Risk level 1

Your main worry is losing money. You prefer to see slow, yet steady, growth with not too many losses, even if inflation reduces the spending power of your savings over time.

Risk level 2

You are concerned about losing money but realise you may have to take some risks with your savings to stay ahead of rising prices.

Risk level 3

You take a balanced view of risk and are prepared to take risks with your savings in the hope that long-term returns will outstrip any short-term losses.

Risk level 4

You are less concerned about losing money (even if it’s quite a bit) in the short term than giving your savings the best chance to grow over the long term.

Risk level 5

You’re willing to take significant investment risk and prioritise growing your savings over protecting your capital. You’re prepared to weather large falls in the value of your savings over the short term in return for giving them the best possible chance to grow over the long term.

Minimal risk

These funds have underlying investments that typically see little change in value from day to day. The fund price movements will generally be positive but could be negative, particularly in a low interest rate environment. They’re particularly suited to short-term investment where stability is the main aim. Over the long term, they’re unlikely to deliver high levels of return and their returns may not keep pace with inflation.

Low risk

These funds will typically experience small changes in day-to-day value, both positive and negative. They may keep risk down in a variety of ways, for example by holding a very broad range of investments, or they may contain a narrower range of investments, but which have a short term to maturity. Over the long term they’re unlikely to deliver high levels of return and may not keep pace with inflation.

Below-average risk

These funds will generally see some change in day-to-day value, both positive and negative, and these will be larger in size than movements for a typical cash deposit. They may hold a broad range of investment types, including equities (shares), but a significant proportion will be invested in investments that aim to provide a reliable source of income and, with that, greater stability. They try to provide better long-term growth prospects than a cash deposit, but are lower risk than funds investing entirely in equities.

Average risk

These funds invest in a broad range of investment types and will typically hold a significant proportion in equities. Their daily price movements will therefore vary from day to day, both up and down, although not usually as much as for funds investing entirely in equities. These movements can lead to lengthy periods of negative returns. However, over the longer term these funds would be expected to deliver significantly better growth prospects than a cash deposit.

Above-average risk

Most funds in this category invest in one investment type or geographical region, for example North American equities or global bonds. This means that investors are completely exposed to the performance of that single investment type or region. Where, for example, the stockmarket for a particular investment type or region falls for whatever reason, it’s very likely that any shares held in that type or region will also fall in value. These funds could experience lengthy periods of negative returns. By the same token, these funds can also rise in value quite significantly and can provide very good long-term growth in the right market conditions. Because of their narrow investment focus, they’re better suited to investors with at least five years to invest and to use in combination with other funds that invest in different investment types and regions.

Higher risk

These funds invest in regions and investment types that typically see large day-to-day changes in value, both negative and positive. Again, they tend to invest in a single investment type or geographical region and these investment types (for example gold) and regions (for example emerging markets) have historically been more volatile (risky) than those in the ‘Above-average risk’ category. These funds have historically provided periods of high returns but, because of their narrow investment focus, they’re better suited to long-term investment and being used in combination with other funds that invest in different investment types and regions.