets, Overseas Smaller Companies

Direct investment in stock market

Specialist Equity funds

Overseas Equity funds, UK Smaller Companies

UK Equity funds, UK Property Funds

Government Stocks (Gilts), Corporate Bonds, Gilt/Corporate Bond Funds

You may lose money above this line

_______________________________________________

Bank/Building Society Accounts, National Savings Certificates

Lower Risk

What happens next?

Your Financial Adviser will explain risk to you in detail when they make a recommendation of what you should do with any money you have to save/invest. They will discuss with you your circumstances, financial knowledge and experience and establish your saving/investment objectives and your attitude to investment risk. This will enable them to then recommend a suitable investment strategy that is in line with your savings/investment objectives and attitude to investment risk.

To speak to an adviser, please either phone us on free phone 0800 634 3326 or use the contact us form and we will call you back.

For further information on risk and investments you may wish to visit the Financial Services Authority website at www.moneymadeclear.fsa.gov.uk