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Useful information
Investing basics
Did you know that you’re already an investor? It might sound like an unusual question, but our Global Retirement Survey discovered that over 40% of people we asked didn’t realise that their retirement savings are invested*.
*Fidelity Global Retirement Survey 2020.
As an investor, you can change this and choose your own investment funds from the range your Plan offers. Or you can stay in the default option if you prefer to let experts make the investment decisions for you.
What is an investment fund?
An investment fund pools money from lots of investors. The fund manager then spreads that money across a variety of investments.
You can choose from a range of funds managed by Fidelity and other leading fund managers. These funds focus on different sectors, regions and types of investments. Whichever funds you choose, you benefit from the investment expertise and management of a professional fund management team.
Learn about investing
The different types of investments are often referred to as ‘asset classes’ – some common examples include company shares (or ‘equities’), bonds, property, commodities and cash. The asset classes that are available for you will depend on the funds selected for your Plan, by the trustees, your employer and their investment adviser.
The performance of different asset classes will naturally vary over time. As each asset class has its own unique characteristics, wider market conditions and world events will affect them differently. That’s why it’s important to consider spreading your savings over a range of funds – It may help you to manage the investment risk of your savings falling in value if one asset class is out of favour. This strategy is referred to as ‘diversification’. It is important to remember that the value of investments can fall as well as rise and you may get back less than you invest.
Watch our short video about asset classes.
Diversification is essentially the principle of ‘not putting all your eggs in one basket’.
If you distribute or ‘diversify’ your savings across several different funds, in line with your individual goals and risk tolerance, you may be in a better position to withstand any potential losses from a single asset class.
Watch the video to learn how diversification can help in times of market volatility.
Risk and return
The relationship between risk and return is one of the most important aspects of investment. For you as an investor, generally speaking, the greater the risk you are prepared to tolerate, the more potential there is for your investments to grow. However, there is no guarantee that you will get higher returns by accepting more risk or that you will get back more than you invest. Taking less risk with your investments is likely to mean you see lower returns and while this may reduce volatility, you may not achieve your saving goals.
The risk-return spectrum
This image shows a spectrum from assets with lower risk and less growth potential, towards assets carrying higher risk, with the potential for higher growth.
Risk-return
You may decide to remain in your Plan’s default option, where risk-return is already considered. Or, you may decide to choose your own investment options, if the rules of your Plan permit it. In this case, your tolerance for risk will help you decide which assets to invest in.
Investing when you are some way off from accessing your savings
You may want to invest in assets with a higher potential for growth but greater investment risk.
Investing when you are close to accessing your savings
As you get closer to accessing your savings, you may want to lower the level of risk in your investments. This may help to preserve the value of your savings as you get closer to accessing them.
Watch this video to see examples of how some people view the relationship between risk and return.
More about the main asset classes
All asset classes carry some risk and it’s important to remember that the value of investments can go down as well as up, so you may get back less than you invest.
It is a good idea to review your investments on a regular basis to make sure they are right for your individual goals.
If you are unsure about whether your investments are suitable for your circumstances, or you need advice on any of the options available to you, we recommend that you speak to an authorised independent financial adviser.
Cash carries the lowest risk and can be useful as it provides good diversification to riskier investments. You may decide to hold some cash in the few years before you want to access your savings to help preserve their value.
Depending on the investment options available on your Plan, you may be able to hold cash through a cash fund. This is an investment fund, not a bank account, and it will invest in short-term deposits across a number of financial institutions.
Benefits of cash funds:
- Low level of investment risk
- Diversification against higher-risk investments
Some things to consider:
- Cash funds can fall in value, so you may get back less than you invest
- The potential for capital growth is limited
- Inflation can reduce the real value of your money
Bonds are loans where the investor lends money to a company or government in return for a fixed rate of interest over a set period and the repayment of the principal at the end of that period. Bonds are often referred to as ‘fixed income’ investments. Depending on the investment options available on your Plan, you may be able to hold bonds through a bond fund.
