Investment Risks

How to find the right balance of risks and returns when you make an investment

Part of making the right investment choices involves assessing your capacity for risk and your appetite for risk.

Your capacity for risk

This is based on your personal circumstances and financial situation.

To understand your own capacity for risk, ask yourself the following questions:

How long are you investing for?
If you're making a short-term investment of less than five years, you're less likely to take risks with your money.
How old are you?
The younger you are, the easier it is to take a long-term, higher-risk approach to investments. As you near retirement, you're more likely to take a short-term outlook and play it safe.
What investments do you already have?
If you've invested before or have already made provision for your retirement, you may feel able to take more risks.
How wealthy are you?
The more money you have, the more flexible your options. You may decide to keep the majority of your money in low-risk funds for security, but include a number of high-risk investments for a potentially higher return.

Your appetite for risk

This is your view of how an investment should perform. It also reflects your financial priorities.

To understand your own appetite for risk, ask yourself the following questions:

  • What's more important — the value of your money or the return you could make on it?
  • What are your views on the role of the stock market in your financial future?
  • Are you worried about the effects of inflation?

Your capacity and appetite for risk are likely to change as you get older. Review your finances on a regular basis to make sure your investments are working for you.

Risk categories

To help you understand the way we evaluate risk, we use six categories:

Secure

A safe option, these investments ensure that the money you put in, you get back at the end of the term.

Secure investments include some or all of the following features:

  • They are usually cash based.
  • The return you get is normally paid in interest and likely to be quite small in the medium to long term.
  • The 'purchasing power' of your money may be affected by inflation. (For example, if you have an interest rate of 1.5% and the annual rate of inflation is 4%, your savings will lose value by just under 2.5% each year.)
  • You have access to your money but if you make an early withdrawal or cash in your investment you may lose out on interest.
  • You can use the investment as an ongoing savings account, giving you access to extra cash when you need it.

Examples of secure investments:

  • Instant access/Notice accounts
  • Cash ISAs
  • Bank/Building society accounts
  • National Savings certificates

Secure products from Lloyds TSB International:

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Cautious

These investments carry a small risk to your capital and subsequent income.

Cautious investments include some or all of the following features:

  • There is potential for modest capital growth and/or income in the medium to long term.
  • Some products offer a degree of capital protection to ensure you get back the money you put in.
  • Investments are usually in lower-risk assets.

Examples of cautious investments:

  • UK Government income/growth bonds
  • Guaranteed equity bonds
  • Guaranteed investment bonds
  • Mixed asset funds weighted towards cash

Cautious products from Lloyds TSB International:

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Balanced

Although the value of your investment can go down, there is potential for capital growth and/or income in the medium to long term.

Balanced investments include some or all of the following features:

  • There are usually no guarantees, which means the capital value can fluctuate.
  • You can protect the value of your investment by spreading it across different asset types.

Examples of balanced investments:

  • Gilt Funds, High yield and corporate bond funds
  • Mixed asset funds with a balance between equities and lower risk assets such as corporate and/or Government bonds

Balanced products from Lloyds TSB International:

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Progressive

Although there's a significant risk that the value of your investment will go down in the short term, the potential for capital growth over the medium to long term is much higher.

Progressive investments include some or all of the following features:

  • There are no guarantees, which means the capital value can fluctuate.
  • They contain a large amount of UK and overseas equity or equity-related investments.
  • Fixed interest securities, such as bonds, help to spread investments across a wide range of assets.

Examples of progressive investments:

  • Mixed asset funds weighted towards equities
  • Diversified property funds
  • General managed funds

Progressive products from Lloyds TSB International:

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Adventurous

There is a higher risk of capital loss, but great potential for capital growth over the medium to long term.

Progressive investments include some or all of the following features:

  • There are no guarantees and the capital value can fluctuate enormously.
  • Other risks not directly related to the investment can affect its value, such as currency fluctuations in overseas markets.
  • All or most of the funds will be in equity or equity-related investments.

Examples of adventurous investments:

  • General UK Equity Based Funds
  • Small Cap Equity Funds
  • General International Equity Based Funds

Adventurous products from Lloyds TSB International:

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Specialist

There's a very high risk of capital loss — you must be prepared to lose your entire investment — but the chance of a high return over the long term.

Special investments include some or all of the following features:

  • They are very volatile which puts the entire capital value at risk.
  • You could actually lose more than the amount you originally invested.
  • You may need to take a long-term outlook to reap the benefits.

Examples of specialist investments:

  • Options
  • Enterprise investment schemes
  • Derivatives
  • Venture capital trusts
  • Forestry
  • High volatility fund of hedge funds
  • Fine wines
  • UK specialist funds
  • International specialist funds

We don't currently offer any products in these specialised markets.

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Finding an investment to suit you

Lloyds TSB Offshore funds offer you a choice of risk levels.

Investors should remember the value of shares and the income from them can go down as well as up and cannot be guaranteed. Consequently, on selling investors may not get back the amount they originally invested.