How to...

All investments carry a degree of risk. But what’s risk in the financial sense of the word? Simply put it’s the chance that you might get back less money than you expected or, worse still, less money than you invested.

So why take risks?

You might think that you don’t want to take any risk with your money. But you have to remember that, although your money may be fairly safe in lower risk funds, it might not increase very much and inflation may erode any gains in real terms.

Other funds might give you the growth you want, but they come with greater levels of risk and the possibility that you might take a loss. The graph below gives an idea of what we mean.

The lower-risk investment funds show less difference between potential growth and loss than those with a higher risk level. So, generally speaking, the bigger the risk, the bigger the potential growth, but this also means the potential loss is higher. Unfortunately, investment funds aren’t as predictable as this graph shows, but they do tend to follow this general rule.

The key is managing your money effectively and investing in a way that helps you achieve your financial goals. You can do this by spreading the risk across different types of investments (by building a portfolio). Please be aware that the value of an investment can fall as well as rise for a number of reasons, for example market and currency movements. You may get back less than originally invested.

Risk classifications

One of the most common ways to categorise investment funds is by the potential level of risk they carry. This is based largely on where and what each investment fund is invested in, as well as how its performance has fluctuated in the past.

We split our funds into six different risk categories:

• Minimal risk
• Low risk
• Below-average risk
• Average risk
• Above-average risk
• Higher risk

We’ve looked at all the investment funds we offer and graded each one against the others. We haven’t used an industry benchmark or graded them against any other company’s investment funds – just our own. Once they were all graded, we divided the list into the risk categories above to make it easier for you to find one that matches your attitude to risk.

Changing our risk classifications

We regularly check to make sure our list stays as accurate as possible. Some investment funds may change their investment style, the way they invest or the fund manager who looks after them. These changes are not within AEGON's control and could mean we have to change the fund’s risk classification. In addition we regularly add new investment funds and sometimes close others down, which affects where a fund sits in terms of its risk compared with others in our full fund range. If we do make a change to a fund's risk rating or close a fund we'll let you know.

Please note: there are no guarantees that all the funds in our range will meet their objectives. In particular, there may be periods when funds underperform for good reason. This doesn't mean we'd necessarily remove them from our range. Our savings and pension products are medium to long term investments (which means they're aimed at those who want to invest for at least three years) and our funds are designed with this in mind. You should also be aware that, even when funds produce negative returns, they may still be meeting or exceeding their objectives where these are relative to a benchmark.