A bond fund will hold a range of bonds and perhaps some other types of debt. Many funds concentrate on specific types of bonds – for example, bonds issued by companies in a certain geography with good credit ratings.
You may think about moving your money into bond funds as you get closer to the time when you want to access your savings. This may help to preserve their value.
Benefits of bond funds:
- Lower risk than equity funds
- More potential for growth than cash funds
- Diversification against other types of investment
Some things to consider:
- While considered lower risk, bond funds can go down in value, so you may get back less than you invest
- Bond funds typically offer lower growth potential than equity funds
- Due to the greater possibility of default, an investment in a corporate bond is generally less secure than an investment in government bonds
- Rising interest rates may cause the value of your investment to fall
When you buy a share in a company, you become one of its owners; you have ‘equity’ in it. Your investment return depends on the success or failure of the company. If its value goes up, so will the value of your shares. In addition, the company may pay its shareholders an income known as a ‘dividend.’ Depending on the investment options available on your Plan, you may be able to hold equities through an equity fund.
An equity fund buys a range of company shares. Some funds focus on a particular region, such as the UK, US or Europe, while others concentrate on companies with a specific size or in a certain industry sector.
You may want to invest in an equity fund if you are aiming for long-term growth. You must be willing to accept that the value of your investments could go down as well as up, particularly in the short term.
Benefits of equity funds include:
- Greater potential for long-term growth than bond or cash funds.
- Opportunities for diversification, due to variety of markets, regions and sectors.
Some things to consider:
- Equities involve more risk than other types of investment, so the value of your investment may be volatile, particularly in the short term.
- Equity prices can go down as well as up, so you may get back less than you invest.
If you own your own home either to live in or to rent out, you are already a property investor. Depending on the investment options available on your Plan, you may also be able to invest in property through a property fund.
Most property funds buy commercial buildings such as offices, factories, warehouses and retail space, rather than residential property, and they may benefit from being able to invest in large projects that would be out of reach for most individuals. A fund should also receive rents from the properties it owns.
You might think about investing in a property fund if you are interested in long-term growth and there is a long time until you need to access the money.
Benefits of property funds:
- Opportunity to invest in properties that you could not afford on your own
- Property ownership without the responsibilities of maintenance and letting
- Potential for long-term growth if property prices rise and rents are paid
- Diversification potential, as property markets can behave differently from other types of investment
Some things to consider:
- Property prices may fall, or there may be problems with rent payments, in which case you could get back less than you invest
- It can take a long time to sell properties, so trading in property funds can be suspended if lots of investors want to redeem their holdings. This could lead to a delay if you want to withdraw your money from a property fund
- If you already own property, investing in a property fund through your pension could increase your overall financial exposure to the property market
Commodities are raw materials that are either consumed directly, such as food, or used as building blocks to create other products.
Want to make changes to your investments?
Learn more about how to self-select your own investments.
*About the Fidelity Global Retirement Survey
To better understand financial wellness of people around the world, our comprehensive survey posed financial and behavioural questions to working households in the United Kingdom, Germany, Japan, China, Hong Kong and Canada.
The survey population consisted of respondents with the following qualifying conditions: individuals aged 20-75 years old; working full-time or part-time or have spouse working full-time or part-time; not retired; expecting to retire someday; with or without retirement savings; the main financial decision maker or equal joint main financial decision maker in the household; a minimum household income of United States: $20,000 annually; United Kingdom: £10,000 annually; Germany: €20,000 annually; Hong Kong: HK$15,000 monthly; Japan: ¥3,000,000 annually; Canada: CA$10,000 annually.
The research and analysis were completed for the United Kingdom, United States, Canada, Germany, Hong Kong and Japan. Data collection was completed in partnership with Ipsos, a global market and opinion research specialist, who collected and collated data for each region in September 2019.