What are pension funds?
Funds are a way for you to pool your money with other investors so you can:
- Take advantage of buying in bulk.
- Spread your money across lots of different investments.
- Get the services of an expert who you wouldn’t normally have access to.
You can usually choose which funds to put your money in and change the funds you invest in. There are lots of different types of fund and there are many options to choose from; if you’re not sure which one(s) to pick a financial adviser will be able to make recommendations for you.
The differences between funds are usually in the:
- Way they’re managed.
- Assets they invest in.
- Level of risk they take and the amount of reward they’re aiming for.
Different funds take different levels of risk. A lower risk fund might aim for steady growth over a long period of time with a low risk of losing money. A high risk fund will usually be aiming for higher long term growth but there is more risk that you might lose money.
The types of assets that a fund invests in are an important factor in the returns you’re likely to get and the amount of risk that you’re taking. A high risk fund might invest in shares of companies in either the UK or overseas which have the potential to provide good long term returns but are also likely to see large ups and downs in value. A low risk fund might invest in government bonds which normally offer lower returns but should be more secure.