Deciding where to invest

A growth strategy focuses on investments that the fund managers believe have a better chance of producing higher returns over the long term. These investments will also involve a higher level of risk, and the value of your portfolio may fall significantly during times of market volatility.

Time is the key to a growth strategy. Because you are investing for the long term, your investments may have time to recover from any setbacks, and possibly go on to achieve higher levels of growth in the future.

This type of strategy may suit you if there is still a long time before you access your savings. However, you need to be comfortable with the higher level of risk associated with aiming for higher returns.

When choosing funds for a growth strategy, look at each fund's objective and risk rating in its factsheet - typically the higher the risk, the more growth potential there is. However, this is not guaranteed as the value of investments can go down as well as up. A fund’s name may give you a clue as to what sort of investments it holds. For example, ‘equity’, ‘opportunity’, ‘special situations’ and international funds are likely to have a growth focus, but it’s important to read the factsheets and find out exactly which markets each fund invests in.

Remember, growth is not guaranteed, the value of your retirement savings can go down as well as up so you may get back less than you have saved.

A balanced strategy aims to combine investments that offer high growth potential, and a relatively high level of risk, with investments that aim to preserve the value of the money that you have already built up in your savings. This is while ensuring there is still some potential for growth in the years before you retire, although it is worth remembering growth is not guaranteed.

You can achieve this balance by combining different types of funds or by simply focusing on investment funds that offer a medium level of risk and growth potential.

While not as risky as a growth strategy, a balanced strategy still involves some risk. It may suit you if you are well on your way to retirement or are only prepared to accept a limited amount of investment risk.

When choosing funds for a balanced strategy, read their objectives in the factsheets and check their risk ratings – typically these funds are medium risk/return. The potential for capital growth is generally better than the lower risk/return and lower-medium risk/return categories but the value of the fund may vary considerably either up or down.

A conservative strategy focuses on lower‑risk funds so there is less chance of your portfolio suffering short‑term losses. These funds may hold cash deposits and the more secure types of bonds. Secure type bonds usually have a higher credit rating which means that the issuer is less likely to default on the bond compared to bonds with a lower credit rating. By moving away from share-based funds, you can help reduce the impact on your investments if there is a sudden drop in the stock market.

The drawback with this approach is that the potential return from conservative investments tends to be lower than with higher-risk options.

You may want to consider a conservative strategy if you are approaching retirement and need to be confident about how much your pension savings are worth. However, it’s important to remember that even if the risk of losing money is relatively low, it may be replaced by the risk of inflation eating into the value of your savings or the risk that comes with fluctuating interest rates. Following a conservative strategy when you still have many years before you are going to access your savings, there is also the risk that you simply won’t have enough to reach your individual goals, because your  savings haven't grown as much as you needed them to.

When choosing funds for a conservative strategy, read their objectives in the fund factsheets and check their risk ratings – the lower the risk, the more conservative the strategy. A fund may be called 'cash', 'defensive', 'pre-retirement', 'gilt' or 'government bond'. Though present in a conservative strategy, some bonds and gilts can be impacted by sudden changes in interest rates which can affect their values in the shorter term. It is important to read the factsheets and find out exactly what type of investments each fund holds.

It's also important to remember that bond investments still carry risk. The level of that risk can be higher in volatile markets, during periods of unpredictable and sometimes sharp price and interest rate movements, which means that the value of your investments can fall in value dramatically during those periods.

You should remember that a cash fund can go down in value, partly because of its charges, so it is not the same as a deposit account.