Managing investment risk Diversifying investments to help spread risk A look at investment risk – how it can be measured using volatility and how diversification can help to manage risk. Investment risk Investment risk is the risk that you’ll lose money if the value of an investment goes down. Although we can’t predict the future, there are approaches we can take to help us understand what investing might be like and how we can try and spread risk. Volatility To see how much the value of a fund or asset moves around over time, we look at its volatility. This is a measure of how much the value of return varies from the average return, over a given period of time. The higher the figure, the more volatile a fund has been. The lower the figure, the less volatile a fund has been. The volatility measure looks back at what’s already happened. Although, it can give an indication of the experience an investor might have in the future (if the fund continues to behave in the same way), it’s important to remember that it’s only a guide. What affects a fund’s performance? A fund's performance is influenced by many factors, such as the types of assets it holds and how their value is influenced by changes in the economy, inflation, exchange rates and so on. The changes in the values of the assets held by a fund are key to its volatility. A fund that invests in assets whose value doesn’t fall or rise a great deal will usually have low volatility. This could mean that the fund has a lower potential for growth but also a lower potential for loss. A fund that invests in assets whose value falls or rises a great deal will usually have a higher volatility. This could mean the fund has a greater potential for growth but also a greater potential for loss. Diversification Diversification is one way that could help reduce your exposure to volatility and investment risk. Put simply, it means spreading your investments across a suitable range of assets. Read more about the most commonly used types of assets in our guide to investing. How it works Diversification works by spreading your investment across different asset types and regions. If one area isn’t performing well, other areas will hopefully be performing better. In this way, diversification can offer a better chance of growth. Ways to diversify your investment There are many ways to diversify your investment and your adviser will discuss these with you. You can diversify by: Asset class – spread your investment across the four main asset types; cash, bonds, property and shares. Region – invest in the UK and overseas so that you’re not limiting your investment to one country. Industry – invest across a variety of sectors such as energy, financial services and healthcare, so you’re less exposed to one type of company. Investment style – create a balance of funds. Some could focus on growth opportunities and others on value or recovery. This creates a blend of companies with solid but average profits and those with the potential to recover and make stronger profits in the years ahead. Speak to your adviser for more detailed information on volatility and diversification. What are the risks? As with any investment, the value can go down as well as up so you might get back less than you invest. Different investments have different levels of risk and past performance is no guide to future performance. Learn more about investing Guide to investment bonds Get an overview of onshore and offshore investment bonds. Learn more Guide to investing Read about the different types of assets you can hold in a bond. Learn more Be a ScamSmart investor Help to avoid investment and pension scams. Learn more Next steps Fund centre Explore all our available funds. See our price lists, fund performance, factsheets and more. Visit Fund centre Customer support Find answers to commonly asked questions, helpful links, tools and contact details. Customer support Get in touch Contact our onshore team 0345 606 0708 or send an email Contact our offshore team 0333 015 1382 or send an email Monday to Friday, 9am to 5pm Other contacts News & Insights Corporate Our websites Site information Find help Twitter Linkedin Youtube © 2021 Canada Life UK. All rights reserved Legal statement