Risk Profile 1 out of 10 - Lowest
Expected return: 0.13%
This is the expected return per year, on average over a 5 - 10 year period.
Expected volatility: 0.01%
Each day the returns will be different, positive or negative. We expect these to vary by this much from the average return (aka standard deviation).
Value at risk: -0.02%
There can be big one year falls in value. We expect that 95% of the time this investment would fall by no more than this much in any one year.
Every investment can be described in terms of the amount of risk associated with it. Higher-risk investments tend to experience greater volatility, which means they are likely to go up and down in value more often and by larger amounts than lower-risk investments. In return, higher-risk investments have the potential to produce higher returns over the long term, although this is not guaranteed.
For example, investments such as cash deposits and bonds issued by the UK Government (known as gilts) are considered low risk. Property, corporate bonds issued by UK companies as well as other types of global bonds issued by overseas governments and companies are considered medium risk. In the case of global bonds, generally those which pay a higher income are riskier than those which pay a lower income level. Shares in companies in the UK and other developed markets are considered high risk, while shares from companies in emerging markets are considered very high risk. You can reduce the overall risk in a portfolio by using 'diversification' – in other words, spreading your money across different investments. By doing this, you can match your overall portfolio to the level of risk that is right for you.
It's important that the amount of risk you take with your portfolio matches your willingness and ability to take investment risk. The 'lowest' risk profile shows that you want to take the least amount of investment risk possible with your money. A portfolio that matches this risk profile will be designed to reduce, as far as possible, falls in value. But the returns you make are also likely to be low. If inflation (the rate at which the prices of goods and services rise) is higher than the rate of return on your investments, the spending power of your money will be reduced.
A portfolio for this risk profile will only include cash deposits.