MAIN FINANCIAL ASSETS AND THEIR RISKS

Each type of asset is subject to a different combination of risks and enjoys a different combination of benefits

Whilst all investments carry an element of risk, the amount of risk you take directly affects any potential returns and losses. Generally speaking, if there is less risk to your investment, your money will grow more slowly and with more risk your investment may fluctuate more.

Click here for a chart depicting asset risk and return. Generally, the lower the risk, the lower the potential return.

This is further illustrated in this chart, which shows the performance of a £1,000 investment in an average share-based fund (UK All Companies), an average gilt fund and an average cash deposit account over 15 years.

The chart shows that investing in shares in a UK All Companies fund generates better long term capital growth than investing in gilts or cash, although the value of your investment is likely to fluctuate from time to time due to volatility in the equity markets. In 2002, for example, the value of shares fell as stock markets struggled in the post-9/11 period. Once investor confidence returned, however, the markets quickly recovered and by 2007 the value of the investment was double that invested in gilts.