What are the main risks involved in Retiready Solutions 2 to 5?
Updated 18 August 2016
Like any investment, the Retiready Solutions can go down as well as up in value for a number of reasons, for example market and currency movements. There's also a chance you could end up with less than you started.
We've given you a choice of four Retiready Solutions, with Retiready Solution 5 being the highest risk and Retiready Solution 2 the lowest. This means we'd expect Retiready Solution 5 to go up and down in value more than Retiready Solution 2 because it invests more in riskier investments like shares. The hope is that over the long haul, you'll be better off taking more risk to generate a higher total return.
There's less chance of the lower risk solutions falling in value significantly but it's more likely they'll fail to keep pace with inflation over the long term.
In addition, the Retiready Solutions include an extra safeguard (risk management) designed to reduce the risk you're exposed to when markets become more volatile and we think they're likely to suffer significant and sustained falls. In practice, they will move into safer investments when the fund’s volatility (risk) goes above a certain level we think investors in that solution will be comfortable with. We believe that this can help cushion you from the worst effects of market crashes like the credit crunch.
But, like most things, there are advantages and disadvantages to this approach:
- The advantage is that if volatility goes up (triggering the added safeguard) and stock markets fall, the impact of these falls will be less for the Retiready Solutions.
- The disadvantage is that if risk goes up and the funds de-risk but stock markets also go up (which can happen) our Retiready Solutions are very likely to underperform similar funds that don't have the added risk management safeguard that our funds do.
Also, if the fund has de-risked and markets bounce back quickly and start to rise again, it's likely the Retiready Solutions will be slower to benefit from this because of our gradual approach to re-investing in the markets. In this case, our Retiready Solutions are again likely to lose ground to funds which stayed fully invested in the markets. However, to try to combat this risk, BlackRock may choose to use its discretion to de-risk or re-risk by amounts other than those stated.