None of us likes to gamble with our savings, but the truth is that there’s no such thing as a ‘no-risk’ investment.
At the heart of investing there is a simple trade-off: the more risk you take, the more you can get back or lose (and the lower the risk you take, the less you’re likely to get back or lose).
But while you’re always taking on some risk when you invest, the amount varies between different types of investment.
Money you place in secure deposits such as savings accounts risks losing value in real terms (buying power) over time.
This is because the interest rate paid won’t always keep up with rising prices (inflation).
On the other hand, index-linked investments that follow the rate of inflation don’t always follow market interest rates.
This means that if inflation falls you could earn less in interest than you expected.
Stock market investments are generally expected to beat inflation and interest rates over time, but you run the risk that prices might be low at the time you need to sell.
This could result in a poor return or, if prices are lower than when you bought, losing money.
When you start investing, it’s usually a good idea to spread your risk by putting your money into a number of different products and asset classes.
That way, if one investment doesn’t work out as you hope, you’ve still got others to fall back on.