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Risk vs. rewards

It’s a central principle of investing – the higher the risk, the higher the potential rewards

There is always a degree of risk in owning investments. In extreme circumstances you could even lose all your money, so it’s natural to want to know exactly what the risks are, and which ones you should take.

How much risk should you accept?

Roughly speaking, the level of risk you might be prepared to accept depends on how long you can afford to tie up the money and how much you can afford to lose. If you’re planning to invest for 10 years or more you may be able to take relatively more risk in exchange for the possibility of higher returns.

Unfortunately, it’s not easy to make a precise assessment of risk. Markets are inherently unpredictable. Sectors that look unhealthy may start performing strongly and steadily, and companies that look dominant may suddenly reveal hidden weaknesses.

Remember, it’s impossible to draw up hard and fast rules about the risk levels of a particular kind of investment. You need to look at the whole picture and might want to get an opinion from a qualified adviser.

Where to get advice on risk

You can get general information about financial services from the Financial Conduct Authority (FCA).

The FCA is an independent watchdog set up by the government to regulate financial services and protect your rights. It provides free and independent information about financial matters.

You can get free, unbiased money advice online and over the phone from the Money Advice Service.

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