Did you know that you’re already an investor? It might sound like an unusual question, but our Global Retirement Survey discovered that over 40% of people we asked didn’t realise that their retirement savings are invested1.
When you join your workplace pension, your contributions are automatically invested for you in the plan’s default option. As a member and thereby an investor, you can change this and choose your own investment funds from the range your plan offers. Or you can stay in the default option if you prefer to let experts make the investment decisions for you.
What is an investment fund?
A fund pools money from lots of investors. The fund manager then spreads that money across a variety of investments.
You can choose from a range of funds available through the FEPP managed by Fidelity and other leading fund managers. These focus on different sectors, regions and types of investment. Whatever funds you choose, you benefit from the investment expertise and management of a professional fund management team.
Learn about investing
Type of investment asset classes
The different types of investments are often referred to as ‘asset classes’ – some common examples include company shares (or ‘equities’), bonds, property and cash.
The performance of different asset classes will naturally vary over time. As they all have their own unique characteristics, wider market conditions and world events will affect them differently. That’s why it’s important to spread your money over a range of investments – it enables you to help reduce the risk of your pension savings falling in value if one asset class is out of favour. Investors usually call this strategy ‘diversification’.
Diversification is essentially the principle of spreading your risk.
If you spread out or ‘diversify’ your pension savings across several different investments, in line with your retirement goals and risk tolerance, you’ll be in a better position to withstand any potential losses from a single asset class.
Risk and return
The relationship between risk and return is one of the most important aspects of investment. For you as an investor, risk relates to the possibility that you may not achieve your retirement goals or that you get back less than you invest.
Generally speaking, the greater the risk you are prepared to tolerate, the more potential there is for your investments to grow. There is no guarantee that you will get higher returns by accepting more risk, but taking less risk with your investments is likely to mean you see lower returns.
The risk-return spectrum
This image shows a spectrum from assets with lower risk and less growth potential, towards assets carrying higher risk, with the potential for higher growth.
Risk-return and your workplace pension
When it comes to your workplace pension, you may choose to invest in the plan’s default investment option, where risk-return is already considered. Or you may decide to choose your own investment options. In this case, your tolerance for risk will help you decide which assets to invest in.
Investing when your retirement is some way off
Investing in assets with a higher potential for growth but greater risk may be an idea worth considering. The long-term effects of compound growth may also work in your favour.
Investing when you are nearing retirement
As you get closer to retirement, you may want to lower the level of risk. This will help to reduce the possibility of your pension savings falling in value, just when you need to start using them.
More about the main asset classes
It is a good idea to review where your pensions savings are invested on a regular basis to make sure that they are right for your retirement goals.
None of the information above is a personal recommendation for any particular investment and it’s important to remember that the value of investments can go down as well as up, so you may get back less than you invest.
If you are unsure about whether your choice of funds are suitable for your circumstances, or you need advice on any of the options available to you, we recommend that you speak to a regulated financial adviser.
Want to review your investments?
Log in to PlanViewer to see where your workplace pension is invested.
Want to make changes to your investments?
Learn more about how to self-select your own investments.