Investment risk – is it worth it?

id

When you read about pensions and other investments, you’ll likely encounter the word “risk”, or warnings about potentially not getting back as much as you paid in. But what does this mean? Are some risks worth taking? We break down a few things to think about when it comes to pension plans. 

What does it mean to ‘invest’?

Investing is a way of potentially growing your money over the long term. You use your money to buy assets. These might include – but aren’t limited to – things like property, gold, equities (where you’re paying to own a piece of a company), and bonds (where you’re essentially lending money to governments or companies). 

You might do this with the hope of getting back more than what you originally paid when you eventually sell – you want a good ‘return’ on what you originally put in. Or you might be aiming to protect the value of your investment.

Money paid into a pension plan is invested, meaning it’s usually pooled with other people’s money and used to buy assets. You ‘sell’ your investments when you switch out of them – you can then choose to either make new investments or withdraw money from your plan. You can usually start taking money from age 55 (rising to 57 from 6 April 2028).

All investments carry some risk

There’s no such thing as a risk-free investment. There’s always the chance that the value of your investments could go down as well as up, and you could get back less than was paid in. 

Although there’s risk involved, remember that the aim of investing is to grow the value of your money. So the risk isn’t necessarily a bad thing; it simply comes with the territory, and it’s something to be mindful of. 

Different types of investments carry different levels – even different kinds – of risk. Generally speaking, to have a higher chance of growing your money more over the long term, you might need to be comfortable with taking a higher level of risk. But you might see the value going down and up more frequently and dramatically than you probably would with lower-risk investments.

The bottom line? It’s important to understand the risks involved and how much risk you’re comfortable taking so you can make decisions about where best to invest.

Where does the risk come from?

There are no guarantees when it comes to how investments will perform. Different things can influence the value of pension investments. For example, wars, epidemics, political changes, how well a business is doing financially, and the ability of companies or governments to pay back what’s been loaned to them can all have an impact. 

Sound scary? Don’t panic – here’s how you can manage risk

Can you remove risk completely when you invest? No. But there are things you can do to help manage the impact of risk and make the idea of it less intimidating.

Think about how long you’re investing for

The longer your pension savings are invested, the more time they have to grow. Plus, there’s more opportunity for them to bounce back from market dips, although that’s not guaranteed. So people who plan to keep their money invested for a long time often opt for higher-risk investments – at least for a while.

But what happens if you’re going to need to take the money out in the shorter term? People often consider lower-risk investments, as their pension savings will have less time to recover from market falls. Although the returns might not be as high, the potential losses are likely to be less significant and less frequent.

You might be in one of your pension provider’s ‘ready-made’ investment options, sometimes called a ‘lifestyle profile’. In this case, investment managers will do the work for you. You’ll probably find that they move you into different investments as you get older and closer to retirement to help reduce the chance of big losses. 

Consider your goals

When thinking about the level of risk that’s right for you, it’s worth asking yourself how much money you’re looking to have in retirement. As we’ve mentioned, it’s necessary to take risk to give your investment the potential to grow. 

Taking too little risk while you’re still a long way off retirement could mean your money doesn’t grow enough to keep up with the cost of living, and you might end up with less than you need. So taking a little more risk isn’t always something to shy away from, and sometimes it can pay off in the long run. 

But there is such a thing as too much risk. Taking a lot of risk can increase the chances of significant drops in the value of your investments. And if that happens at the point when you’re about to take, or already taking, your pension savings, you could end up with less money than you require.

It can be a balancing act. You need to think about your circumstances and consider what’s right for you. 

Speaking of balancing acts, you could consider something called ‘diversification’, which is when your money is spread across different types of investments and countries. Different investments tend to go up and down in value at different times, so doing it this way is like not putting all your eggs in one basket. If investment managers are doing the work for you, they might take this approach. 

Understand your own attitude to risk

People are comfortable taking different levels of risk. To better understand how you feel about investment risk, why not take our short questionnaire? 

So, what’s the conclusion?

In a nutshell, all investments come with an element of risk. Which means taking some risk when investing is necessary and unavoidable. 

So in the end it’s not a question of whether taking investment risk is worth it or not – it’s about how you manage it and how much you’re willing to take to help achieve your goals. And the more you know about it, the easier it might be to make decisions that you’re happy with. 

You can read our article about what to think about when investment markets move up and down. If you’re over 50, you could also see our article about market movements when you’re at or near retirement or find more information about investing in retirement from MoneyHelper.

 

The information here is based on our understanding in June 2025 and should not be taken as financial advice.

A pension is an investment. Its value can go down as well as up and could be worth less than was paid in.