Risk control 1 – invest in funds

A fund managed by a professional fund manager will hold dozens – if not hundreds – of different investments, so your money is spread across many different companies and markets.

As a member of a company pension plan, you may be offered a choice of investment funds. Many of these will be invested in shares, while some may include bonds, cash or other investments such as property.

Risk control 2 – get a risk rating

Depending on how they invest, funds can involve more or less risk than others. To help you get an idea of how risky a fund is, a fund manager may rate its funds, say from low risk to medium risk and high risk.

These risk ratings don’t guarantee how a fund will perform, but they may prepare you for what to expect.

See our simple risk guide: “Making the right choice”

Money market funds are considered low risk because the likelihood that you will lose money is very small. Bond and equity funds become increasingly risky – but they do have more potential for growth.

Risk control 3 – strike a balance

A mix of investments can help balance risk, because if one is falling in value, another may be rising or at least holding steady. So try not to have all your pension eggs in one investment basket.

Mixing shares, bonds and cash is the most basic way to balance risk. Mixing funds invested in different markets, industries and different sizes of company also helps to spread risk.

Some funds – such as total return funds – will provide a mixture of these different assets for you – automatically deciding which to hold, depending on different market conditions.

Risk control 4 – take a long-term view

Investors who have stayed in the stock market for the long term usually see their investments recover from short-term falls. So the longer you can afford to stay invested, the better.

Conversely, it might be appropriate to reduce exposure to the stock market as you approach retirement – to help protect your pension fund against an 11th-hour fall in the stock market.