What you need to know before you invest

Choosing where to invest your money doesn't have to be anywhere near as difficult as you might think.

There are options to suit all levels of knowledge - and to suit however involved you want to be with managing your investments. The descriptions below are intended to help you understand your choices, but remember not all options are available with all pension investments.

These are the factors that will play a part in your choice. Reading through them will help you make the right choices for you.

You could get heavily involved with how your pension is invested - or you could take more of a back seat. It's completely up to you.

When you became a member of the company pension scheme, your money was automatically invested for you. If you don't want to choose what to invest in, this could be a good option for you.

If you don't want to be heavily involved in the ongoing management of your pension savings, lifestyle profiles gradually and automatically move your investments into funds that prepare your pension savings for retirement.

Whichever option you go for, remember it's easy to check how your investments are performing, and to change where your money is invested.

All investments come with a different level of risk, but the level of risk that's right for you depends on a few things - including how long you have until you retire, and how much you need to save.

As well as considering your attitude to investment risk, you should also consider how much risk you're able to take with your investments - keeping in mind your other financial commitments and personal circumstances.

Find out about more about risk - and work out your attitude towards it - with our risk questionnaire.

Although there are many funds available, most of them invest in one or more of four investment categories, known as asset classes.

You should think about investing in a variety of asset classes, and a range of investments within each class.

The main asset classes are:

Equities (also known as stocks or shares)

Investing in equities means you have part ownership on a company. Although they can offer good growth potential, their value can rise or drop sharply at any time. Therefore, equities should normally be viewed as a long-term investment.


Bonds are essentially loans to a Government or company. These loans are often for a set time period and the bond owner usually receives regular interest payments. Some bonds are riskier than others, for example, bonds issued for a longer time period or by companies which are viewed as risky.

Money Market Instruments (including cash)

Money market instruments include deposits with banks and building societies, as well as Government and large corporations. They also include other investments that can have more risk and return than standard bank deposits. Although these are seen as lower risk options, money market instruments can sometimes fall in value.


Property investing includes direct investments in buildings and land, as well as indirect investments such as shares in property companies. Bear in mind that if you invest in property, you might not be able to sell when you want to or get the price you were hoping for.


There are also investments that don't fit into one of these asset class categories. They include direct and indirect investments in real assets like commodities, for example oil or precious metal, and absolute return strategies. There's a variety of absolute return strategies, but in general they aim to give a positive return, regardless of what's happening in the markets. They tend to use derivatives, so funds that include absolute return strategies may have different risks to other funds.

For more information about asset classes, have a look at How to choose the right investment options for your pension (PDF, 837Kb).

Remember, there are no guarantees with investments. The value of an investment can go down as well as up and may be worth less than what was paid in.

Once you’ve chosen the types of investments you’d like to put your money into, you then need to decide how you’d like the money to be looked after.

These are some of your options:


A passive investment aims to track or replicate the performance of an index or indices, for example the FTSE® 100. Generally, if the index your investment tracks performs well, then so should your investment – and vice versa. Passive funds usually have lower charges than other types of funds.


Active investments aim to outperform the market, by investing in companies that the fund managers believe will provide higher than average returns. However, returns are not guaranteed, and there is a chance of poor performance. These investments can go down in value as well as up, more than passive investments, and are usually more expensive.


These funds are normally managed by a single fund manager. The fund manager will choose the mix of assets that make up the fund (for example how much to invest in equities or bonds). Different funds will use different mixes of assets depending on their risk and return objectives.

If you've narrowed down your choices and just need to decide between funds, there are a few things you should consider before you make your final decision.

Fund objectives

All funds have objectives - and you can check to see what a fund's objectives are, and if it has met those objectives in the past, on its fact sheet.

Past performance

It can be helpful to compare the past performance of different funds. You can find past performance information in the fact sheet for the fund.

Please remember that just because a fund has performed well in the past, there's no guarantee that it will continue to do so.

You must also remember that there are no guarantees with investments. Their value can go down as well as up and they may be worth less than what was paid in. This can particularly be the case if you have to cash your investments in while the markets are depressed.

What does it cost?

When you have a pension there are charges for investing in funds. These charges cover the cost of managing your investments.

The amount you will be charged depends on the investments you choose. Find out more about charges here.

Fund switching

There may also be charges for switching funds.