UK finance jargon - in plain English
The principle that higher potential returns always come with higher potential losses.
In investing, risk and return are directly linked. Assets that offer higher potential returns, like shares, carry the risk that their value can fall significantly. Assets that are lower risk, like cash in a savings account, offer lower returns but greater certainty. Understanding this trade-off is fundamental to making sensible decisions about where to put your money. Your personal tolerance for risk and your investment time horizon both affect what level of risk is appropriate for you.
A savings account at 4.5% is low risk. Your £10,000 is very unlikely to fall in value. Shares in a single emerging market company might return 20% in a good year but could fall 50% in a bad one. A global index fund sits somewhere in between, with historical long-run returns above cash but with meaningful short-term fluctuation.
Past performance is not a reliable guide to future results. All investments carry risk. The right level of risk depends on your circumstances, goals, and how long you plan to invest for. This page is for education only.
People chase the highest possible returns without understanding the risk they are taking on. High returns on paper often come from concentrated bets that can go badly wrong. If someone promises high guaranteed returns with no risk, that is a red flag.