Investing is about taking risks that you're comfortable with.
Important information - please keep in mind that the value of investments can go down as well as up so you may get back less than you invest. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.
It's important you understand and manage risk. This will help you steer clear of the more common investing mistakes. The first thing to learn is that risk isn't the same as volatility.
Volatility describes the natural rise and fall of markets - which isn't within your control. What you can control is the level of risk you're prepared to take when choosing your investments. This will depend on what your financial goals are, how long you want to save for and your personal circumstances.
The theory
Ultimately you need to choose a level of risk that you feel comfortable with. The higher risk, the higher the potential returns. The lower the risk, the lower the potential returns. You need to think about how long you want to invest for and your personal circumstances - before deciding which level of risk might help you achieve your financial goals.
How it works in practice
This example is for illustrative purposes only. In reality investments go up and down and charges apply. Past performance is not a reliable indicator of future returns.
Shares are at the higher end of the risk spectrum. But greater risk can lead to potentially greater returns. A balanced portfolio should include a mix of all these assets, rewarding investors for staying invested and riding out market ups and downs.
The theory
Inflation is a term that’s used to describe rising prices. It can erode the buying power of your money over time and is a risk to the value of your assets over extended periods. It’s particularly important to factor in inflation when thinking about your pension pot. Your investments need to rise by at least the rate of inflation in order to maintain their value in real terms over time – otherwise it’s unlikely that you’ll be able to maintain the lifestyle you want for yourself.
How it works in practice
According to the latest research from the Department for Environment, Food and Rural Affairs, the average person spends £28.23 on household food and non-alcoholic drink per week for year ending 2022.* As you can see below, an ‘average weekly shop’ will cost you a lot more down the line once you take inflation into consideration. If you want your pension to have the same purchasing power in the future as it does now, you'll need to take steps to mitigate the effect of inflation in the years to come.
The theory
No one can predict the future and that's particularly true of investing. It's impossible to know which asset class, country, continent or industry sector will perform best or worst in any given year. You can get lucky and pick the top performer one year. But the chance of you doing this consistently is pretty slim. It's much better to hold a mix of investments (the technical term for this is a diversified portfolio). Some will perform well at a time when others don't do as well, so they help to balance each other out to potentially give you a smoother ride over time.
How it works in practice
If you take a look at the animated chart you'll see that the top performer is different most years. If you only held government bonds, you'd have done very well in 2008 and reasonably well in 2018, but not so well for all the other years. Don't put all your eggs in one basket.
The theory
Over the year, markets rise and fall. This is only a problem if you need access to your investments at short notice and you're forced to sell after a fall in the market - as you'll be locking in your losses.
Having some cash set aside, ideally somewhere between 6-12 months of normal expenses, will allow you to wait out a market downturn and hopefully sell at a better time.
How it works in practice
This example is based on a balanced portfolio, but other variations would perform differently.
In the chart below, the blue lines show the returns each year from a balanced portfolio of shares and bonds.
The red dots show the biggest top-to-bottom fall for the portfolio in each year.
As you can see, even when there were substantial top-to-bottom falls within a year, this example of a balanced portfolio often managed to recover enough to post a positive overall return by the end of the year.
It's a good idea to keep some cash in reserve to cover any unexpected expenses so that you're not forced to sell any of your investments at short notice. This will help you avoid the worst falls.
If you're not sure what to invest in, Navigator helps you find a multi-asset fund.
This fund has a medium-risk profile and a diversified spread of funds that invest in different asset classes, including bonds and gold.
What is volatility? And how can you deal with it?
Important information - please note that Navigator is not a personal recommendation in respect of a particular investment. If you need additional help, please speak to an authorised financial adviser. You should regularly reassess the suitability of your investments to ensure they continue to meet your attitude to risk and investment goals.
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Also known as stocks and shares, when you invest in equities you buy a small stake in a company with the aim of capital growth, dividend income, or a blend of the two. When you buy a share in a company, you’re actually buying a piece of that company. The investment return you earn depends on the success or failure of the company itself. Equity funds have the ability to invest in a range of companies, based on a particular fund manager’s expert insight and experience, spreading the risk across a number of holdings and accessing multiple opportunities on your behalf.
Potential benefits:
Things to consider:
The value of investments and the income from them can go down as well as up, so you may get back less than you invest.
