Where to invest - balancing risk and reward

Some investments are safer than others. The rule of thumb is that the more risk you take, the greater the potential return - but also the greater the potential loss.

Checklist

• What is your attitude to risk - cautious, adventurous, or somewhere in between?
• How old are you? Your age may affect how you'd like to invest, particularly the closer you get to retirement.
• Playing safe can carry its own risks. Leaving all your money in a building society, for example, may carry minimal risk, but you may miss out on higher potential returns and possibly see the spending power of that money fall due to inflation.
• One way of limiting investment risk is to spread your money across different types of investment. This means each investment will have different growth potential, balancing the risk. This is called diversification and is a key investment concept meaning you avoid putting all your eggs in one basket.

The pyramid shows the various investments and the relative level of risk associated with them. You can use it to help you work out which investments might be right for you, depending on your approach to risk.

Please note this diagram is only intended to be a general indicator of relative risk and may vary in certain circumstances. It is not intended to show examples of all types of investments/savings vehicles. This risk assessment has been classified by Prudential. It is not a generic description across the fund management sector. The investment approach may change in the future.

Top of the pyramid

• Potential to produce the best returns over the long term, but they also represent the highest risk.
• The value of your shares may go down as well as up.
• The longer you hold shares the longer the time you have to potentially ride out these ups and downs.
• You can help reduce the risk of investing in shares by choosing a collective investment fund that invests in a range of shares and is looked after by a fund manager.

Middle of the pyramid

• Designed to aim for a stable return while allowing for the possibility of overall growth.
• Include cautious (up to 60% equity) funds, balanced (up to 85% equity) funds, with-profits funds and property.

Base of the pyramid

Includes safer investments, such as deposit accounts, fixed-rate bonds and cash ISAs, where your money will normally be secure.

Important

Please remember that the value of an investment may fluctuate and is therefore not guaranteed. You may not get back the full amount of your investment.