Investing in the wide choice of UK company funds is often a good idea because – unlike foreign markets – there’s no risk that currency movements will hit your returns.

Many UK equity funds will focus on the big household name companies that make up the FTSE 100 Index, such as high-street banks. Funds focused on these large blue-chip companies can be a good place to start your investment portfolio.

Rather than using a human fund manager to pick stocks, index tracking funds simply follow the ups and downs of a stock market index such as the FTSE 100 Index. Index-trackers are often low cost, but they can rise in value only when the index does.

These invest in companies from all around the world, so they can be an easy way to tap into investment opportunities across world stock markets – and by investing in lots of different markets they help to spread risk.

• European (High risk)
• US (High risk)
• Asia-Pacific (Very high risk)
• Japan (Very high risk)

Once you have good exposure to the UK stock market, you can look further afield. You may be offered funds investing in particular overseas regions – typically Europe, the US, Asia-Pacific and Japan.

Investing in these different regions can increase the growth potential of your pension pot. But bear in mind that investing in markets outside the UK carries currency risk (the risk that your returns may reduce when converted back into pounds).

Companies that are quite small but rapidly expanding can see their share price rise quickly. But smaller companies can also be hurt more by recession and rising interest rates than large multinationals. So they are higher risk.

If you are willing to take a high level of risk in return for high potential growth, you may want to look at emerging markets such as Latin America, India, Russia and China.

Because their economies are relatively young, they can often experience very strong rates of growth. But they can also be much more volatile than mature economies like the UK.

These funds invest in bonds issued by the UK government, known as gilt-edged securities or ‘gilts’, which pay a fixed income. Because they are backed by the government, gilts are considered low risk. Gilts therefore feature heavily in the portfolio of highly risk-averse investors.

Because companies have more potential to go out of business, corporate bonds are issued by companies to raise money. Corporate bonds are generally considered more risky than government bonds like gilts (see above). But returns can be higher as a result.

A bit like a savings account, money market funds hold your money and may pay interest. They are useful when you want to minimise risk, but their growth potential is low. Unlike a savings account, money market funds don’t guarantee the growth or value of your investment.

These may invest directly in commercial and residential property and hold shares in companies such as property developers. As the property market moves differently from the stock market, property funds can be a good way to diversify your portfolio.

Balanced funds are so called because they offer a ‘balance’ of equities and bonds. By combining the growth potential of equities with the lower risk of bonds, balanced funds can be a popular choice for risk-averse pension investors.

These are funds that look to achieve positive returns over the longer term in all market conditions – often aiming to beat the return on cash deposits by a certain amount. Total return funds have the flexibility to move in and out of different investments – e.g. equities, bonds and cash – depending on which looks most attractive.