Risk and return

Lesson 2 of 12 in our free Investing Basics guide: a 5-minute money game with the key points below.

This lesson is in the full version.

Free with a code from your uni, college, council, landlord or employer (worth £600/year). Lesson 1 of Investing Basics is free for everyone.

Questions you'll answer

Dex: 'This investment pays 30% a year with no risk.' What's the right response?

Cash in a UK savings account → Lower risk. Value in pounds doesn't fall, and it's protected by the FSCS up to a limit. Inflation is its main risk.
Shares in a single small company → Higher risk. One company can soar or go bust.
A fund spread across thousands of companies worldwide → Lower risk. Still risky — but much less than one company, thanks to diversification.
A brand-new crypto coin a stranger hyped in a group chat → Higher risk. Extremely high risk — and a common scam setup.
Borrowing money to invest → Higher risk. Losses get bigger and you still owe the debt.
Myth: “Past performance tells you exactly what will happen next.” — Past performance isn't a reliable guide to future returns.
Fact: “Cash has a risk too: inflation eating its value.” — No option is risk-free — risks just look different.
Myth: “The riskiest investments always make the most money.” — They have the CHANCE of higher returns — and a higher chance of losses.