Risk and Reward

When choosing where to invest your money, it's important to weigh up the amount of risk you are prepared to take, in return for potential reward.

Teachers Assurance helps you do this, by the unique way it rates all its funds and products for 'Risk and Reward'. So when you save or invest with us - you always know exactly where you stand.

Generally, the greater the risk you are prepared to take, the greater the potential reward. The reverse is also true, the lower the risk, the lower the potential reward.

• How risky are different investments?

  All forms of investment carry a degree of risk, even when your money is held in cash deposit accounts.

  Savings and investment plans traditionally invest your money in up to 5 main areas, known as 'asset classes'. These are:

  Cash

  Cash deposit accounts attract interest but over time, the purchasing power of cash can be eroded by inflation. They are therefore most useful for short-term cash needs, by which we mean 0-5 years.

  To have a better chance of outperforming inflation over the medium to longer term (5 years plus) you should consider investments that include elements of Government and corporate bonds as well as shares.

  Government Bonds

  Government bonds (known as Gilts) are loans to the Government, which attract a fixed rate of interest. They are considered relatively low risk as the chance of the Government defaulting on the agreement is low. They are traded on the stock exchange and their value can go up and down depending on current and anticipated interest and inflation rates. As they are low risk, the return is also low but will tend to out-perform cash investments over the longer term.

  Corporate Bonds

  Corporate bonds are loans to companies, which also attract interest, usually at a fixed rate. The risk and return associated with a corporate bond will depend on how financially secure the company is and how likely it is that the company will default on the loan. The more likely the company is to default on the loan, the higher the interest rate. Like Gilts, they are traded on the stock exchange and their value can go up and down. At Teachers Assurance, where we invest in corporate bonds, we predominantly choose companies at the lower end of the risk scale.

  Shares (often known as Equities)

  Shares in companies are considered to be the most volatile form of investment. A number of factors including supply and demand, economic climate and in the case of international shares, currency fluctuation, can affect the price of shares quoted on the stock exchange. Income is paid by way of dividends, which are not guaranteed. That said, shares, over the longer term have often significantly outperformed cash, gilts and corporate bonds although future performance cannot be guaranteed.

  Property

  If you choose direct investment in property, you are often looking to receive rent from a tenant - whether this is a private person in a buy-to-let or a sub-letting arrangement or a company in a commercial property. You are also looking for capital growth as the value of the property increases.

  However, you can invest in a pooled investment that invests in a range of properties. These normally invest in commercial properties.

  The commercial property market is different to the residential property market in terms of what causes the price to change. Commercial properties are let out to companies and tend to be on long leases, often 25 years. As a result, the value of the property will often be increased because of the length of the remaining lease and the perception of the financial strength of the company paying the rent. If there is a long lease and a financially strong company paying the rent then the owner of the property has a reasonably safe long-tern rental income.

  As with all other forms of investment the returns from property, whether you invest directly or indirectly via a pooled investment can go down as well as up.

• What kind of risks are we talking about?

  When investing money, there are various types of risk to be aware of. The 4 main risks you need to think about are shown below:

  Inflation risk

  If you hold cash for long periods of time, the effect of inflation can erode your money's buying power. You should consider cash deposit accounts such as cash ISAs (Individual Savings Accounts) and high interest deposit accounts if you wish to save or invest over the short term, i.e. between 1 - 5 years.

  These are widely available from high street banks and building societies but Teachers Assurance does not offer them.

  Also, the effect of investment growth can be reduced by inflation. For example if an investment grows by 6% in a year and inflation is 3%, the real growth in that money is only 3%. That's one of the reasons some people choose to invest more adventurously in stocks and shares, in the hope of doing better.

  Stock market risk

  Stock markets can have their ups and downs and even crash. This means it is possible to lose money as well as make it. This is only a problem if you want to withdraw your savings or investments when stock markets are low.

  Thankfully, what goes down has a habit of coming up again. That's why so many people, businesses and institutions rely on the growing power of shares for their savings and investments.

