Things you need to know when you invest
What is investment risk?
When you invest in one of our portfolios, you’re taking on some investment risk. Each portfolio contains a selection of funds. The value of the funds (and therefore the money you’ve invested) can rise and fall, depending on market conditions and investment performance. Higher risk portfolios and funds tend to have bigger peaks and troughs than lower risk investments.
Why do you need to think about investment risk?
Investors choose to take on investment risk because they want to give their money more opportunity to grow. In the past, over the long term (10 years or more), investing has often provided better returns than cash. But this could be different going forward, as past performance is not an indicator for future performance.
Because of that, it’s good to keep money you need in the short term (such as your planned spending for the next three to six months), in a cash account. But for long-term savings (such as when you’re saving for retirement), investing could give you better returns.
If you’re prepared for bigger ups and downs in the value of your investment, you may see higher returns in the long term.
How much risk should you take?
The level of risk you choose to take will depend on many factors. It can be based on how you feel about rises and falls in the value of your investment, your time horizon and your goals. Your preferred risk tolerance or attitude to investment risk could also play a part.
How does risk affect the products we offer?
The range of products and portfolios is designed to be appropriate for retail investors, who may not have much experience of making financial decisions. Like all investments, money you invest through the Self-Invested Personal Pension (SIPP), Stocks & Shares ISA or General Investment Account (GIA) can go up and down in value. You might get back less than you invested, and you may even lose all your investment.
Our investment portfolios
We offer a choice of ready-made investment portfolios that mainly invest in ‘passive’ funds. These funds aim to track the performance of different stock markets and asset types. They will therefore be exposed to stock market and interest rate ups and downs.
Each of our portfolios come with a different level of investment risk. Our higher risk portfolios contain more equity investments. Equities tend to experience greater ups and downs in their value in the short term (although in the past they’ve tended to provide better outcomes over the longer term). Our lower risk portfolios have more bond investments which tend to be more stable, although nothing can be guaranteed.
When choosing your investment portfolio, you need to find a balance between your investment goals and how comfortable you feel about ups and downs in the value of your investment. If you want to use your savings to fund retirement, you should also consider how much time you have before you want to retire. And how flexible you can be about the timing of your retirement.
If you’re a Pension Drawdown customer, you can choose an investment pathway based on how and when you plan to access your pension savings. This can help guide you to an appropriate portfolio.
You should also keep in mind that the costs and charges associated with investment could have an impact on your investment returns.
Tax considerations for investment products
ISAs and pensions have tax advantages put in place by the UK government. For example:
- You can get tax relief on money you put in a SIPP. The government will top up your payment by an additional 20% if you’re a basic rate tax payer. If you're in a higher tax band, you could get further relief as a tax refund.
- You don’t pay income or capital gains tax when you take money out of an ISA.
You may need to pay tax on dividends, cash interest and any money you take out of a pension. This depends on your personal circumstances. You may have to pay capital gains tax on returns from a General Investment Account (GIA).
Keep in mind that tax incentives, rates and thresholds could change at any time.
Are you unsure about which of our investments are suitable for you?
Our Savings Specialists are here to help with questions you may have about our products and portfolios. If you can’t decide what to choose and you want advice tailored to your situation, we offer regulated financial advice.
If you're still saving and not withdrawing any pension savings, you’ll pay a one-off fee for this advice. If you're withdrawing your pension savings, or about to start doing so, you can access regulated financial advice through our Retirement Income Advice service, which charges an ongoing fee.
What types of investment risk could affect your portfolio?
To build a portfolio, we choose a range of funds. The individual investments within our portfolios’ funds could be affected by a variety of risks. For example:
- Currency risk – exchange rate fluctuations could affect the investments within the fund
- Market risk – changes in how investors feel about a specific market or sector of a market
- Geopolitical risk – changing prospects in a region for growth, affected by politics, economic and social risks
Each of our portfolios is designed with a different level of investment risk in mind so you can choose one to suit your situation.
If you want to find out more about specific risks that apply to the individual funds within the portfolios please read the portfolio factsheets. You can find them on the portfolio selection page as you progress through this form.
Within these factsheets you can link to the relevant Key Investor Information Documents (KIIDs), which have even more detail.
How do we manage the risks?
Risk management is built into the way we construct our portfolios and how the funds are selected. It influences everything we do.
Our risk-reducing strategies include: building diverse portfolios that invest in different asset classes (like equities and bonds), and different geographies (including established and, in some cases, new/ emerging markets). We keep a disciplined focus on due diligence.
We invest in UK domiciled funds so the Financial Services Compensation Scheme (FSCS) protection is applied. We, and all the companies who work with us to provide the service, are covered by this scheme. This protects customers against the failure of financial services firms.
You can find out more about the FSCS in Destination Retirement Save – Our Service Explained.
Are there any risks associated with not investing?
Money you keep in a bank account in cash is unlikely to go down in value. But its buying power could be eroded by inflation. Over the long term, investing money tends to provide higher returns than keeping it in cash. With these factors in mind, not investing over the long term means you could risk losing out on the possible benefits.
Any questions?
If you have any questions about different risks, levels of risk, and the reasons investors choose to tolerate risk – you can speak with one of our Savings Specialists.
The information provided on this website should not be taken as a recommendation, advice or a forecast.
This information is intended for use by customers of Destination Retirement only. You can find out more about your investment in Destination Retirement Save - Our Service Explained.
There's more information about the portfolios and the funds within them in the portfolio factsheets. You can find them on the portfolio selection page as you progress through this form. This includes links to the Key Investor Information Document (KIID)/ Key Information Document (KID) for each fund.