Investment risk, stated plainly

Risk you take whenever you invest

Every investment carries risk. There is no investment that removes risk entirely; there are only different kinds of risk, distributed differently. Before acting on anything, you should be satisfied that you understand which risks apply and that you can bear them.

Capital and price risk

Prices of listed securities and units move with supply and demand, with the performance of the underlying business or assets, and with changes in sentiment. A price that has risen can fall, and a security or fund can lose a substantial part, or all, of its value.

Income is not guaranteed

Distributions, dividends and interest payments depend on the issuer, on the terms of the instrument, and on conditions that can change. A payment made in the past is not a promise of a payment in the future. Where an instrument is described as paying income, that description is not a guarantee that any particular amount will be paid, or paid at all.

Currency risk

If you invest in assets denominated in a currency other than the one you spend, movements in exchange rates can add to or subtract from your return independently of how the underlying asset performed. A gain in the asset's own currency can become a loss once converted back.

Liquidity risk

Some instruments trade actively and can be bought and sold quickly; others trade thinly. In a thin market you may be unable to sell when you want to, or only at a materially lower price than the last quoted price.

Concentration risk

If a large share of your money is in one instrument, one sector, one market or one currency, a single adverse event can affect a large part of your holdings at once. Diversification reduces this exposure but does not remove risk.

Inflation risk

An investment can grow in nominal terms while losing purchasing power in real terms if its return is lower than inflation over the same period.

Tax and regulatory risk

Tax treatment depends on your own circumstances and on the jurisdiction involved, and rules, rates, thresholds and reliefs can change, sometimes with retrospective effect. Withholding taxes may apply to income from foreign assets. We are not tax advisers and nothing here is tax advice. See the relevant authority's published guidance for your own position.

Risk specific to government securities and short-dated instruments

Securities issued by a government carry the risk of the issuer rather than credit risk of a company, but they still carry interest-rate risk, reinvestment risk and inflation risk, and their market value can fall if rates rise before maturity. Auction yields are determined by bidding at each auction; a yield published for a completed auction says nothing about the yield that will apply to a future issue.

Risk specific to retirement savings schemes

Where retirement savings may be invested under a published scheme, the amount available, the permitted investments and the limits are set by rules which change from time to time. Using retirement savings for investment can reduce the amount available for its original purpose, and losses in such a scheme are borne by the member. Always check the current rules published by the responsible authority before acting.

Risk specific to holding structures

How an asset is held affects your rights if something goes wrong. Assets held in your own name through a central depository give you different rights and protections from assets held in a broker's or a custodian's name, or held through a pooled structure. Different structures also differ in fees, in how voting and corporate actions reach you, and in what happens on insolvency of an intermediary. No structure is universally safer; each has trade-offs.

What our information cannot do for you

• It cannot tell you whether any particular investment suits you.
• It cannot tell you what the market will do.
• It cannot replace a licensed adviser who knows your circumstances.
• It cannot make a risky investment safe, and it does not reduce the risk you take.

How to read what we publish

Treat every figure as belonging to a date and a source. Where a number is an estimate or a calculation rather than an official figure, we label it. Where a rule is set by an authority, check the authority's own current publication — it, and not this community, is the operative version.

Seek appropriate advice

If you are unsure, or if the amounts involved are significant relative to your circumstances, consider obtaining advice from a licensed financial adviser or another professional acting for you. If you believe you may have a dispute with a financial institution, approach that institution's complaints process first.

Related pages

• About us — who we are and what we do not do.
• Terms of use — the rules for using this site and the group.
• Privacy notice — what we do with personal data.