  You should think about savings and investment plans that invest your money in shares only if you have at least 10 years before you will need it. This gives your money the best chance of growth. Of course, stock market performance cannot be guaranteed so unless your plan offers you a Money Back Guarantee to protect your hard earned money, you should be prepared to remain flexible about when you cash in your plan.

  Currency risk

  Some investments, usually the more adventurous kind, include shares and corporate bonds from abroad. As well as the usual ups and downs, these investments are also subject to foreign currency risk, i.e.that the value of sterling does not compare well to the local currency of the investment.

  You should only think about savings and investment plans that invest your money in international stocks and shares if you have at least 10 years before you will need it back. This gives your money the best chance of growth. Of course, stock market performance cannot be guaranteed so you should be prepared to remain flexible about when you cash in your plan.

  Specialist investment risk

  Some investments, for example ethical funds, invest your money in a very specific way. By choosing a specialist fund, you should be aware that the fund manager will be limited in the choice of investments that can be included in the fund. With a lower number of different types of investment available to include than a more general fund, any movement in individual company share prices is likely to have a greater impact on the overall fund value. These types of fund are generally more suitable to the adventurous investor.

  You should think about savings and investment plans that invest your money in specialist funds only if you have at least 10 years before you will need it back. This gives your money the best chance of growth. Of course, stock market performance cannot be guaranteed, so you should be prepared to remain flexible about when you cash in your plan.

• What investment vehicles do you offer?

  All our investment funds are 'collective' investments. Collective investments (sometimes known as pooled investments) are where a number of investors pool their money together in a fund in order to benefit from economies of scale.

  Professional fund managers are appointed to manage the funds, investing in a large range of gilts, corporate bonds, individual shares and cash, across different industry sectors and markets.

  The benefit of this level of diversity within the fund is that investors are not reliant on one or two particular stocks to do well, spreading the risk.

  The fund's dealing costs are also significantly lower than if you tried to create a portfolio of this nature yourself.

  The proportion of cash, gilts, corporate bonds and shares we hold in each of our investment funds determines the risk rating of each fund. For example, our Cautious Fund is largely invested in gilts and corporate bonds whereas our Adventurous Fund holds much more in shares.

  The pie charts below show the asset mix of each of the Funds as at 31st December 2011. The mix of assets may vary slightly from time to time as market conditions dictate. However, these changes will not affect the risk rating of a Fund.

  See the asset mix for each of the funds in the pie charts below:

  
• How does your risk rating work?

  At Teachers Assurance, we want to help you understand the risk you are taking when you invest with us. To make this easy, each of our funds is given a risk rating. This rating is detemined by considering the asset mix of the fund and takes into account any guarantees that the product offers.

  We use a simple risk scale of 1-5, with a rating of 1 representing very low risk and 5 representing high risk.

  Each risk rating has a written risk profile to help you work out where you feel most comfortable.

  We also include a volatility profile. The volatility profile gives you an idea of the relative ups and downs associated with each level of risk.

  Risk rating	Risk profile	Volatility
  1	Very Low	Low
  You are willing to take a minimal amount of risk only. You do not want to lose any of your capital. You prefer to keep your money in cash based deposits. You understand and accept that inflation could erode the value of your money over time. You understand that Teachers Assurance offers no funds that could be regarded as “Very Low Risk” with the exception of the Investment Bond (Cash Fund): this fund is not recommended for new investment monies. It is an option for existing Investment Bondholders to move to, should they wish to reduce risk in later years.

  Risk rating	Risk profile	Volatility
  2	Low	Low / Medium
  You are only willing to take low levels of risk. You are prepared to accept the potential for only a small amount of capital growth for the greater security of your money. You understand that you could still lose money on a “Low Risk” investment. You understand that Teachers Assurance regard a “Low Risk” investment as one which typically invests: Up to 20% in equity markets (company shares) and the remainder in Gilts, Corporate Bonds and Cash or; Up to 60% in equity markets (company shares) and property with the remainder in Gilts, Corporate Bonds and Cash, but also carries a money-back guarantee on a set date (conditions apply).

