Risk ratings

A_Flock_Of_Sheep

On key investor info sheets the investment risk is rated 1 to 6. VLS 60/40 is rated at 5. IPHI at 6. What investments are rated at 1, 2 and 3?

Lokolo

Cash is 1.

I didn't think they were 1-6? I thought they were 1-7?

A_Flock_Of_Sheep

Lokolo wrote: »

Cash is 1.

I didn't think they were 1-6? I thought they were 1-7?

Yeh I mean 7. I think unusual ones like Turkey smaller companies are 7.

I was just puzzled what 1 2 and 3 were. I know a VLS 40 equity 60 fixed income is 4.

So why don't savings account leaflets show as 1 on their marketing blurb? Surely inflation risk would make cash more than 1?

puk999

I don't know the answer but here's a couple of funds with low risk ratings:

Rating of 3: AXA Sterling Credit Short Duration Bond

Rating of 1: Fidelity Gross Accumulating Cash Fund

Linton

They are 1-7

Looking at a few funds on trustnet for you

Typical fund sectors for risk rating
1 - cash
2 - defensive gilt
3 - multi-manager, some absolute return

If you go to trustnet you can sort by their risk rating. However there is only a rough correlation between the Key Doc risk rating and trustnet's.

Linton

A_Flock_Of_Sheep wrote: »

.....
So why don't savings account leaflets show as 1 on their marketing blurb? Surely inflation risk would make cash more than 1?

"Risk" in investments is more about volatility than long term worries.

talexuser

A_Flock_Of_Sheep wrote: »

Surely inflation risk would make cash more than 1?

Inflation risk on cash is slow and relatively small compared to an overnight stock market crash. Safest cash might be inflation linked government bonds but maybe not if the government is Cyprus!

grizzly1911

Probably because most punters first port of call is relative return.

Increased return usually comes with increased risk.

Start looking for sub 1-2% return and you will find some of the lower ratings.

Will a diverse mix of higher ratings will work to reduce the overall level of risk of a single investment and point of single failure as long as they are run in parallel?

It is a shame the popular research sites like trustnet/morningstar etc don't publish the KIID document risk ratingprominently on their own summaries.

bowlhead99

Well, inflation will typically hit the real value of other assets just like it hits cash. If you get 3% on a cash account versus 3% on a conservative investment fund, whatever route you take you get to the same value - and so your 103 after a year is still worth less than 100 in real terms if inflation is running at 4.

The difference is that the things that drive inflation will drive the performance of tangible non-cash assets upwards, and the investment fund will be generally hopefully deliver more than 3% if inflation is 4. So those other asset classes have an element of inflation protection but when you get your end result of 102 or 104 or 110, it's still not as good as 102 or 104 or 110 would be today.

You ask what is an example of a 3 if Vanguard 40% equity 60% fixed interest is a 4. Well, Vanguard 20% equity 80% fixed interest is a 3.

Generally the lower volatility the lower the risk scale. As mentioned on all the KIIDs, a risk rating of 1 does not mean risk free. So for example a cash money market fund might be given a 1 and split its assets between multiple institutions giving very nominal return over costs and fees, but something could still go wrong. While perhaps cash in your own bank account with FSCS protection and no intermediate counterparties, would be 'sub 1' by some measures, due to the cheap insurance.