In premium pension terms, risk is a measure of the volatility in the value of a fund. The higher the volatility, the higher the risk.
It is easier to predict the future value of a stable fund that does not fluctuate much in value than a fund that fluctuates widely. Hence, a stable fund offers lower risk.
Diversifying investment risk means not exposing all your assets to the same type of risk. Prudent risk diversification is especially important for people who value investment security over the potential to earn high returns. Mutual funds offer intrinsic risk diversification.
Fixed income funds carry the lowest risk because it is possible to predict their future value more accurately than for equity funds. However, the low level of risk means that returns on fixed income funds are low compared to equity funds. Return in this context means increase in value.
It is impossible to combine low risk with high returns. If you want strong growth in your premium pension you need to take greater risks than someone who is content to see their capital grow slowly. But higher risk does not guarantee strong growth, and the value of your savings can go down as well as up.
Nevertheless, there is a link between high risk and high returns over the long term and it is therefore important to adapt one's investment strategy to the length of the intended investment. Pension plans are usually long-term and can therefore take on a higher level of risk than short-term investments.
