Taking the right amount
of risk

We know you want to keep your pension pot safe – so do we. That’s why we spread your money across lots of different types of investment, like companies, certain government loans, property or public transport projects. And to be extra safe, we keep some of it in cash. But that’s just the tip of the iceberg. We do a lot more to protect your money.

No risk, no reward

Not everyone is prepared to take risks. But the saying ‘no risk, no reward’ is generally accurate when it comes to investing. The more you take, the more potential there is for profit over the years.

Remember, investments can both rise and fall in value. That’s why our team of experts carefully assess the markets to take the right amount of risk to grow your pension pot while also protecting your savings. Over the last five years, we’ve made more money for members like you than other providers while taking less risk, according to independent experts Defaqto.

Balancing your risk

A healthy strategy is one that balances the advantages and disadvantages of different investments around the world, so you’re not dependent on the performance of any one investment market. It’s the principle of not putting all your eggs in one basket.

Investing your money in a well-researched mix of these different markets means that some of it stays protected, and some of it is put to work to grow. It also means that we can balance potential falls in one particular market with rises in different markets over the long term.

How much risk should you take?

We believe you should be able to decide how much risk you’re comfortable with – otherwise known as your risk attitude or risk appetite – as well as how much you’re able to take with your money – known as your capacity for loss. These levels are completely personal to you.

Imagine that you’re competing in a multi-day motor race for a prize of £10,000. The faster you drive, the more likely you are to win. But at high speeds, mistakes have bigger consequences. Working out your risk attitude is like working out how fast you’re comfortable driving in order to win £10,000. Would you drive differently if the prize was £50,000 or even £100,000?

If you had five racing cars, you might be tempted to take chances knowing that you could swap to another car if your tyre burst or your engine broke down. But if you only had one car, you might prefer to drive more sensibly, knowing that it needed to last you the whole race. This reflects your capacity for loss. In the same vein, if you had a comfortable amount of money over and above your personal emergency savings buffer, a high-risk, high-reward approach gives you the opportunity to build up your nest egg without compromising your financial wellbeing. But with less money to spare, you may be looking for a more balanced approach.

These two levels are likely to change throughout life as your goals, earnings and circumstances change.

Does Nest offer different approaches to risk?

Our Nest Retirement Date Funds are designed to carefully balance risk and reward at different times in your life. They aim to grow your money sensibly over time, no matter how much you earn or how much you have saved.

Although Nest Retirement Date Funds work for most people, you might want to explore our other funds if your risk attitude is high or your capacity for loss is low. Find out more on our Fund information page.

Five ways to balance risk

Cast your net wide: Instead of buying lots of shares in one company, we buy a few share in lots. And instead of just putting your money in company shares, we invest your money in plenty of other opportunities too.

Invest in well-established companies and industries: Your Nest pension pot is put into carefully researched opportunities with a good chance of being profitable. If there’s not enough information available on the deal, your money won’t be risked.

Give yourself time: The longer your money is invested, the longer you have to build up compound growth and the more time your investments have to recover if you experience any short-term losses.

Invest money regularly: Markets tend to rise and fall in value over time. Investing regularly – like with a workplace pension – helps to smooth out the price differences so you’re not always buying when prices are high.

Think about the long haul: Studies show that funds which are invested with an eye to environmental, social and governance issues tend to outperform traditional investing over time. We invest responsibly, considering long-term concerns like climate change or workers’ rights.

Dealing with market fluctuations

Sometimes investments fall in value. It’s never a good feeling to think that you’ve lost out. However, it’s worth remembering that falls tend to be short-term. Although past performance does not guarantee future performance, 100% of previous market falls and crashes have recovered and beaten their previous levels. You’re invested with us for years, if not decades, so our strategy focuses on long-term gains and the overall long-term growth of the economy.

Looking over the last five years, on average we’ve delivered consistently strong returns while taking less investment risk with your money than other pension providers. We want to give you a bigger pension when you retire and we’re putting all our effort into making it happen.