INVESTMENT RETURNS AND RISK LEVELS. Your guide

Transcription

1 INVESTMENT RETURNS AND RISK LEVELS Your guide

2 AN INVESTOR GUIDE

3 I WANT TO MAKE THE RIGHT INVESTMENT CHOICES Before you decide how you want to invest your money we want to make sure that you understand how investments could behave, the potential returns and any risks involved. You can use this guide to find out about risk levels and possible returns. It should help you decide what kind of investor you are, what level of risk you are happy to accept and how you want to invest your wealth. 1

4 WE LL HELP YOU DECIDE WHICH OF OUR SIX RISK PROFILES WILL SUIT YOU AS AN INVESTOR 2 4 2

5 WHAT KIND OF INVESTOR AM I? When you re considering investments, it s important to think carefully about your circumstances and ambitions. There is a risk profile for every type of investor, whether you re aiming to grow your wealth or retain your capital for the future. Your adviser will help you discover which profile best suits you. Our risk profiles Our investment team works with six risk profiles covering a range of attitudes to risk, from the Very Low Risk category through to Very High Risk and Above. This guide gives you a summary of the different profiles and also describes the risks and potential returns you can expect from each. At the back of the guide your adviser will also include more in-depth information for the individual risk profiles that may suit you, your circumstances and ambitions. Not everyone fits a single risk category; some investors split their assets over a range of profiles. We ll take a closer look at: Characteristics The typical features of a profile and examples of the types of investments in their make-up. Risk factors What are the risks? Important points to consider before you invest. Potential returns and volatility What level of potential returns you could receive and the fluctuation in investment value you could experience. 3

6 RISK PROFILES, VOLATILITY AND RETURNS RISK CATEGORY VERY HIGH 6 RISK PROFILES Very High Risk and Above You should only choose this profile if you can afford, and are prepared, to risk the entire capital value you invest. These investments carry a very high risk of capital loss but have the potential for a higher return over the long term. They are very volatile and offer no guarantees. 5 High Risk These investments carry a high risk of capital loss but have the potential to deliver high growth over the medium to long term. You should be prepared for your capital value to fluctuate significantly. They do not offer any guarantees. 4 Medium to High Risk Choosing these investments will mean you risk loss of capital but have the potential for relatively good capital growth over the medium to long term. There are no guarantees and you can expect fluctuations in capital value. 3 Medium Risk There is a risk that you will lose some capital value if you choose this profile, but you do have the potential for capital growth over the medium to long term. These investments typically come without any guarantees and will fluctuate in capital value. 2 Low Risk You can expect these investments to come with a modest risk to their capital value. They have the potential for modest capital growth, over the medium to long term. Some products may provide capital protection, some will not. VERY LOW 1 Very Low Risk This is the safest choice of investments. They offer safety for your capital and low growth potential over the medium to long term. Whilst we cannot guarantee this, it is very unlikely that they would fall in actual value but the purchasing power of the money could be significantly affected by inflation. 4

7 EXPECTED VOLATILITY POTENTIAL RETURNS COMPARED TO CASH RISK OF CAPITAL LOSS Very high Substantially exceed Very high Investment volatility and potential returns Each risk profile is likely to show a particular degree of volatility or capital fluctuation the relative rate at which its value moves up and down. High Significantly exceed High If the value of an investment rises or falls by large amounts, it has high volatility. Shares typically have high volatility. If the value only rises and falls a little, or almost never changes, as with a deposit account, it has low volatility. Medium Considerably exceed Medium to high This reflects the potential returns that you could receive investments with the highest levels of volatility typically offer the greatest potential returns over the longer term. Moderate Exceed Medium This table is intended as a guide and doesn t guarantee levels of potential return or volatility: a. there is no guarantee that higher-risk investments will outperform lowerrisk ones, b. there is no certainty that lower-risk investments will be less volatile than higher-risk ones. Limited Slightly exceed Low In this guide the definition for: short-term is less than five years, medium-term is five to ten years, long-term is over ten years. None Comparable Very low To help you understand how these risk profile descriptions could translate into potential changes in the value of money you might invest with us, please see the following page. 5

8 COMPARING RISK PROFILE PERFORMANCE Value of 100k INFLATION (RPI) 1 VERY LOW RISK INVESTMENT 2 LOW RISK INVESTMENT 3 MEDIUM RISK INVESTMENT 4 MEDIUM TO HIGH RISK INVESTMENT 5 HIGH RISK INVESTMENT The graph shows the comparative performance of typical investment portfolios aligned to our risk profiles compared to the effect of inflation. We have chosen to exclude a summary of the profile performance for the 6 Very High Risk and Above profile due to an absence of industry-standard benchmarks which can be used to represent the risk-return characterisitcs of such a diverse and volatile range of asset classes as qualify within this risk profile. To help you understand this graph we have highlighted an example. If you had invested 107,000 into a 3. Medium Risk Investment on the 31 October 2007 and sold it on 28 February 2009, your investment would be worth 86,000 at the time of sale, a loss of 21,000. Whereas, if you had held onto your investment and sold it on 31 December 2016, your investment would have been worth 184,000 at the time of sale, a gain of 77,000. This demonstrates how investments can fluctuate and shows how the length of time an investment is held for can significantly affect the outcome. You can also draw similar conclusions for any of the risk levels and time periods to help you understand the relative levels of risk to your money. The figures are based on past performance which isn t a reliable guide to the future and only aim to illustrate the potential outcomes. The actual performance of your portfolio could be better or worse than that shown. Please see opposite for the Key Assumptions that have been made in producing these figures. 6

9 KEY ASSUMPTIONS ON MODELLING The figures shown aim to illustrate the relative performance of typical investment portfolios aligned to our risk profiles since 31 December They are not minimum or maximum figures and individual investments may have performed better or worse than those shown. All figures are on a total return basis (i.e. they assume any income or interest received was reinvested and they do not include any deductions or allowances for charges or tax). To illustrate the impact of inflation we have used the Retail Prices Index (all items, not seasonally adjusted) this is the amount your money would need to grow by to maintain its purchasing power. For 1 Very Low Risk investments we have considered the average rate of interest paid by UK Financial Institutions on sterling fixed-rate deposits. Some accounts may have offered more or less than this but it represents a good indication of the general rates available. For each risk profile we have looked at the performance of a weighted basket of indices that represents typical asset allocation strategies used within the categories as at 31 December These indices are selected based on their ability to faithfully reflect the performance of the underlying asset class equities, bonds or property and on the ease of their availability. The selection is kept under review to ensure it remains appropriate, suitable and relevant. Further details are available on request. (Sources: Bank of England, Thompson Reuters Datastream, Bloomberg 31/12/16) 7

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11 Important information Our line is open Monday, Wednesday and Friday 9am 5pm, Tuesday and Thursday 9am 7pm, Saturday 9am 1pm. Eligible deposits with us are protected by the Financial Services Compensation Scheme. We are covered by the Financial Ombudsman Service. Lloyds Bank plc Registered Office: 25 Gresham Street, London, EC2V 7HN. Registered in England and Wales, no Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority under number All information correct as at April 2017.

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