Risk and reward

A good investment principle is to make sure you are appropriately rewarded for the risk you take.

Our portfolios have been carefully constructed to ensure there is a clear link between volatility and performance. Our data shows that the greater the portfolio volatility, the greater the benchmark performance.

Volatility is a measure of how much a portfolio goes up and down in value over a period of time. It is important to understand volatility so you are prepared for how your investment might behave.

• A portfolio with higher volatility usually experiences larger movements in value up and down compared to others.

• A portfolio with lower volatility usually experiences smaller movements in value up and down compared to others.

Volatility of the Balance portfolios

When we measure volatility, we think about the best performance and the worst performance that was possible, over a given period of time.

This graph gives an indication of average returns you could expect for portfolios taking different levels of risk. It also gives an idea of the volatility to expect.

The graph uses the historic performance of 10 benchmarks, which are based on a collection of investment market indices. The average returns figure is based on average performance over 23 years with an extra adjustment down, to reflect caution about what the future may hold.

The highest and lowest figures in the graph are based on the best and worst 12 month periods in the last 23 years.

This table shows the same data over the last 23 years to December 2023.

Investment timeframes and volatility

Investment timeframes are an important factor in the performance of a portfolio.

If you plan to remain invested for a long time (say 10 years or more), the impact of the volatility is reduced. The ups and downs become less significant. However, if you are investing for a shorter timeframe (say 5 years or less) then the ups and downs could have a bigger impact on your returns, particularly if you are also taking withdrawals from your investments.

Investors that take a long term approach are usually more willing and able to live with more volatility in their portfolio.

Volatility cannot be avoided or removed but it can be managed with the help of your financial planner.

More information

To understand more about why we invest in this way, please read our investment philosophy, or get in touch to ask your questions directly. You can also read more about investment performance and diversification, showing how the portfolios’ underlying investments are spread across the world.

Important notes

As with all investing, your capital is at risk. The value of your investment portfolio can go down as well as up. You may get back less than you originally invested.

Figures provided reflect the returns of the investment markets which our portfolios track, up to December 2023, with an extra adjustment for caution about future market returns.

We make an adjustment to the average returns, not because we predict future returns will be lower than those in the past, but to help with long-term financial planning. It is better to have a financial plan that is robust based on cautious expected returns than one that relies on ambitious growth.

While our portfolios are designed to track the investment markets as a benchmark, there will be differences between benchmark and actual portfolio returns.

Figures do not account for the impact of any charges. Actual returns for any investor would depend on the cost of investing and could typically be up to 2% lower.

Figures provided are not a forecast of expected returns. They are not an indication of the maximum or minimum returns you could receive if you invest in our portfolios. It is possible to experience returns outside the ranges shown.