  Risk rating	Risk profile	Volatility
  3	Medium	Medium
  You are willing to take a moderate amount of risk. You accept that there will be fluctuations in the value of your investment and that you need to remain flexible about when to cash in your plan, unless the plan carries a money-back guarantee on a set date (conditions apply). You understand that you could lose money on a “Medium Risk” investment. You understand that Teachers Assurance regard a “Medium Risk” investment as one which typically invests: Between 60 - 75% in equity markets (company shares) and property with the remainder in a combination of Gilts, Corporate Bonds and Cash.

  Risk rating	Risk profile	Volatility
  4	Medium / High	Medium / High
  You are willing to take a medium to high level of risk. You accept that fluctuations in the value of your investment will be commonplace and that you need to remain flexible about when to cash in your plan. You understand that, if stock markets fall, you have a greater chance of losing money than with a “Low Risk” or “Medium Risk” investment. You understand that Teachers Assurance regard a “Medium / High Risk” investment as one which typically invests: Between 90 - 100% in equity markets (company shares) and property with the remainder in a combination of Gilts, Corporate Bonds and Cash. You understand that our “Medium / High Risk” funds may carry ‘Specialist Investment’ Risk You understand that our “Medium / High Risk” funds may carry significant ‘Currency’ Risk

  Risk rating	Risk profile	Volatility
  5	High	High
  You are willing to take a high level of risk. You accept that all of your money will be invested directly or indirectly in high-risk investments. Whilst this gives you the potential for high capital growth, it also means you could suffer a high degree of capital loss, should stock markets not move in your favour. You understand that Teachers Assurance offers no products that could be regarded as "High Risk"

• Where do your products fit in the risk rating?

  To make it easy, for each of our savings and investment products you will find a risk rating.

  The table below shows, at a glance, how our funds are rated.

  	Our Risk and Reward Ratings
  	Risk Rating	1	2	3	4	5
  	Risk Profile	Very Low	Low	Medium	Medium / High	High
  	Volatility	Low	Low / Medium	Medium	Medium / High	High
  O U R P L A N S	Tax-Free Savings Plan		With Profits Fund
  	Child's Tax-Free Savings Plan		With Profits Fund
  	Guaranteed Savings Plan		With Profits Fund
  	Unit Trust		Cautious Fund	Balanced Fund	Adventurous Fund Sovereign Ethical Fund
  	ISA/Junior ISA		Cautious Fund	Balanced Fund	Adventurous Fund Sovereign Ethical Fund
  	Investment Bond	Cash Fund	Gilt and Fixed Interest Fund	Managed Fund

• Why choose Teachers Assurance?

  Started in 1877 by teachers - for teachers.

  15,000 teachers a year in 3,000 schools in England and Wales turn to us for financial direction. (And that's excluding other teachers who phone in or email us.)

  No one understands the financial needs of teachers better than us.

  As a mutual friendly society our business is built on helping teachers to:

  • Protect themselves and their families
  • Save for the future
  • Invest efficiently
  • Get the right advice
  • Make confident financial decisions

  To find out more about how we treat our customers go to the following page:

  • About us - See who we are and what you can expect from us.
• What if I need your help or advice?

  If you need our help or advice, please give us a call:

  0800 056 0563
  8.30am to 8pm Weekdays
  9am to 1pm Saturdays

  To help us continually improve customer service, calls may be recorded or monitored.

  Ask us for information

  Our Helpline can answer any questions you have or post you an application pack for any of the products on offer.

  Ask us for advice

  Our expert Financial Consultants can help you choose the most suitable products for your needs, you can ask for personal financial advice over the phone or face to face .

  Ask us for a school visit - Money Talks!

  Book a school visit for one of our Financial Consultants to hold a free financial planning session for teachers in your school.

  Our Consultants are only able to advise on our own products and services and those of selected third parties.

Download our Risk and Reward leaflet.

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