Page 17 - BoAML Plan Handbook 17 V2.0

Factors to consider

It is important that you understand your attitude to risk and control when it comes to
making your investment decision. These two pages provide a summary of the things
you should consider.

RISK Missed opportunity risk CONTROL Freestyle
The risk that you are too cautious with your investments, The ‘do it yourself’ approach where you have full control. You choose
Understand more about the meaning that you do not achieve the investment returns you Assess how actively you and manage a combination of the available funds, depending on
different kinds of risk along potentially could if you made different investment choices. can participate in investing how far you are from your Target Retirement Date.
the way and make these your Member Account; Features:
risks work for you. Inflation risk would you like to be in the • You choose what funds to invest in and how much of your
The risk that your investment returns are lower than inflation, driver’s seat or would you Member Account to invest in each fund.
What does risk mean to you? meaning that the true value of your Member Account falls.
Is it the value of your savings This is important to consider if you are planning on accessing prefer to be driven? • You monitor these investments yourself.
falling? Or could it be your savings your savings as cash, or if you invest in lower-risk funds. If you want greater control over • You can change your Freestyle choices when you like.
not keeping up with inflation? investing your Member Account, • There are a range of Freestyle funds to choose from.
Risk comes in different forms Investment or capital risk you might want to consider the See page 24 for details.
and each type of investment has The risk that the value of your investments fall in value. This risk Freestyle approach. Lifestyle
the potential to deliver certain can vary by asset class, but the more investment risk an asset If you are more comfortable
levels of return, but has certain class presents, the more potential it has for higher returns. This is investing in a pre-determined The ‘do it for me’ approach where the funds in which your Member
risks attached. particularly important if you are aiming to grow the value of your investment strategy, then you Account is invested, and the proportions held in each fund, change
Member Account. automatically according to how far you are from your Target
Here is an overview of the might want to consider one of Retirement Date.
different types of risk that • Equities: generate potentially higher returns in the long term, the Lifestyle options.
you should consider when but can carry more investment risk because they can be volatile. You cannot split your Member Features:
deciding how to invest • Property: has slightly less potential for return than equities, Account by investing, for example, • Automatic, pre-determined investment strategy.
your Member Account. can also be volatile in the short term and should be considered • Investments are periodically switched from growth funds with
as a long-term investment strategy. half in Freestyle and half in one higher investment risk into those that take less investment risk
• Bonds: typically yield a fixed return, or ‘interest’ on your of the Lifestyle options – you can in the years leading up to your Target Retirement Date
investment; some returns are linked to inflation. They generally pick only one strategy. (called the Pre-retirement phase).
generate lower returns than equities, but are more stable. • Three options for the Pre-retirement phase of Lifestyle –
• Money market/cash funds: are recommended for protecting depending on how you plan to access your savings at retirement.
the capital value of your Member Account in the short term,
but can still go up and down in value.
Conversion risk

This is the risk that your Member Account, as you approach your
Target Retirement Date, is invested differently compared to how
you plan to access your savings. For example, if you wish to:

• Buy an annuity: your Member Account buys you less annuity
in retirement than you expect because of the way in which
the prices of annuities change relative to the investments you
hold in your Member Account. Investing in bonds and gilts can
mitigate this risk.
• Take your savings as a cash lump sum: the value of your
Member Account you can take as cash lump sum is reduced due
to a downturn in the investment market just as you want to cash
in your savings. Investing in funds with lower investment risk
and higher security and stability can mitigate this risk.
• Drawdown income from your savings and leave the rest
invested: the level of potential growth over the long term in the
funds you hold is not sufficient to provide you with a sustainable
income to drawdown for the period of time nor at the level of
income you require. Investing part of your Member Account in funds
with a higher long-term growth potential can mitigate this risk.

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